Bank credit system of the Republic of Kazakhstan

TABLE OF CONTENT

 

 

Introduction           

 

ChapterI.Role and objectives of modern Central Banks

  1.1 An historical overview: original central bank function and their evolution

  1.2 Role and function of Central Banks

 

ChapterII. Role of the National Bank

2.1 Role of the National Bank

 2.2 The current situation of banking system of the Republic of Kazakhstan

 

ChapterIII. Problems and perspectives of development

of banking system of the Republic of Kazakhstan

3.1 Problems and perspectives of development

       of banking system of the Republic of Kazakhstan

 

Conclusion                      

References                

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

 

        Today, central banks are public policy institutions whose main goals are to preserve monetary stability and promote financial stability. They provide the core components of payment systems: banknotes for use by the general public and settlement services for banks via accounts at the central bank. They also often manage the country’s gold and foreign exchange reserves. In cooperation with other authorit ies, central banks also play a major role in the oversight and development of the financial system.

Central banks have performed a multitude of other tasks, several of which remain part of the central bank’s functions in many countries. They often supply banking services and asset and debt management services for the state; and they sometimes provide analysis and advice regarding economic and development policies more generally.

In this work I will try to consider functions and methods of the central bank at monetary and credit policy carrying out, and also I will mention world experience of use of tools of the given policy.

At a present stage bank systems have appeared in epicenter of influence of two long-term processes: radical perfection of technologies on the basis of large-scale introduction of the automated systems of processing of the information and long-distance communication means in bank activity; decrease in barriers on economic and political borders. These processes open new possibilities for development of system of payments and expansion of the financial markets. At the same time they influence change of the administrative structure which part is the central bank with the special role in regulation of these processes.

The central banks have wide enough and various powers in areas:

- Regulation and control over activity of banks on a securities market;

- Currency control;

- Information of bank activity;

- The economic analysis and statistics;

- Safety and protection of the information, etc.

The theme urgency proves to be true that the role of the Central Bank in economy of Kazakhstan is difficult for overestimating, especially today, when the thought over credit policy is especially necessary: rigid regulation of the rate of exchange, maintenance of home producers by their crediting, and as a result, prevention of an impoverishment of various strata of society.

The purpose of the given work is consideration of problems, functions of the National Banks of the Republic of Kazakhstan , and its role in market economy of Kazakhstan.

In a theoretical part of the given work, namely in the first chapter, will be considered: Role and objectives of modern Central Banks, An historical overview: original central bank function and their evolution and Types of main operations of providing by Central Banks.

The second chapter is devoted a role of the National Bank in economy of the Kazakhstan and The current situation of banking system of the Republic of Kazakhstan.

In a practical part of the given work describe Problems and perspectives of development of banking system of the Republic of Kazakhstan.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chapter I. Role and objectives of modern Central Banks

 

        We begin with an overview of the role and objectives of central banks - specifying tasks and setting objectives are at the core of any governance arrangement. Tasks and objectives cluster around central banks’ macroeconomic and financial stability objectives. At the same time, central banks have to be organized to carry out various other public policy and service tasks that variously meet the needs of government, the financial system and the public.

       The central bank is nowadays primarily an agency for monetary policy. It usually also has important financial stability functions, and those become more prominent during times of financial turmoil. The structure of those roles, the responsibilities given, and the range of other functions allocated vary between countries.

                    

                     Figure 2 shows Weight of central bank objectives in central bank laws

 

         The primary objective of monetary policy is price stability, which constitutes a pivotal framework condition for economic activity. Price stability ensures that consumers and businesses can make their economic decisions under stable and predictable conditions and thus has a positive impact on economic activity and employment. To obtain price stability and to assess whether or not it has been achieved, a clear definition of the price stability objective is needed. Monetary policy also has short-term effects on the economy, as key interest rates can be raised in times of economic booms when the economy threatens to overheat and thus endangers price stability. During economic downturns, in contrast, cuts in the key interest rates can help stimulate investment and consumption.

Monetary policy is concerned with the changes in the supply of money and credit. It refers to the policy measures undertaken by the government or the central bank to influence the availability, cost and use of money and credit with the help of monetary techniques to achieve specific objectives. Monetary policy aims at influencing the economic activity in the economy mainly through two major variables, i.e., (a) money or  credit supply, and (b) the rate of interest

         Financial stability: Formal central bank responsibility for the stability of the financial system as a whole - as distinct from oversight and supervision of specific institutions or markets or service providers - is becoming increasingly common. Only a minority of central banks are assigned such a responsibility within their own law. Nonetheless, given the public importance of financial stability, the absence of any other agency with responsibility for it, and the collection of related functions undertaken by central banks, virtually all central banks without the responsibility in law assume that they have it in practice.

