Bank regulation: necessity, essence and main directions
Theme:
Bank regulation: necessity, essence and main directions
Table of content:
Introduction
Chapter I. The theoretical basis for regulation and supervision of banking activities
- Aims, principles and objectives of state regulation and supervision of banking activities.4-11
- The legal
basis for state regulation of bank..........................
.............................. .............11-16 - Regulation
of the banking sector at the macro level.........................
.............................. 16-19
Chapter II . Analysis of the regulation and supervision of banks in the Republic of Kazakhstan
2.1 Analysis of the implementation
of prudential norms of banks.........................
2.2
Improvement of banking supervision
in the Republic of Kazakhstan....................
Conclusion
List of literature
Introduction
In all economically developed
countries the regulation of banking activities was a priority. Banks
in a market economy at the same time play the role of leading economic
agents and the most important channels of influence on macroeconomic
processes. It is crucial their role in maintaining a stable social environment.
As world practice shows, online and integrated control over all financial
institutions and protecting the rights and interests of investors are
most effective for financial sector development. Last but not least
the role played by improving quality and reducing the cost of financial
services due to the conversion of financial services and to create conditions
of fair competition.
The main purpose of banking regulation and supervision in Kazakhstan,
as elsewhere, is to maintain the stability of the banking system, protecting
the interests of depositors and creditors. Specific tasks that are put
before the supervisors at any given time period, immediately determined
that the main purpose of supervision of credit institutions and the
current state of the banking sector, socio-economic situation in the
country as a whole. In Kazakhstan, for the introduction of consolidated
supervision of financial groups, in particular the centralized operational
control over all financial institutions, making coordinated decisions
in order to prevent crisis situations created by the Agency of the Republic
of Kazakhstan on Regulation and Supervision of Financial Market and
Financial Organizations (AFS).
In his address to the nation of Kazakhstan "The growth of welfare
of citizens of Kazakhstan - the main goal of public policy" on
February 6, 2008 President, NA Nazarbayev as the main task of the Agency
in conjunction with the National Bank and the Ministry of Finance has
identified improving the competitiveness and sustainability of the financial
system, particularly the banking sector. FSA should more closely monitor
the situation in each bank and, if necessary, to take preventive and
effective measures.
Provide a solution to these problems in a market economy is impossible
without a strong, mature, independent of the national banking system.
World experience shows that development of the banking system becomes
a strategic character. This is a question of preserving the Republic
of Kazakhstan as an economically independent state and its economic
and political sovereignty. Of competitiveness, resources of the banking
system depends on the state of human development, development of national
economy, primarily manufacturing and high technology industries, provision
of quality housing of Kazakhstan, the formation of a competitive education
system.
Thus, the problems of state regulation of the banking sector, the practical
significance of their decisions underscore the relevance of research
topic and led to her selection.
Chapter I. The theoretical basis for regulation and supervision of banking activities
- Aims, principles and objectives of state regulation and supervision of banking activities
In all economically developed
countries the regulation of the banking system was a priority. Banks
in a market economy at the same time play the role of leading economic
agents and the most important channels of influence on macroeconomic
processes. It is crucial their role in maintaining a stable social environment.
In most countries banking supervision is regarded as one of the most
important functions of the central bank or finance ministry. It is especially
great value in periods of instability of the monetary and credit markets.
Currently, Kazakhstan has a two-tier banking system. It includes the
National Bank of Kazakhstan. The formation of the modern Kazakh banking
system took place in a very short time and coincided with a period of
deep the economic crisis, the strongest inflation in the country, which
could not affect its status. Part of the commercial banks, organized
on the basis of former state-owned specialized banks, even entering
the stage of a genuine economic independence and proclaimed the policy
of universalization of its activities, will retain not only their own
economic potential and built up over many years, the infrastructure,
but also to their customers and originality performed functions for
its operation .
Regulation of market-oriented banks and supervision of the provision
is effective management of the bank, a timely solution of problems faced
by banks, banks' incentives to conduct effective operations and liquidation
of insolvent banks. A good system of regulation and control of the legal
regulatory framework acts as a basis, a market-oriented private and
well-managed banking system. Setting the framework for competition bank,
the system of banking regulation in the country will ensure fair competition
and prosperity of the most efficient banks. In turn, the supervision
of banks ensures that banks of the rules governing their activities,
and promotes effective leadership. Therefore, the most efficient banks
should be interested in creating a good system to regulate their activities,
as well as creating a situation in which the supervision of state banks
to ensure compliance with relevant rules and regulations.
On 01.01.2008 the total number of banks was 35, for activities which
directly affects the system of banking supervision.
Banking supervision system - a system of regulation and control of cash
flow in the banking system, whose main task is to create financially
stable banking system, help solve the problems of stabilization and
economic growth, aimed at preventing these macroeconomic effects, such
as: systemic financial crisis, the excessive change in money supply,
the collapse of the payment system. At the microeconomic level, the
problem of the banking supervision aimed at improving the efficiency
of the banking sector, protect depositors' interests, the development
of healthy competition within the banking sector and prevent a major
concentration in the banking sector, the orientation of bank cash flows
in the real economy.
System of banking supervision comprise:
- Supervisory Authority (FSA);
- Principles of Supervision (Basle Core Principles for Effective Banking
Supervision);
- Methods of supervision.
Medium-term prospects of Kazakhstan's economy remains favorable. However,
without the need to tighten macroeconomic policies with monetary policy
and exchange rate appreciation in the short term, possibly securing
higher inflation, and increasing vulnerability of the banking system.
Such circumstances can lead to serious negative consequences for economic
growth and competitiveness.
Proposed restrictions on external borrowing may lead to reduced credit
crunch that both legal and natural persons, because of lack of sufficient
funds in the market. Today, loans are the only opportunity for many
citizens to provide themselves with shelter and a stable future, by
reason of the fact that house price growth does not cease to grow, and
many of today the purchase of housing is a daunting task. Leveraging
the restrictions, the FSA has set the country's banks, complex task,
whose implementation will lead to a lack of funds in the market and
higher prices.
To meet the challenges of the situation is invited to consider the generally
recognized principles of Basel, consisting of 25 basic principles of
banking supervision, followed by most banking systems in the world.
Despite the functioning of the Financial Supervision Agency and the
fulfillment of the basic functions of government regulation and supervision
of the banking system, including on a consolidated basis, yet the activities
of the agency requires the improvement of the regulation of the banking
system.
These principles were developed by the Basel Committee in close cooperation
with the banking supervisory authorities of 15 countries with emerging
economies and fruitful consultations with a number of banking supervisory
authorities worldwide. Developed principles represent the basic elements
of an effective system of banking supervision. They are comprehensive
in nature and create the preconditions for effective banking supervision,
licensing and the creation of structures, the introduction of reasonable
rules and requirements management, development of methods of the current
banking supervision and information requirements, the definition of
the formal powers of banking supervision and banking organizations on
an international scale
"Basel Core Principles" are intended to serve as a starting
point for supervisors and other government agencies worldwide. Rates
of the possible introduction of appropriate changes will vary, depending
on the availability of supervisors required statutory powers. Where
necessary changes in legislation, national legislatures are called upon
to urgently address the issue of making those to enable application
of the Basel principles.
Consider the Basel principles as a prerequisite for effective banking
supervision.
Effective banking supervision system sets clear limits of responsibility
and tasks of each body that is associated with the supervision of banking
organizations. Each of these agencies should have operational independence
and adequate resources. It is also necessary that appropriate legal
framework for banking supervision, including empowering banking organizations,
and currently supervises them, the authority to enforce compliance,
as well as addressing safety and feasibility, and guarantee the legal
protection of the banking supervision authorities. Should establish
appropriate mechanisms for information sharing between banking supervisors
and ensure the confidentiality of such information. Licensing and structure
Necessary to clearly define the permissible activities of institutions
receiving permission to banking and banking supervision be, to use the
term "bank" in names of institutions should be monitored maximum.
Providing the license authority should have the right to set criteria
and reject applications of institutions that do not meet accepted standards.
The licensing process should at least include an assessment of the structure
of ownership of the banking organization, its directors and senior executives,
its operational plan of activities and internal controls, as well as
assessment of the expected financial situation of the organization,
including its own funds, in cases where the alleged owner or parent
organization is a foreign bank must obtain the prior consent of the
relevant banking supervisory authority in the country.
Banking supervision authorities shall have the authority to consider
proposals to transfer significant ownership interest or a controlling
stake in existing banks to other parties and to deny such transfers.
Banking supervision authorities shall have the authority to establish
criteria for review of acquisitions of large companies and assets or
investments of a large capital one way or another bank and to ensure
that, where the branches of companies or corporate entities are not
subjected to unreasonable risk, the bank or would impede implementation
of effective control of the banking activities.
Supervisors are required to install for all the banks are reasonable
and appropriate requirements regarding the availability of an appropriate
minimum capital requirements. Such requirements should reflect the assumed
by the banks of the risks and identify the components of capital, taking
into account the ability of these banks recover their losses. At least
for the banks, conducting active in the international arena, these requirements
must not be below the requirements established by the Basel Capital
Accord and the relevant amendments to the agreement.
A vital part of any system of banking supervision - evaluation of policies,
practices and procedures of the bank relating to the granting of loans
and other loans, as well as capital investment and ongoing management
of credit and investment portfolios.
Banking supervision authorities must ensure that banks set appropriate
policies, practices and procedures for assessing asset quality and appropriate
provisions for adequate security in the event of losses on loans and
the establishment of reserves to compensate for losses on loans - and
stick to them.
Supervisors must ensure that banks have information systems that enable
management to determine the concentration of the various portfolios
and agencies bank supervision should set reasonable limits in order
to limit losses when the bank failure to meet requirements to individual
borrower or group of related borrowers.
In order to prevent abuses by credit-related banking supervisory authorities
should make demands on banks to extend credit to related companies and
individuals, as if the parties do not have any relations to avoid conflict
of interest, to provide such loans to an effective monitoring and to
take other appropriate measures to control the associated risks, or
reducing it.
Supervisors must ensure that banks have adequate policies and procedures
to identify, monitor and control the risk inherent in a particular country,
and the risk associated with the transfer of funds in foreign lending
and investment, as well as the policy of maintaining appropriate reserves
in the event such risks.
Banking supervision authorities must ensure that banks have a system
of accurate measurement, tracking, and appropriate monitoring of market
risks, the banking controls must be empowered, if necessary, to establish
specific restrictions and / or pledge of the capital due to the risk
of potential losses.
Banking supervision authorities should make sure that banks have comprehensive
risk management process (including appropriate oversight by the board
or senior management), allowing to define, measure, monitor and control
all the other major type of risk, and, where appropriate, have the desired
capital stock in the event of these risks.
Banking supervision authorities must determine that banks have internal
controls appropriate to the nature and scope of their activities. These
internal controls should include clear mechanisms for the transfer of
authority and responsibility, separation of the total activity of the
bank of its functions relating to the taking of liabilities, payment
of its assets and taking into account its assets and liabilities, consolidation
of these processes, the protection of its assets; conducting independent
internal or external audit checks for verification of compliance with
these control measures, as well as relevant laws and regulations.
Supervisors must ensure that banks have appropriate policies, practices
and procedures, including strict rules of "know your customer"
to promote the maintenance of high ethical and professional standards
in the financial sector and prevent the deliberate and unintended use
of the bank's criminal elements.
Effective banking supervision system should be composed of certain forms
of oversight by both on-site and outside the bank.
Supervisors are required to maintain regular contact with bank management
and a good understanding of the peculiarities of its activities.
Banking supervision authorities should be able to collect, view and
analyze a reasonable set of reports and statistical data from individual
banks and groups of them.
Supervisors should be able to independently verify the supervised information
either through on-site inspections, either through the use of external
auditors.
An essential element of banking supervision - an opportunity of supervising
the banking group on a consolidated basis.
Supervisors must ensure that the bank maintains adequate records, compiled
in accordance with consistent accounting policies and accounting practices,
which allows the banking control to get a true and clear picture of
the bank's financial position and profitability of its activities, and
that Bank on a regular basis publish its financial statements which
give a real idea about his condition Formal powers of banking supervision.
Banking supervisors must have at its disposal an adequate range of measures
of supervision over banking activities in order to take timely remedial
action when banks do not comply with reasonable requirements (such as
maintaining a minimum proportion of equity), when there are violations
of regulations or when investors face any other danger. In extreme circumstances
they should have the authority to revoke the banking license or recommend
its revocation.
Banking supervision authorities are obliged to implement a global consolidated
supervision over their banking organizations operating in the international
arena, with suitable monitoring and applying appropriate reasonable
rates to all aspects of business activities conducted by these banking
organizations worldwide, and especially in their foreign branches, joint
companies and subsidiaries.
A key component of consolidated banking supervision is to establish
contact and exchange information with various other banking supervisory
authorities, especially bodies to control banking activities in foreign
countries, where banking transactions are conducted.
Supervisors should ensure that the local operations of foreign banks
were at the same high standards required from domestic financial institutions
and have the authority to provide information to the banking supervision
authorities of the nationality of the banks in the information resources.
The basic methods of banking supervision in more detail.
I. Prudential (Off-site) supervision - is ongoing monitoring on a regular
basis, the mechanism of realization of which is a credit organization
of different types of reporting FSA regulated.
The main directions of prudential banking supervision:
1) an analysis of the credit organization and identification of problem
banks;
2) establishment and verification of compliance with economic regulations;
3) analysis of documents provided by the credit institution for the
registration and licensing;
4) control over the quality of the administrative board of a credit
institution, 5) Application of measures of exposure to the credit institution.
II. Inspection on the ground - is a set of interrelated, targeted interventions,
the implementation of authorized units FSA directly to the credit institution
to determine compliance of the operations to existing legislation and
regulatory acts and FSA National Bank, as well as for the validation
provided by the reporting and assessment of the real financial condition
of the bank .
Thus, the supervision of the banking system broadly divided into three
interrelated parts: a macroeconomic analysis, monitoring of the banking
system, supervision of individual banks. Supervision should be aimed
primarily at the maximum public confidence in the banking system, prevent
massive bank failures.
Republic of Kazakhstan Law "On State Regulation and Supervision
of Financial Market and Financial Institutions" from July 4, 2003
established that the regulation and supervision of financial markets
and financial organizations have a single authority, defined by the
President of the Republic of Kazakhstan (Agency for Public Management
and Supervision of Financial Markets and financial institutions).