           Financial stability as a situation where the financial system operates with no serious failures or undesirable impacts on the present and future development of the economy as a whole, while showing a high degree of resilience to shocks.

           Specifying a financial stability objective involves confronting many of the issues discussed in relation to the monetary policy objective. ― Financial stability‖ is also somewhat incomplete as a guiding light for policy actions and as a basis for accountability. Financial stability is not an absolute objective - most economists would agree that financial variables should be flexible, and should change, and sometimes sharply. The question is by how much and in what circumstances. Nor is there a generally agreed way of measuring financial stability, which makes it especially difficult to identify how much financial stability is intended and whether the appropriate amount has been achieved.

           Employee welfare means “the efforts to make life worth living for workmen.” According to Todd “employee welfare means anything done for the comfort and improvement, intellectual or social, of the employees over and above the wages paid which is not a necessity of the industry.”

                       Economic growth can be enhanced by investment in capital, such as more or better machinery. A low interest rate implies that firms can loan money to invest in their capital stock and pay less interest for it. Lowering the interest is therefore considered to encourage economic growth and is often used to alleviate times of low economic growth. On the other hand, raising the interest rate is often used in times of high economic growth as a contra-cyclical device to keep the economy from overheating and avoid market bubbles.

 

    1. An historical overview: original central bank function and their evolution

 

     To some extent, the functions and character of modern central banks reflect history. But the majority of central banks are comparatively new (Figure 1), having been created by governments to fulfill a range of tasks befitting a mid-20th century concept of economic management. And key older functions of central banking, such as monetary policy, are now somewhat different than they were in the early days of central banking.

 

            

The earliest progenitor central banks were the dominant issuers of banknotes and bankers to the government. Indeed, often these functions went hand in hand. Dominance over note issuance – which frequently resulted from privileges bestowed by governments – usually gave these central banks sufficient scale to be the natural choice for government banking business. And scale also provided the ability to on lend a fraction of the issuance proceeds to government. The Austrian National Bank, the National Bank of Denmark, the Bank of France, the Bank of Italy, the Bank of Portugal and the Bank of Spain, among others, were founded in efforts to restore monetary stability and the credibility of banknotes after periods of over issuance and collapses of convertibility. Pursuit of monetary stability and a credible currency system indeed lay at the heart of early central banks, though in a somewhat different manner than now. Interest rates were adjusted by these banks in a way that preserved stability, but the motivation was survival – to maintain the fraction of notes backed by specie and thus remain sufficiently liquid to service all obligations – rather than some wider macroeconomic interest. On the few occasions when convertibility was suspended as a matter of regime choice rather than expediency, attempts at active monetary policy management foundered more on lack of knowledge than anything else (Flandreau (2007)). Over time, these dominant banks became bankers to the banking system. For commercial reasons, the dominant bank would occasionally lend to customer banks to cover temporary shortfalls in liquidity, an activity that brought with it a natural interest in the health of the customer banks. Both these lender of last resort and the informal banking supervision functions fell somewhat short of what we now understand by the terms, since they were driven by commercial self interest rather than some a public-good objective.