Republic of Kazakhstan Law "On State Regulation and Supervision
of Financial Market and Financial Institutions" have been identified
new targets of government regulation and oversight in the financial
market and financial organizations:
1) ensuring the financial stability of financial markets and financial
institutions and maintain confidence in the financial system as a whole;
2) ensuring an adequate level of protection of consumers of financial
services;
3) creation of equal conditions for the activities of financial institutions,
aimed at maintaining fair competition in the financial market.
Principles of state regulation and supervision of banks are:
1) effective use of resources and management tools;
2) the transparency of financial institutions and financial supervision;
3) promoting governance of financial institutions, based on risk assessment;
4) comprehensive measures to protect the interests of consumers of financial
services by supporting the development of new financial instruments
and services, as well as the introduction of modern technologies in
the financial market;
5) the responsibility of the financial institution.
The objectives of state regulation and supervision of banks are:
1) establishing standards of financial institutions, creating incentives
to improve corporate governance of financial institutions;
2) monitoring the financial market and financial organizations in order
to preserve the stability of the financial system;
3) focusing supervisory resources on areas of the financial market,
the most exposed to risks in order to maintain financial stability;
4) encouraging the introduction of modern technology, ensuring the completeness
and accessibility of information to consumers about the activities of
financial institutions and their financial services.
Most issues of banking supervision is seen as strengthening the systems
approach, overcoming the isolation of individual units of the supervisory
unit, further improving their activity. Briefly describe the possible
ways to improve banking supervision in a systematic manner, keeping
in mind the basic documents of the Basel Committee.
Organizations that do not fall under certain criteria, have no right
to engage in banking business. When considering applications for licenses
supervisors carefully analyze the minimum capital and ownership structure
of the bank, and personalities of the directors and senior managers,
operational financial plan, the organization of internal management
development plan for the bank in the near future.
Systematic approach to banking supervision means, first of all, the
approach to the activities of commercial banks as a branched complete
system, consisting of some basic elements (banks), interconnected complex
multilevel relations. Within the general framework of the subsystem
formed by different criteria: size · capital and assets (large, medium,
small); · organizational-legal form (joint stock, shares); · priority
areas of activity (commercial, mortgage, export-import, etc.) · accessories
of capital (domestic and foreign), etc. In turn, each individual commercial
bank (the basic element of the overall system) is also a complex system,
subject to certain laws of development of individual life cycle. Because
of this systematic approach to banking supervision includes: · supervision
over the banking system as a whole, given its major subsystems; · supervision
separately taken by commercial banks. Each of these types of surveillance
has its own priorities, goals and objectives, as well as tools and mechanism
of action by public authorities.
Main objective of banking supervision - to maintain the overall stability
of the monetary and credit markets, the prevention of systemic crises
by constantly monitoring the entire banking community and take timely
corrective action. A special place in the play mechanism of early diagnosis.
Preventive measures of a general nature, used by oversight bodies in
Kazakhstan in order to ensure stability of credit institutions, and
is monitoring the expansion of their activities through the creation
of separate divisions and expanding the circle of the operations, the
reorganization of credit institutions, changes in the composition of
participants and executive branches of credit organizations and their
affiliates. Existing banks are applying for extension of its activities
must have a minimum capital amount for the corresponding period. Their
financial situation must be stable, ie, they must comply with mandatory
reserve requirements, to comply with all prudential regulations and
other requirements of the FSA, have no losses and debts to the budget
and state extra-budgetary funds, to implement technical and skill requirements
.
They should also have the intended direction of the structure, including
Internal Oversight Services (internal audit). A credit institution must
inform the supervisors about changes in the composition of its members
in providing information about the participants, whose share in the
authorized capital of the bank exceed 5%. And also to inform the supervisor
of any changes in the personal composition of the executive bodies and
to replace the Chief Accountant. If the candidates for these positions
do not meet the requirements of the legislation to these categories
of bank employees, the FSA does not give consent to such appointment.
Regulation of banks is carried out both on an individual bank, and on
a consolidated basis, ie the banking group.
In order to implement the regulation and bank supervision agency:
1) determine the procedure for issuing and refusal to issue a permit
for the purchase of natural and legal persons a big shareholder of the
bank and bank holding company in the creation and acquisition of the
subsidiary banks, issue or refuse to issue these permits;
2) establishes a minimum size of equity baggkov;
3) establishes requirements for the establishment of the reserve banks'
capital;
4) approve the prudential standards and other mandatory standards and
limits for the banking group;
5) establishes the procedure for compulsory collective guarantee (insurance)
contributions (deposits);
6) establishes the procedure for classification of assets and contingent
liabilities and the creation of provisions against them. The order of
allocation of assets and contingent liabilities classified as doubtful
and loss is determined in consultation with the public authority, ensuring
tax control over fulfillment of tax obligations to the state;
7) maintain a register of banks and audit firms licensed to conduct
audits of banks;
8) defines the application and decide whether the application to the
affiliates of the bank of coercive measures envisaged by legislative
acts of the Republic of Kazakhstan;
9) takes in the cases established by the banking legislation of the
Republic of Kazakhstan, the decision on preservation of the bank and
appoint the interim administration (temporary bank);
10) takes in the cases established by the banking legislation of the
Republic of Kazakhstan, the decision to revoke the license for all or
some operations provided by the banking legislation of the Republic
of Kazakhstan, and appoints the interim administration (temporary administrator);
11) perform other functions in accordance with the laws of the Republic
of Kazakhstan.
The signs of the existence of financial difficulties at banks are: ·
violations of laws and regulations, primarily non-economic standards
and reserve requirements; • availability of unpaid customer documents
and claims to the correspondent account; · swings daily balances on
correspondent accounts with banks, especially if the minimum residues
are critical, which is close to zero value; • Identifying the audits
of the bank violations of accounting rules, the submission of false
reporting of risky credit and interest rate policy; · unsatisfactory
performance evaluation of the bank in the system of early diagnosis
· loss-making activities, including those which are not secured by
bank's own funds the development of internal infrastructure · payment
of dividends in an unsatisfactory financial position (including prior
to the reporting year), abrupt changes in the composition of actors
and directors of the bank, the lack of an annual audit of the bank;
· information of negative nature of the bank and its activities, coming
from ministries and departments, citizens, media, customer complaints
on his work. Devepoled recommendations for determining the extent of
problem banks, make it possible to accurately assess their condition.
All credit institutions, depending on the nature of the identified their
problems and their causes are divided into financial stability of banks,
banks with the first signs of problematical; banks experiencing temporary
difficulties, banks with the first signs of bankruptcy; critical (financial
fragility) banks.
Thus, the need for banking regulation and supervision justified by the
need to maintain and strengthen confidence in the banking system, prevent
violations of banking laws and regulations, the ability to understand
the depth and determine the cause of problems in a particular bank.
1.2The legal basis for state regulation of banks
State regulation and supervision
of banking activities based on the Constitution of the Republic of Kazakhstan.
Control and supervision of commercial banks of Kazakhstan by the Agency
of the Republic of Kazakhstan on supervision of financial markets and
financial institutions based on the Law of the Republic of Kazakhstan
on July 4, 2003 № 474-11 "On State Regulation and Supervision
of Financial Market and Financial Institutions" . In addition,
the organization of banking supervision in the Republic of Kazakhstan
is based on a national legislative framework and recommendations of
international banking committees.
Part of the policy of the Republic of Kazakhstan in the sphere of regulation
and supervision of domestic financial market are the priorities of the
new system of state regulation of financial institutions, providing,
taking into account best international practices on this issue, the
unification of all supervisory and regulatory functions within a single
specialist body.
In Kazakhstan, for the introduction of supervision of banks on a consolidated
basis as far back as 2001 have been taken, initiated by the National
Bank of Kazakhstan, changes and additions to the Law "On Banks
and Banking in the Republic of Kazakhstan", establishes the basic
principles of this supervision. In addition, the National Bank have
developed a number of regulations on consolidated supervision, in particular:
1) "Rules of the Bank's participation in the second level in the
charter capital of other entities, as well as permitting the creation
or acquisition of second-tier bank subsidiary" of November 14,
2001 № 427;
2) "The rules for reporting and information, major participants
in banks and bank holding company on June 25, 2001 № 256;
3) rules on the consent of the National Bank of Kazakhstan for the acquisition
of status of a major party's second-tier bank or bank holding company
on June 25, 2001. № 255;
4) The rules of the consolidated financial statements of second-tier
banks of Kazakhstan on February 11, 2000 № 25;
5) The rules on prudential regulations for banking groups from 25 July
2003. № 250;
6) Law of the Republic of Kazakhstan "On State Regulation and Supervision
of Financial Market and Financial Organizations" on July 12, 2003
The main motive for change was the desire to bring the banks to the
interests of economic and intensify their activities.
A characteristic feature of the new phase of reform is to create well-organized
market structures that provide the conditions for the development of
competition in the banking sector. State regulation allows us to determine
the most important, the priority sectors of the economy, targeted and
efficient use of available resources.
In 2003, the National Bank of the Republic occupied a key position in
regulating the financial market. Such a concentration of regulatory
and supervisory functions in the country's central bank was an intermediate
step toward creating an independent public oversight body, through its
release from the National Bank of Kazakhstan.
Until 2004, the National Bank was the only organization regulating the
banking sector in Kazakhstan. An important factor in the development
of the banking sector was the start of a January 1, 2004 Agency of the
Republic of Kazakhstan on Regulation and Supervision of Financial Market
and Financial Organizations (AFS RK), which were transferred to the
respective functions and powers of the National Bank.
In accordance with the Law "On banks and banking activities in
Kazakhstan," the bank - legal entity, a commercial organization
which is authorized to conduct banking activities. The official status
of the bank is determined by the state registration of legal entity
as a bank in the Ministry of Justice of the Republic of Kazakhstan (further
- the bodies of the Ministry of Justice) and the availability of a license
of the National Bank of Kazakhstan (hereinafter - the National Bank)
to conduct banking operations.
In January - March 2008 on regulating the activities of banks and banking
conglomerates by the Board of the Agency was adopted on 9 decrees:
- "On Amending Resolution of the Republic of Kazakhstan Agency
for Regulation and Supervision of Financial Market and Financial Institutions
on March 30, 2007 № 76" On amending some regulations on submitting
documents to the Agency of the Republic of Kazakhstan on Regulation
and Supervision Financial Market and Financial Institutions ";
- "On the Rules of issuance, refusal and withdrawal of consent
for the acquisition of a big shareholder of the bank, bank holding company,
a major party insurance (reinsurance) company, a major party's public
pension savings;
- "On Making Addenda and Amendments to the Board of the National
Bank of Kazakhstan on June 2, 2000 № 262" On approval of instruction
on placement of funds of banks in domestic assets;
- "On Amendments and Additions to the Board of the Republic of
Kazakhstan Agency for Regulation and Supervision of Financial Market
and Financial Institutions on January 9, 2006 № 6" On approval
of rules and the appointment of the interim administration (temporary
administrator) of a bank, insurance (reinsurance) and pension fund;
- "On amendments to some legal acts of the Agency of the Republic
of Kazakhstan on Regulation and Supervision of Financial Market and
Financial Institutions."
- "On Amendments and Additions to the Board of the Agency of the
Republic Agency for Regulation and Supervision of Financial Market and
Financial Institutions on December 25, 2006 № 300" On approval
of rules for reporting second-tier banks of Kazakhstan and the Amendments
to the Resolution of the Agency of the Republic of Kazakhstan regulation
and supervision of financial markets and financial institutions from
27 August 2005 № 310 "On amendments and addenda to some legislative
acts of the Republic of Kazakhstan on regulation and supervision of
financial markets and financial institutions;
- "On Amendments and Additions to the Board of the Republic of
Kazakhstan Agency for Regulation and Supervision of Financial Market
and Financial Institutions on 30 April, 2007 № 128" On establishment
of rating agencies and the minimum rating for the bonds, which banks
may conduct transactions;
- "On Amendments and Additions to the Board of the Republic of
Kazakhstan Agency for Regulation and Supervision of Financial Market
and Financial Institutions on 30 September 2005 № 358" On Approval
of the normative values and calculation methods for prudential
norms for commercial banks;
- "On Amendments and Additions to the Board of the Republic of
Kazakhstan Agency for Regulation and Supervision of Financial Market
and Financial Institutions on June 17, 2006 № 136" On approval
of rules for reporting on the implementation of prudential norms second-tier
banks.
It is the responsibility of the Agency is to identify and reduce to
some extent, the major risks faced by commercial banks in lending to
customers.
In accordance with the Rules of the classification of assets, contingent
liabilities and the establishment of provisions (reserves) against them
(hereinafter - the classification rules), approved by the Board of the
Agency of 25.12.2006, № 296, introduced with effect from 1 April 2007,
provided the concept of "portfolio homogeneous loans "and
the order of their formation, monitoring, establishment of provisions
(reserves) against them.
Classification rules set features the classification of homogeneous
loans, the basic requirements for a uniform credit and the bank's internal
policies.
In this regard, the internal policy of the Bank plays an important role
in the portfolio approach to risk assessment, which details should disclose
signs of homogeneity, including procedures, methods and timing of their
group, as well as monitoring, methodology, procedures, classification
(reclassification) and the formation (dissolution) in provisions (reserves)
against such loans.
In order to diversify the loan portfolio of the bank's internal policy
may contain requirements for the scope of homogeneous portfolio of loans
and certain types of loans included in the portfolio.
It should be noted that before creating a homogeneous portfolio of loans,
banks should adopt domestic policies, arrange for the creation of homogeneous
loan portfolio. The authorized body of the bank decided to create a
homogeneous portfolio of loans and approve the internal rules for this
type of homogeneous loan portfolio, the content of which corresponds
to paragraph 34 of the Rules for the classification. Loans are grouped
into homogeneous loan portfolio in accordance with the internal politics
within 0.02 percent of the value of bank equity, calculated in accordance
with the requirements of the authorized body by the method of calculation
of prudential norms for banks.
In accordance with paragraph 41 of the rules of classification, provides
a quarterly analysis of the portfolio, respectively, the date of risk
assessment is the first of every quarter following the reporting period.
Thus, during the quarter in the homogeneous portfolio of loans include
loans that size does not exceed 0.02 percent of the value of bank equity,
calculated at the beginning of the quarter.
Note, however, that in calculating the amount of loans to be included
in a portfolio of homogeneous loans, the basis of a total amount of
debt per borrower.
Loans included in the portfolio of homogeneous loans from the date of
their issuance in an amount fixed by the contract of a bank loan, and
not allowed to include loans on the balance of the debt. Also according
to paragraph 39 of the Rules for the classification does not provide
for withdrawal of individual loans from the portfolio because of the
deterioration of their quality.
Homogeneous loan portfolio can be configured separately for natural
and legal persons, by within the relevant characteristics of homogeneity.