Fundamental changes in the late 19th and early 20th century linked these original central banking functions more directly with public policy objectives. The transformation of objectives, rather than functions, was the key change. To be sure, early central banks were often established for public-good reasons. Besides restoring monetary stability after a crisis, such reasons were to integrate fragmented private note issuance (for ―good order‖ or efficiency of exchange reasons or, as in Germany and Italy, to support political integration); to promote financial development (eg in the case of the Sveriges Riksbank, sustaining the emergence of banking); and to improve trade financing in Belgium and the Netherlands. However, these public goods were not their sole purpose. Discussions of central banks during the 19th century increasingly emphasized their impact on the national welfare. Bagehot’s treatise on the lender of last resort function focused on rules of the game that would work in the interests of the system as a whole. The introduction of the gold standard clarified the expectation that the central bank would ensure convertibility for the good of the nation, an objective that gradually came to include international cooperation among leading central banks. Associated with this transformation was the dropping of commercial objectives. Before the 20th century, central banks were all established as profit-making entities. The potential for conflict between public policy objectives and financial interests was clear. Last resort lending raised the issue of neutrality in dealing with one’s commercial rivals. Similar issues arose in terms of monetary management, as it became evident that the dominant banks were usually more profitable during periods of monetary and financial instability. Most 19th century central banks had withdrawn from, or been excluded from, commercial business by early in the 20th century, although the Bank of France and the Netherlands Bank continued to conduct extensive commercial business through to the end of the 19th century. Prompted by economic crises between the wars, the breakdown of the gold standard, and changes in thinking about the role of government in economic management, the transformation of central banks into public policy agencies was completed by the early 20th century. Central banks were to manage the new monetary order, though without a mechanical standard to adhere to. Despite the as yet unproven ability of central banks to restore monetary stability, countries that did not yet have them were urged to create them as an essential part of the state’s macroeconomic toolkit. And nationalization of the central bank followed in many countries where it was not already owned by the state. As the public policy focus came to predominate, the breakdown of the gold standard caused the nature of the monetary policy function to change. Without convertibility rules or limits, countries came to have the choice – via their central banks – of how best to maintain internal and external values of their national currencies. How that choice is exercised is at the core of the modern central bank The oversight and regulation function became increasingly formalized and direct, pushed also by shifting attitudes towards the role of government in intervening to regulate and guide economic activity. The creation of the Federal Reserve System in the United States, with extensive regulatory and directive powers, owes much to these considerations. In Europe, especially after the Second World War, central banks such as the Austrian National Bank, Bank detacher Lander (the forerunner of the Deutsche Bundesbank), the Bank of Italy and the Netherlands Bank were given formal responsibility to oversee banks (through required balance sheet ratios and other directives). Changing attitudes towards the role of government and of direct intervention also led to the acquisition of an economic development function. Both directly and via the banking system, many central banks began to subsidies the financing of economic sectors that were targeted by governments seeking more rapid industrialization. Often, preferential treatment involved the direct provision of banking services – especially capital and trade financing – to enterprises in targeted sectors and in particular, state-owned enterprises.

 

                                1.2 Role and function of Central Banks

         The functions of a modern central bank. By the end of the 20th century the monetary policy function clearly dominated the public perception of central banking activities, notwithstanding the continuation of numerous other functions of great significance to the effectiveness of financial systems and monetary exchange. Especially in the advanced economies, direct regulatory instruments were mostly dropped in favor of market-based instruments as financial systems developed and matured. Banking system oversight and regulation had evolved substantially. Regulation of access to the intermediation market was scaled back, in advanced economies especially. However, the oversight component prompted the development of the formal supervision and inspection of banks. More recently, in some countries, the supervision function has been shifted from the central bank to other agencies in favor of a more generalized financial stability objective for the central bank

          Table 2 sets out central banks’ self-assessments on the functions that they discharge, taken from the BIS Survey 2008 (BIS (2008b)).11 Cells are coloured in the form of a ―heat‖ map, with colors indicating the degree of central bank involvement in the function.12,13 The color scheme is continuous but can be illustrated by the following four steps:

– white: no involvement;14

– light orange: has only an advisory role for a function discharged by others or undertakes aspects of a function at the instruction of others;

– mid-level orange: partial involvement or shared responsibility requiring a substantial degree of consultation with others; and

– dark orange: full responsibility, i.e. undertakes the function essentially autonomously as the lead public sector agency.

In most cases, the functions reported in Table 2 are an amalgam of sub functions. Where differences across sub functions are relevant, they will be highlighted in the discussion below.

Examination of Table 2 immediately reveals a number of activities that are common to central banks today, whether older institutions in advanced economies or newer ones in either advanced or emerging economies. With respect to monetary stability, all central banks have a high level of responsibility for monetary policy – not surprisingly, given that the defining characteristic of the central bank is that it is an agency for monetary policy. Apart from monetary policy, the most common functions relate to the provision of core financial infrastructure – that necessary for an efficient monetary exchange system – and to the financial operations involved in ensuring monetary and financial stability. Broadly speaking, central banks from emerging market economies have a wider range of functions than central banks from industrialized economies (see Box 2 and Figure 3).