In accordance with paragraph 21 of the Rules of the classification criteria
used by banks when analyzing the creditworthiness of borrowers (debtors),
including when assessing the financial condition of the borrower and
the value of the collateral, as well as procedures for making and implementing
decisions on the establishment of provisions (provisions) are governed
by rules of classification as well as internal documents of the bank,
determining credit, investment and accounting policies and, in particular,
contain the requirement to order the suspension of accrual and accrual
of interest on assets.
In addition, when considering this issue, banks should be guided by
the provisions of IFRS.
Regulating the rights of depositors in the Republic of Kazakhstan is
based on the Law "On mandatory guarantee deposits placed in banks
of the Republic of Kazakhstan" dated January 12, 2007 № 222-III.
This law aims at protecting the rights of depositors - individuals and
determines the legal basis for functioning of the obligatory deposit,
located in second-tier banks of Kazakhstan, the procedure for the establishment
and operation of the organization performing the obligatory deposit
insurance, the participation of banks in the system of compulsory deposit
insurance, and well as other aspects of the relationship participants
in the system.
The purpose of obligatory deposit insurance system to ensure stability
of the financial system, including the maintenance of confidence in
the banking system by guaranteeing payment of compensation for depositors
in the event of compulsory liquidation of a member bank.
The basic principles of obligatory deposit insurance system are:
1) mandatory participation of banks engaged in accepting deposits, opening
and maintaining bank accounts of individuals in a system of compulsory
deposit insurance;
2) ensuring the transparency of the system of compulsory deposit insurance;
3) reduction of risks associated with operating the obligatory deposit
insurance system;
4) The cumulative nature of the formation of a special provision designed
to guarantee the payment of compensation.
Depositors largely independently bear all risks associated with investing
money in the bank, with the exception of guaranteed JSC Kazakhstan Deposit
Insurance Fund (hereinafter - the Fund) with the balance on deposit
without accrued interest not exceeding the maximum amount of guaranteed
compensation - 700 000 thousand tenge .
According to the Law of the Republic of Kazakhstan "On compulsory
guarantee deposits placed in banks of the Republic of Kazakhstan since
January 2007, the Fund has no right to determine the maximum size of
the interest rates on deposits (deposits) of individuals that is broadly
consistent with contemporary international practice.
Banks to attract deposits to independently establish the remuneration,
without complying with restrictions limiting their maximum size, previously
determined by the Fund. Thus, at present completely lacking a quasi-regulatory
measures which provide an acceptable "ceiling" rates to attract
deposits.
In a competitive environment, some banks have been aggressive, including
through the establishment of interest rates on deposits and loans above
the market average, lending without requiring confirmation of the solvency
of the borrower, offers various prizes and other unusual bonuses to
customers.
Such a policy bank should generate a minimum of caution and careful
study of its performance for the presence of hidden problems with liquidity
and the possible insolvency of banks.
In particular, the increased income on deposits is set by the bank -
for example, to raise funds for high-yield investment projects, promoting
new products, increasing the share of the retail sector, or development
of new regional markets. However, high rates on deposits may be indicative
of risk the bank's policy.
Thus, the gains of savings implies an increase in the loan portfolio.
In an effort to conquer a niche or expand its share of new and emerging
markets such as consumer lending, mortgages, overdrafts on credit cards,
loans to small businesses, etc., banks often lend to companies and individuals
who do not have a credit history without confirmation their incomes
and the availability of collateral.
The activities of commercial banks as participants in the payment system
- second-tier banks - is regulated by the Law on payments and transfers
of money "on June 29, 1998 Resolution of the Board of National
Bank on April 25, 2000, which defines the types and procedure of registration
and use of payment instruments as well as rights, duties and responsibilities
of payments and money transfers. In order to regulate the production
and handling of checks, bills, credit cards, the use of documentary
credits, order direct debit bank account and make payments without opening
a bank account have been developed relevant regulations of the National
Bank of Kazakhstan.
To regulate relations connected with the provision of services to Kazakhstan
Interbank Settlement Center (KISC) by wire transfer of funds, the Board
of the National Bank of Kazakhstan № 242 of 21 November 1998 were
developed and approved the "Rules of Money in the Interbank System
of Money" and " The rules of the clearing in the Republic
of Kazakhstan approved by Resolution of the Board of National Bank June
16, 2000 № 273.
Thus, government regulation and banking supervision is aimed at improving
the stability of the banking system of Kazakhstan and to create conditions
to prevent violations of rights and legitimate interests of consumers
of banking services.
1.3 Regulation of the banking sector at the macro level
The banking sector in Kazakhstan
operates on market principles. Dynamics of the main parameters characterizing
the state of the banking sectors in 2000-2007, indicates that consolidation
trends in the banking sector. Rapidly increasing assets and capital
of credit institutions, expanding their resource base, particularly
through external borrowing. Increased confidence in the banks by depositors
and creditors is one of the most important features of the banking sector
during this period. Preserved a steady trend of credit investments,
according to the reporting of credit institutions, the quality of their
loan portfolios remains largely satisfactory. The banking market there
is some development of competition, especially for deposits of individuals.
Kazakh banks have shown strong growth. Actively qualitative changes
in the development of the banking system. Lending institutions tend
to the greatest transparency, openness to customers. Introduced innovative
business models, new banking technologies (the bank-client system of
money transfers, debit cards and credit cards, etc.), various types
of loans (consumer, mortgage, etc.).
Basic condition for successful development of the banking sector is
holding the state balanced, coherent policy in this area. State policy
in the banking sector is based on preserving and strengthening the market
start-up of credit institutions and the use of mainly indirect, ie,
economic methods of influence on the processes occurring in the banking
sector. The impact of the state in the banking sector is done by forming
the regulatory framework for credit institutions and the functioning
of the financial services market, as well as monitoring compliance with
the requirements of legislative and other normative acts.
Supervisory practices take into account the different stages of the
life cycle of bank licensing, reaching maturity, the cessation of activities,
seeing them as elements of a unified system. Achieving these goals is
necessary to develop new approaches to reporting banks. Documentation
should be possible to identify early signs of insolvent banks and at
the same time be clear and non-overloaded. In this regard, the fullest
possible implementation of innovative economic and statistical methods
for monitoring. Improving supervisory practices should be based on relevant
structural changes, modernization methods of operation, the maximum
coordination of all departments of the supervisory unit. Impact on the
activities of commercial banks can involve wearing as a purely economic
(ie, indirect) and economic and administrative (line) character.
Credit regulation, further, includes a set of methods, the choice of
which depends on the object and purpose of the regulation, as well as
the maturity of market relations. In the process of interference with
commercial banks subject to regulation are certain macroeconomic characteristics
of the loan, allowing the one hand, to influence the economy in general,
and on the other - to ensure the liquidity of the banking system.
National Bank of Kazakhstan belongs to the leading role in the functioning
of the banking system and the state as a whole, since he contributes
to the achievement of macroeconomic stabilization state.
On the banking system of Kazakhstan National Bank has a direct influence
through monetary policy. The effectiveness of monetary policy largely
depends on the choice of instruments (methods) of the monetary regulation.
They can be divided into general and selective. Overall impact on virtually
all parameters of the monetary sphere, affect the capital market as
a whole. Selective methods are aimed at regulating certain forms of
credit, credit terms, etc. The main common tools of monetary policy
are changes in interest rates and reserve requirements, open market
operations. This indirect method of regulation.