The organization of the discussion of current central bank functions proceeds as follows. Initially, some further comment is made on individual functions, treating them in isolation from other functions. The discussion is selective, with most attention paid to functions in which the degree of central bank responsibility varies the most. This discussion is organized under the six headings set out in Table 2. However, many of the important governance issues relate to interactions between functions. Those issues are taken up in Section 5, ―Good or Bad Bedfellows?‖

            

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                 ChapterII. Role of the National Bank

   On currency, drafts and implements with the cooperation of the Ministry of

Finance the 30 March 1995 the President's Decree having the force of law on the

National Bank (NB) of the Republic of Kazakhstan was issued (Ukaz 3.03.95). The NB is the central bank and forms the upper level of the banking system. The National Bank, according to the President's Decree ensures the internal and external stability of the national currency, drafts and implements the state monetary policy with the cooperation of the Ministry of Finance and protects the interests of bank depositors and creditors. The Decree provides for direct reporting of the National Bank to the President and a necessary independence of the National Bank from the current governmental agenda.

The main goal of the monetary and credit policy is control over the money supply and suppression of inflation. The National Bank uses the following classic monetary and credit tools: 

- regulation of refinance credit amounts provided by the NB to commercial banks, 

- basic refinance rate regulation,

- mandatory reserves mechanism,

- transactions with state treasury securities,

- interventions in the currency market.

The refinance rate fell along with the reduction in inflation. The 3-months credit rate was decreased from 176 per cent in January 1995 to 52 per cent in December. Since 27 March 1996, the refinance rate was 44 per cent. The National Bank tries to keep the refinance rate positive in real terms in order to encourage the inflow of private deposits to the banks. However, refinance rate reduction does not result in a rapid enough reduction of lending interest rates to the full extent by the banks. The reasons are first, their desire to gain short-term profits, and second, lack of real competition in the capital market. The level of mandatory bank reserves was reduced after 1 April 1996 from 20 to 15 per cent. After July 1, the banks will be paid 50 per cent of the refinance rate if they have reserve account balances. This will allow them to expand their credit activities. Moreover, the banks will be able to offer depositors better interest. On the other hand, this action may result in an increase in the money supply and, under further industrial decline, to greater inflation.

The National Bank participates actively in the securities market operation as the governmental agent for primary allocation and servicing of the 3- and 6-months state treasury bonds (STB). In the future, one-year STB are to be issued. Thus secondary adequacy ratio and with comparative tables for assets and liabilities. Banks are fully responsible for the reliability of the data provided. Moreover, the NB carries out complex monitoring of banks' activities in the currency exchange, bills of exchange auctions, and interbank markets, with a day-to-day review of their correspondent accounts which allows it to assess quickly and analyze the banks' financial situation, identify potential problems, and undertake the necessary measures in a timely manner.

In 1994 and 1995 the NB of Kazakhstan issued about T 34.9 billion in different forms of centralized credits which is more than 60 per cent of its credits to commercial banks (see Table 4). The borrowers for this program agreed to credit length and terms with the government, the NB, and local authorities. In general, the banks played the role of passive money conduits for such credit. The majority of such funds (91 per cent) was provided to cover the state budget deficit and grain purchase.

It is necessary to emphasize that the broad use of centralized loans slows down the process of banking sector reform since these loans do not require a development of activities usually related to bank crediting such as deposit and credit assessment. The specific credit allocation more reflects political power and the negotiation skills of the borrowers than economic considerations.

  The NB of Kazakhstan used centralized credit programs for two purposes: to ensure liquidity of the banking system and to support individual enterprises and different industries. Unfortunately, the centralized credits are not an efficient way to achieve any of these goals and should be totally replaced in 1996 by the “discount window” at interest rates that ensures more rational credit utilization, or by credit auctions. As a rule, discount windows or credit auctions do not result in discrimination against any banks or industries as the directive credit programs do.

  The NB gradually reduces the amount of refinance credits. Since 6 February 1995 directive credits have not been extended. They were replaced by centralized credits which are distributed through auctions and extended for one, two or three months. Provision of the six-month credits was canceled since the refinance credits are intended to resolve short-term liquidity problems, not to be used as a primary economy funding means as was practiced earlier. 

  The credit auctions procedure, however, is more complicated than the “discount window”. Bid transmission from the banks is technically difficult and deprives small and distant banks of participation opportunities. Besides the procedure takes much time since the NB has to assess the bids and to ensure that there is no secret agreement between banks. And, last but not least, collateral is necessary. In developed countries, only state securities can serve as collateral. In Kazakhstan this is practically impossible. Therefore, the NB could allow banks to use some types of commercial loans as collateral during a transitional period.

   In the transitional economy with its weak and underdeveloped banking system, the NB's interference is necessary as a financial markets' organizer. During 1994 the organized interbank currency market successfully formed. Since the first quarter of 1995, primary and secondary state securities markets and an interbank money market started to form. In December 1994 the NB Executive Board approved the Provision on Transactions for On-call Loans Provision and Repayment: on-call loans are interbank credits extended for a period under 30 days. Based on the results of the daily interbank short-term credit auctions, the average interest rate in December 1995 fluctuated between 39 per cent for one-day T 60 million loan and 68 per cent for 30-day T 100 million loans. The players in this market include only large and reliable banks, and they are subject to certain checks by the NB so that the money can be written off the banks' correspondent accounts unconditionally.

  In the first quarter of 1996, the NB drafted the Law on Currency Regulation. The major objective of the new version is further currency market liberalization.

  Only the second-tier commercial banks that have complied with the NB economic rules and standards during the previous period are allowed to participate in the NB credit auctions which are organized no less than twice a month. The introduction of the lombard credit system is planned; the NB will extend loans to commercial banks against the collateral in the form of securities, particularly treasury bonds.

  In 1995 the precious metals' market started to operate. It allows local commercial banks to purchase precious metals from Kazakhstan producers, to sell them, or to perform other transactions. At present, seven banks have acquired NB licenses for precious metals' transactions.

The commercial banks are also active in the market of state treasury bonds and short-term NB notes. In the majority of auctions, the demand exceeds supply greatly regardless of the constantly reducing income rate. The reason is the high reliability and liquidity of state securities.

The banking system's development was affected by a reduction in the centralized NB credit amount and the inflation rate. The banks lost a source of income in the centralized risk-free credits and started to earn profit ardently on their own money or money acquired through the auctions at a really positive interest rate. (Earlier, due to inflation, the interest rate was really negative.) Stricter NB reserves requirements, assets, liabilities and risk management, and numerous precedents of license revocation, bank closing, and liquidation urged banks to change their behavior. They began to realize the impossibility of activities based on the high risk for themselves and their clients. They started to diversify services in different financial markets including the market for regional debt obligations [see 11].

 

2.2 The Current situation of banking system of the Republic of Kazakhstan

For January 1, 2012 38 second-tier banks operate in Kazakhstan, including the city of Almaty where are registered 35 banks, 34 branches and 378 additional premises of banks, in 2011 the number of banks was 39, and in 2010 - 38, increase in the number of banks is due to an improving economic situation in the Republic of Kazakhstan. More detail the structure of the banking system of Kazakhstan can be observed in table 1.

 

Table 1 - Structure of the banking sector, [6]

Indicators:

Jan 1. 2010

Jan 1. 2011

Jan 1. 2012

Number tier two banks, incl.:

38

39

38

banks with 100% of authorized capital owned by the Government

1

1

1

Number of tier two banks’ branches

374

365

378

Number of tier two banks’ cashier settlement desks

1925

1881

1893

Number of tier two banks’ representative offices abroad

17

17

14

Number of non-resident banks’ representative offices in the Republic of Kazakhstan

32

29

29

Number of participant banks in mandatory collective insurance system for individuals’ deposits

36

34

35

Number of banks licensed to engage in custodian activity

11

10

10


         Table 1 shows that on January 1, 2012 there was an increase in the number of tier two banks’ representative offices abroad, number of non-resident banks’ representative offices in the Republic of Kazakhstan, number of participant banks in mandatory collective insurance system for individuals’ deposits, number of banks licensed to engage in custodian activity.  
Next, let’s consider the structure of assets of two-tier banks, of liabilities of two-tier banks, of capital of two-tier banks, of liquidity and profitability of the banking sector.

For 2011 the banks’ total assets increased by 790.3 bln. tenge (6.6%). Borrowing formed in accordance with the requirements of the authorized body increased by 562.3 billion or 21.3%

Table 2 - Structure of total assets of the banking sector, [7]

Indicators:

Jan 1. 2010

Jan 1. 2011

Jan 1. 2012

bln. tenge

bln. tenge.

bln. tenge.