National Bank, thus regulates the flow of investment, inflation, exchange
rate, and, ultimately, growth in gross domestic product and employment
rate.
The main instruments of monetary regulation, the most commonly used
by central banks, are:
- The establishment of minimum reserve requirements;
- Regulation of the official discount rate;
- Refinancing of commercial banks;
- Open market operations.
Establishment of minimum reserve requirements - one of the oldest and
most used by the central bank instruments of monetary regulation. Minimum
reserves - is a mandatory norm of deposits of commercial banks in the
country's central bank, serving collateral commercial banks on deposits.
Minimum reserves are established in law as a percentage of total deposits.
Base policy bank reserve requirements is a multiplier. Multiplier effect
arises from the fact that banks create new money when the outstanding
loans and, conversely, the money supply is reduced when customers returned
by the bank before their loans.
These reserves have a dual purpose: first, they must ensure a constant
level of liquidity in commercial banks, and secondly, they are tools
to control money supply and credit banks. By changing the norm of minimum
reserve requirements, central banks maintain the money supply in the
given parameters and adjust the level of liquidity of commercial banks.
As a result of increasing rates of obligatory reserve requirements reduced
the amount of available funds at the disposal of commercial banks. In
the recent policy of setting minimum reserve requirements as an effective
instrument of monetary policy considerably lost its value.
Changing the discount rate - the oldest method of monetary management.
It is based on Law of the National Bank to provide loans to commercial
banks, which have a strong financial position, but because of certain
circumstances, require additional funds. For providing funds to the
National Bank charges the borrower a certain percentage. The norm of
such a proportion is called the discount rate. Thus, the discount rate
- is the "price" of additional reserves which the Central
Bank provides commercial banks. The Central Bank has the right to change
it by adjusting the supply of money in the country .
By lowering the discount rate increases the demand of commercial banks
for loans. Providing them, the National Bank increased by a corresponding
amount reserves of commercial banks' borrowers. These reserves are redundant,
since the maintenance of such loans usually do not require mandatory
reserves. Therefore, taken from the Central Bank funds, commercial banks
can fully use for lending, thus increasing the money supply. Growth
in money supply leads to lower lending rates, ie that percentage by
which provides loans to entrepreneurs to the population. Credit becomes
cheaper, which stimulates production.
An increase in the discount rate, the reverse process. It leads to a
reduction in demand for loans to central banks, which slows the rate
of growth (or decrease) the money supply and raises lending rate. "Dear"
credit entrepreneurs take less and therefore less money invested in
production development.
It was believed that the required reserves of commercial banks are required
to guarantee payment to depositors of money in the event of bankruptcy.
However, experience shows that they were ineffective way to protect
deposits. Therefore, to guarantee the repayment of money began to use
the insurance of deposits and required reserves have a different purpose:
they help the control over money supply and credit.
In virtually all countries, commercial banks resorted to borrowing of
central banks, which are provided under a certain percentage. The discount
rate applied by central banks, taking into account government bonds,
bill discounting is the official and serves as a benchmark for market
interest rates. Setting the discount rate, the central bank determines
the cost of attracting credit resources. The discount rate is a method
of controlling the cost of bank loans.
Higher interest rates on loans, the central bank to encourage other
lending institutions to reduce borrowing. This hinders the completion
of reserve accounts leads to an increase in interest rates on commercial
loans and, ultimately, to reduce lending operations in the country.
If the central bank reduces interest rates, it makes it easier for commercial
banks replenishment, and thus encourage credit expansion. Refinancing
of commercial banks - is providing credit to commercial banks in the
form of direct loans, loans against securities (lombard loan), discounting
bills .
Tightening of monetary policy involves changing the direction of the
influence of official rates of the National Bank at market rates for
loans to implement the transition to the level of market returns rather
than the previously used level of liquidity in the banking system. Examples
of central banks in developed countries show that the operating target
is more efficient for financial market regulation.
To strengthen the regulatory properties of the official refinancing
rate, the National Bank introduced the practice of periodic (quarterly)
review and establish the official refinancing rate.
In the Republic of Kazakhstan
only in the second half of 1995, the first time the National Bank refinancing
rate was positive, that is exceeding the rate of inflation, which reduced
demand for inflation. Meeting the requirements of the IMF to reach a
positive value of the interest rate on centralized credits and National
Bank refinancing rate has be ongoing.
Information about the refinancing rate and the dynamics of its changes
over the past five years.
To strengthen the regulatory properties of the refinancing rate of the
National Bank plans to put into practice a periodic (quarterly) review
and establish the official refinancing rate. Experience of central banks
in developed countries has shown the feasibility of such practices.
National Bank of periodically reviewing the official refinancing rate
depending on the overall money market conditions, supply and demand
for loans, inflation and inflationary expectations, thus gives the financial
market updated guidance on the expected trends in the financial sector.
The second important tool to ensure the balance of the money market,
regulate the level of bank liquidity, reduced risk of defaults by banks
on their obligations, as well as protect the interests of depositors
and shareholders of banks is a norm of obligatory reserves. Required
reserves - is the contribution of commercial banks at the central bank.
The size of these contributions is set by law within defined boundaries
(there is a minimum limit). Required reserves allow the central bank
to regulate money supply in circulation and solvency of commercial banks.
The positive side of the required reserves of the central bank is that
the state is always centralized resources, there are sources for the
expansion of the credit market. As one of coercive measures, standard
of mandatory reserves allows you to instantly freeze without the direct
impact of cost factors of bank liquidity and, if necessary to defrost
this accumulated liquidity.
Introduction reserve rate - historically one of the earliest forms of
state intervention in banking. Solid ratios of bank debt used in the
second half of last century. But as a tool of monetary policy reserve
system became applicable only much later. It was first introduced in
the U.S. in 1913 (not by chance the U.S. central bank called the Federal
Reserve System). Its development was linked to the global economic crisis
in 30-ies. The most widespread, it was after World War II in Italy,
Germany and England .
Standards vary by the central bank reserves in accordance with the ongoing
credit policy. So, wanting to limit the credit expansion of banks, central
bank raises rates. This reduces the creditworthiness of banks in the
implementation of active operations and acts as a deflationary measure.
Lowering of standards, by contrast, enhances lending, intensifies inflationary
pressures. Changing the reserve requirements the central bank to influence
the situation in the desired direction for him. Depending on the value
of deposits it calculates the marginal value of changes in reserve rate,
below which there is increasing liquidity and higher - its decline.
Thus, the high rate of required reserves established to:
provide liquidity to banks;
reduce emissions credits when inflation is high;
expand financial capacity of the central bank in monetary management.
For second-tier banks redundant high standards mean more expensive cost
of funds. Expensive resources, in turn, can be placed only in profitable
transactions with a high degree of risk. Gradual decrease in reserve
requirements will activate the possibility of lending to the economy,
respectively, increases the money supply. Higher level of reserve funds
associated with the problem of maintaining liquidity in the banking
system and the high risk of accumulation of money capital the banks.
Implications of changing reserve requirements is ambiguous. Multiple
Changing the central bank of a boomerang effect on the liquidity of
commercial banks and could lead to a significant violation of the monetary
and financial equilibrium of the economy. Consequently, when inept use
of this policy may become a kind of generator instability.
Therefore, changes in reserve requirements, except in periods of crisis,
characterized by low amplitude (typically, an increase of one or half
a point), and that the banker was not caught unawares by these modifications
are often announced in advance.