1

2

3

4

Cash, refined precious metals and correspondent accounts

1 037,0

845,6

1 396,4

Deposits in other banks

1 072,1

1 002,6

604,0

1

2

3

4

Securities

1 779,7

2 221,7

1 859,0

Bank loans and reverse Repo

9638.9

9 065,9

10 425,5

Capital investments

290.6

376,1

381,0

Reserves (provisions)

-4 002.3

-3 202,9

- 3 765,2

Other assets

1739.3

1 722,5

2 039,6

Total assets

11557.3

12 031,5

12 821,8


 

The banks’  asset mix shows the prevalence of loans to customers, followed by cash, refined precious metals and correspondent account balances, securities portfolio, deposits in other banks.

As of January, 1st, 2012 the bank sector is presented by 38 second-tier banks. Actives of banks of the second

Level in comparison with the similar period of 2011 bank loans have increased for 790,3 billion tenge or on 6,6 %, and

Operations « the return REPO » for the considered period also have increased for 1 359,6 billion tenge or on 15,0 %, reserves (provisions)

Under the loans, generated according to requirements of the authorized body have increased for 562,3 billion tenge or on 21,3 %.The size of actives and the conditional obligations which are a subject classification for 2011 has increased for 1 318,1 billion tenge or on 9,5 %. Provisions on actives and conditional obligations (generated under requirements of the authorized body) have decreased on 435,2 billion tenge or on 10,6 %.The loan portfolio of second-tier banks RK has increased for 2011 for 1 377,0 billion tenge or on 15,2 %. Standard Loans have increased for 301,3 billion tenge (12,6 %), doubtful have increased for 621,3 billion tenge (12,8 %), hopeless have increased On 454,4 billion tenge (25,0 %). Provisions under the loans generated under requirements of authorized body have increased on 530,5 billion tenge (18,9 %).

Figure 1 - Structure of assets, [see 7]

 

The largest share of the asset structure falls on Bank loans and reverse Repo as they bring great profit (figure 1).

During  2010, total liabilities of two-tier banks have increased by 2,255.1 bln. tenge. (that is by 28.2%), and totaled 10,256.7 bln.tenge, as of the end of the reporting period (table 3).

 

Table 3 - Structure of total liabilities of the banking sector, [7]

Indicators:

Jan 1. 2010

Jan 1.

2011

Jan 1. 2012

bln. tenge

bln. tenge.

bln. tenge.

Interbank deposits

237.0

548,5

491,3

Loans from other banks and institutions engaged in certain types of banking operations

1247.5

1450.2

1247.5

Loans from the Government of the Republic of Kazakhstan

47.5

58,4

72,2

Loans from international financial institutions

98.7

77,8

54,9

Corporate deposits

4066.5

4 574,4

5 033,5

Retail deposits

1937.4

2 250,9

2 764,1

Special-purpose deposits of subs (SPV)

1795.5

25,4

1,5

Outstanding securities

1307.6

1 577,2

1 498,1

Repo securities transactions

534.7

577,2

497,0

Other liabilities

1264.4

810,4

997,3

Total liabilities

12536.8

10 715,2

11 516,3 


 

Cumulative obligations of second-tier banks RK for 2011 have increased for 801,1 billion tenge or on 7,5 %. In structure Obligations there was an increase: contributions of the legal entities on 459,0 billion tenge or on 10,0 % and contributions of physical bodies - on 513,2 Billion tenge or on 22,8 %. Contributions of the affiliated organizations of special purpose have decreased for 23,9 billion tenge

Figure 2 - Structure of liabilities, [7]

 

The largest share of the liabilities structure falls on corporate deposits and SPV as they are based on large sums of money.

Line-item change in capital for 2010-2012 is presented in Table 4.

 

 

 

 

Table 4 - Calculated own capital of two-tier banks, [see 7] 

Indicators:

Jan 1. 2010

Jan 1. 2011

Jan 1. 2012

bln. tenge

bln. tenge

bln. tenge

1

2

3

4

One-tier capital

958.0 

1 418,5

1 491,8

Authorized capital

797.5

2 448,6

2 564,3

Supplementary capital

4.5

9,3

16,0

Two-tier capital

312.2

451,5

520,4

Subordinated debt

366.1

503,2

511,2

1

2

3

4

Tier three Capital

1.1

2,4

1,6

Investments of banks

0.4 

50,6

50,6

Total calculated own capital

1270.9

1 821,4

1 961,4


* negative value of the calculated own capital is connected with decrease of own capital of BTA Bank, JSC and Alliance Bank, JSC

**data across the system is given without BTA Bank, JSC and Alliance Bank, JSC.

 

Year 2010 to date, total estimated equity of tier two banks has increased by 611.6 bln.tenge (52.3%) to reach 1780,2 bln. tenge as of January 1, 2011. Herewith, tier one capital increased by 57.3% to reach 1284.0 bln. tenge, while tier two capital increased by 45.0%, i.e. up to 558.9 bln. tenge.

Indicators:

Jan 1. 2010

Jan 1.

2011

Jan 1.

2012

bln. tenge

bln. tenge

bln. tenge

Current liquidity ratio k46

(min value 0.3)

1.1

1,040

0,927

 

5.9

5,722

6,873

Quick liquidity ratio k4-1 (min value 1)

Quick liquidity ratio k4-2 (min value 0.9)

3.2

3,311

3,395

Quick liquidity ratio k4-3 (min value 0.8)

2.4

2,476

2,444





Total estimated own capital of second tier banks increased by 167.7 bln.tenge (9.4%) from the beginning of 2011 and reached 1 947.8 bln. tenge as of 1 January 2012. Herewith, tier 1 capital increased by 18.8% and reached 1 525.1 bln. tenge while tier 2 capital decreased by 11.4% till 495.1 bln. tenge.

Tier one capital decreased by 2580.4bln. tenge, authorized capital by 397.6 bln. tenge, supplementary capital decreased by 0.4 bln. tenge, tier two capital decreased by 182.9 bln. tenge, subordinated debt increased by 24.8 bln. tenge, tier three Capital increased by 0.2 bln. tenge, investments of banks increased by KZT 99.3 bln.tenge.

Because of restructuring of BTA Bank, JSC the total calculated own capital of 2-tier banks of RK  for 2009 has negative amount. BTA bank’s shares were bought by state so the capital of this bank decreased. But if we don’t take it into consideration the total calculated capital for January1, 2010 is the least but positive.

 

Table 5 - Change in liquidity of the banking sector, [see 7]

*data across the system is given without BTA Bank, JSC and Alliance Bank, JSC.

 

In table 5, as of 1 January 2010, the liquidity of the banking system remained at excessive level. Composite current liquidity ratio, as of 1 January 2010, was 1.1 (vs. minimum standard for a particular bank of 0.3), short-term liquidity ratio was 0.97 (vs. minimum standard of 0.5).

As of 1 July 2010 the amendments in liquidity norms have come into force, aimed at regulation of term liquidity and term currency liquidity (up to 7, 30 and 90 days).

As of 1 January 2011 there wasn’t any violation of term liquidity and term currency liquidity coefficients (considering liquidity norms changes). Herewith, As of 1 January 2011 in banking system there are: coefficient of term liquidity up to 7 days (k4-1) constituted 5,722 (vs. minimum norm 1); coefficient of term liquidity up to 30 days (k4-2) constituted 3,311 (vs. minimum norm 0.9); coefficient of term liquidity up to 90 days (k4-3) constituted 2,476 (vs. minimum norm 0.8).

Composite current liquidity ratio, as of 1 January 2012, was 0.927 (vs. minimum standard for a particular bank of 0.3), coefficient of term liquidity up to 7 days (k4-1) constituted 6,873 (vs. minimum norm 1); coefficient of term liquidity up to 30 days (k4-2) constituted 3,395 (vs. minimum norm 0.9); coefficient of term liquidity up to 90 days (k4-3) constituted 2,444 (vs. minimum norm 0.8).

 

Table 6-Summary performance indicators reflecting the earnings of the banking sector [see 7]

Indicators:

Jan 1. 2010

Jan 1. 2011

Jan 1. 2012

bln. tenge

bln. tenge

bln. tenge

Net income before tax to total assets (ROA)

-24.06

11,96

-0,08

Net income before tax to equity (ROE)

-1192.63

2 920,83

-0,72

Interest income to total assets

11.04

8,78

8,23

Interest income on loans to total loan portfolio

11.87

9,72

9,60

Interest expense to total liabilities

7.43

6,23

5,55

Provisioning expenses to total assets

50.27

 

18,3

20,41

Bank credit system of the Republic of Kazakhstan