The regulation of reserve requirements, the types of established norms,
their levels vary in different countries. In the U.S. banks that are
members of the Fed, the Fed must keep 3% of account balances, and demand
deposits. Only some remnants of the value of reserves increased to 12%.
In Switzerland, the required reserves ratio - 2,5%. In Kazakhstan (and,
for example, in Russia), the required reserves ratio is higher today
than in other countries. Initially, it was fairly high at 30%, but decreased
gradually with decreasing the money supply and inflation.
12 July 2006 by the National Bank of Kazakhstan was amended in the mechanism
of formation of mandatory reserves. Thus, the structure of bank liabilities,
which are taken for the calculation of minimum reserve requirements,
includes the amount of domestic bank liabilities and other obligations
of the bank. Domestic bank liabilities are defined as the sum of liabilities
to residents on a strictly defined list, regardless of their maturity
dates. Other bank liabilities calculated as the sum of the bank's liabilities
to nonresidents and liabilities on debt securities, regardless of the
residency criterion. When allowance reserve liabilities (for both domestic
and for non-compliance) is taken into account the amount of bank liabilities
of principal, remuneration and arrears on them. Period of minimum reserve
requirements amounts to fourteen calendar days and begins on the first
Tuesday of the week and ends on the last Monday in fourteen-day period,
the definition of minimum reserve requirements.
Implementation of minimum reserve requirements by banks through the
formation of reserve assets, which include cash on hand and the money
on correspondent accounts with the National Bank in the national and
freely convertible currencies. The Bank should place money in reserve
assets in such a way that the average value of reserve assets for the
period of formation of reserve assets was not less than the average
size of the minimum reserve requirements for the period of determining
minimum reserve requirements.
Thus, open market operations
as a method of monetary management differ significantly from the previous
two. The main difference - it is more flexible regulation, since the
volume of purchases of securities, as well as used in this interest
rate may change on a daily basis in accordance with the direction of
central bank policy. Commercial banks, given the specified feature of
this method should closely monitor its financial position, while preventing
the deterioration of liquidity.
Thus, taken by the National Bank of measures to regulate the activities
of commercial banks contribute to banking sector stability and resilience
of the financial system as a whole. Activities of the National Bank
and the FSA aims to address the challenges identified in the relevant
policy documents on development of sectors of the financial market,
to ensure growth and maintain high quality financial services, as well
as transparency and financial market stability.
Chapter II . Analysis of the regulation and supervision of banks in the Republic of Kazakhstan
2.1 Analysis of the implementation of prudential norms of banks
To ensure stability and soundness
of the banking system of banking supervision authorities to establish
a commercial bank prudential regulations, the latest in banking practice
of Kazakhstan called prudential. The composition of prudential regulations
include:
- Minimum capital;
- Capital adequacy ratio;
- Maximum risk per borrower.
The main indicator is the prudential capital adequacy. Capital adequacy
of the bank is characterized by two factors:
- The ratio of Tier I capital, net of bank's investments made within
the share of Tier I capital to total Tier I capital and included in
the calculation of the equity capital of the second level to the size
of bank assets, reduced by the amount of investment bank, made within
the share capital the first level in the total amount of Tier I capital
and included in the calculation of the equity capital of the second
level (K1);
- The ratio of equity to the sum of: the assets and contingent liabilities
weighted by the degree of credit risk, reduced the amount of general
reserves (provisions) are not included in the calculation of second-tier
capital, assets, contingent and potential claims and liabilities, calculated
taking into account market risk, operational risk (K2).
According to the instructions on the normative values and calculation
methods of prudential standards for banks in the second level value
of capital adequacy ratio of the bank K1 should not be less than 0.06,
and the value of capital adequacy ratio of the bank K2 must be at least
0,12.
The purpose of the analysis of capital adequacy of the bank - maintaining
it at a certain level sufficient for adequate growth of banking assets,
as well as compensation for potential losses and protect the interests
of depositors and creditors of the bank.
Bank's capital adequacy - is the main criterion for a comprehensive
assessment of financial stability of a commercial bank. This follows
from the basic function of bank's own capital: it protects the bank
from financial volatility and excessive risk-taking, protects the bank
from bankruptcy.
On this basis, the calculation of capital is important to determine
how bank capital could be used to protect depositors and whether its
value.
In the world of banking practice, there are many ways of calculating
capital adequacy. The most widely used method for the coefficient.
For the calculation of adequacy ratios should be defined so-called regulatory
capital. To do this, the share capital of the bank deducted certain
assets that are not considered a reliable source of funds if the bank
should be sold or liquidated. Deducted as investment in equity of subsidiaries
and other entities, to bankruptcy of one of them does not cause a reduction
in bank capital. Certain liabilities, in contrast, is added to equity,
such as subordinated debt. With all these amendments regulatory capital
may become more or less stock.
Calculated in this way capital is divided into Tier I capital and Tier
II capital.
Tier I capital includes the most robust and stable sources that actually
are a measure of protection of creditors and depositors. It is called
"capital base". In contrast, the Tier II capital or subsidiary
capital "consists of articles which, for various reasons do not
fully protect creditors and depositors.
Detail components of equity capital of the first and second levels are
set out in the Regulations on the normative values and calculation
methods of prudential norms for commercial banks.
Once defined the capital necessary to calculate that with than his match.
In one case, the size of bank assets, reduced by the amount of investment
bank. In the second case, the amount of assets and contingent liabilities
weighted by the degree of risk, reduced by the amount of special provisions.
Then calculated capital adequacy ratio, ie is K1 and K2.
Thus, to determine the adequacy of bank's equity capital is not easy,
but it is very important. The bank grew, increased its deposits and
profitable assets, he must build up their capital and at the same time
maintain the same level of risk.
In analyzing the adequacy of own capital of commercial banks are to:
- Determination of actual values of capital adequacy ratios;
- Match the actual performance standard values;
- Identification of factors causing the deviation of the actual values
of the coefficients of the established banking supervisory authorities.
The ability of a commercial bank in a timely and fully meet its obligations
depends not only on the work of the bank itself, but the financial situation
of borrowers. Deteriorating financial position of the borrower may lead
to failure to return a loan, which adversely affect the profitability
and liquidity of the bank. To avoid such situations, commercial banks
use in their work a variety of tools, one of which is the limit concentration
of loans to one borrower. Limit in this case is the maximum amount of
credit, including guarantees and contingent liabilities, single borrower
or group of entities controlled by one person, as a percentage of capital.
In the practice of domestic banks in accordance with the Rules of prudential
regulations for commercial banks introduced the restriction of loan
to a borrower (the coefficient of K3).
In determining the amount of risk is taken into account the aggregate
amount of loans, issued by the bank to a borrower (or group of related
borrowers), as well as guarantees and warranties.
The term "one borrower" means any natural or legal person
to whom the bank has claims or may have requirements for which the bank
has committed itself to a borrower in favor of third parties or to the
borrower, as well as on other grounds provided for by legislative acts
of the Republic of Kazakhstan or the concluded agreements.
Risk per borrower (P), including the bank, calculated as the sum of:
1) the bank's claims to the borrower, on the balance sheet of the bank;
2) the bank's claims to the borrower, retired from the Bank's balance
sheet during the last five years preceding the current year;
3) claims for which the bank has committed itself to a borrower in favor
of third parties or to the borrower, as well as on other grounds provided
by legislation of the Republic of Kazakhstan or contracts;
4) minus the amount of security for the obligations of the borrower
in the form:
- Deposits placed at the disposal of the bank as security for the obligation;
- Government securities of the Republic of Kazakhstan, issued by the
Government of the Republic of Kazakhstan and National Bank;
- Refined precious metals;
- Guarantees of the Government of the Republic of Kazakhstan;
- Guarantees of other banks that have long-term debt rating not lower
than "A" agency Standard & Poor's or a similar rating
by any other rating agencies.
2.2 Improvement of banking supervision in the Republic of Kazakhstan
The stability of the banking
system depends largely on the efficiency of regulatory bodies. Improvement
of banking supervision in Kazakhstan must meet international norms and
principles (at least because much of the economic reforms, including
in the banking sector is following the example of countries with developed
market economies). In these countries, its emergence was not easy, significant
experience, which we can use. Principles of effective banking supervision
were consolidated in the Basel Committee on Banking Supervision. However,
the effectiveness of supervision it provides a holistic system of oversight
activities.
The rapid pace of financial market development in recent years, the
emergence of new products, development of financial groups as indicators
of the degree of integration of financial markets, brought not only
new business opportunities, but also increased risks. Currently, there
is a trend of rapid growth in lending. Accordingly, increasing credit
risks of banks.
In order to manage the growth of external borrowing by banks FSA has
reduced foreign exchange position limits for banks and has made changes
to prudential regulations providing for the calculation of capital adequacy.
In particular, it introduced more stringent requirements in respect
of non-resident, which involves the calculation of credit risk the bank,
depending on the credit rating of non-residents. To reduce external
borrowing revised method of calculating the minimum reserve requirements.
In recent years, Kazakhstan has seen the achievement of relative macroeconomic
stability, growing prosperity of the population, an attractive investment
climate in the country, the active development of the banking sector.
High domestic demand and relatively low cost of borrowed funds on international
capital markets have stimulated banks to attract significant amounts
of foreign capital.
The influx of capital from abroad at a lower cost contributed to an
increase in the resource base of banks and, consequently, increased
banking activity.
Along with this, there are negative consequences of growth of external
borrowings, which are associated with an increased level of exposure
of the banking sector to foreign currency risk, negative impact which
may be due to the revaluation of foreign exchange liabilities of banks,
and refinancing risk, interest rate risk and liquidity risk.
In this regard, the Agency's Board in 2006 adopted the Resolution №
120 "On Amending Resolution of the Board of the Agency on September
30, 2005 № 358" On Approval of the normative values and
calculation methods for prudential norms for commercial banks, stipulating
a number of prudential measures aimed at reducing short-term liabilities
to nonresidents and increase foreign exchange liquidity in the banking
sector, in particular, set limits on foreign currency liquidity, depending
on the timing, the maximum limit of short-term liabilities to nonresidents,
as well as reduced foreign exchange position limits.
Introduction to the maximum limit short-term liabilities was due to
concern of the supervisory authority the high volatility of short-term
liabilities and risks associated with the practice of banks to attract
external loans with short maturities for future funding of long-term
projects that may adversely affect the liquidity of the banking sector.
At the moment, the dynamics of indicators showed a decrease in the relative
performance of short-term bank liabilities to nonresidents, which has
a positive impact on liquidity in the banking sector and, in turn, the
stability of the banking sector as a whole. In particular, in the period
from April 1 to January 1, 2007 the share of short-term liabilities
in total liabilities decreased from 22,3% to 11,8%.
Besides, since September 1, 2006 reduced the limits currency net position
with 30% of the bank's equity capital to 25%. The slowdown in growth
in liabilities in foreign currencies, has caused reduction in the open
currency positions. The ratio of net foreign currency positions to equity
as of January 1, 2007 was 1.48% versus 4.6% - on April 1, 2006. Low
ratio of net foreign currency positions to equity ratio indicates sufficient
margin of safety of the banking system with respect to currency risk.
Regulation of liquidity of assets and liabilities in foreign currency
stimulates the efficient management of the banks own liquidity risk.
In this regard, October 1, 2006, were introduced to comply with mandatory
limits on foreign currency liquidity by banks depending on the timing.
At this point, in general, the combined factors characterize a sufficient
level of foreign currency liquidity, with the exception of the indicator
of the current foreign currency liquidity in the euro, which is due
to the lack of banks' liquid assets in the currency.
Imposed by the Agency requirements for the liabilities of the banking
sector to non-residents established with regard to international practices
and recommendations of the IMF mission that visited Kazakhstan in order
to hold annual consultations.
Despite the Agency's actions to date amount of liabilities of banks
to non-residents continued to grow quite rapidly, which ultimately may
contribute to rise of banking sector risks.
Given current trends in the financial market of Kazakhstan, the Agency
together with the National Bank of Kazakhstan and ULE, "Association
of Financiers of Kazakhstan consider the adoption of additional measures
against banks that minimize the risks associated with external borrowing
by the banking sector.
One of the analytical tools designed to assess the potential losses
of financial institutions in case of any possible downturns in the economy
and other negative economic trends can be called stress testing. It
has received wide international circulation, so the agency is developing
a methodology for conducting stress testing of banks, which analyzes
the quantitative and qualitative parameters. The problem of stress testing
is to identify the limits, when the banks could be in a critical situation,
the number of banks at risk, and their relationship to the entire banking
sector. The purpose of stress testing is to identify high-risk situations,
identifying the banks most often fall into them, as well as consideration
of issues in a time warp, the definition of the current situation in
financial markets.
In September 2007 the FSA and the National Bank of Kazakhstan was carried
out stress testing of banks. Stress test found a positive trend since
the beginning of 2007, taking into account that the number of banks
violating the norms of adequacy for the devaluation of 20% with 6 banks
(K1 - 3 and k 2 - 3) on 01.01.07g. decreased to 3 (K1 - 1 and k 2 -
2) at 01.09.07g. It turned out that the 50% devaluation of the coefficient
K1 is broken three banks, and k 2 - 4 banks. Revealed the maximum (threshold)
value - the devaluation of 5.5%, in which all commercial banks will
carry out capital adequacy ratios K1 and K2 .
Of stress test shows that the second-tier banks are sufficiently hedge
currency risk, which is one of the most found risks in the banking sector.
However, we can not ignore the fact that part of the funds raised by
banks in foreign currency, issued by banks in the form of credits in
national currency, and while the dollar has a tendency to depreciate,
the policy of national banks enabling them to make high profits.
Consider a more fundamental
measures to improve regulation of the banking sector in Kazakhstan.
1) The liberalization of access for foreign banks on the domestic financial
market.
Given the globalization processes, the prospect of entering the Republic
of Kazakhstan to the WTO, it seems appropriate continuation of liberalization
and increased competition in the banking system.
In addition to the already removed restrictions for the activities of
foreign banks (in respect of the aggregate charter capital of banks
with foreign participation composition of the Board, the requirements
for placement of funds in domestic assets, and personnel) is expected
to consider the resolution of their branches in Kazakhstan, subject
to transitional and conditions to ensure the financial stability of
the country.
2) Improvement of consolidated supervision and ensuring the transparency
of the national banking sector to accelerate its entry into the world
markets and international cooperation.
In order to improve consolidated supervision and transparency in the
banking sector will be enhanced supervisory procedures aimed at ensuring
that the banks legal requirements in terms of consolidated supervision,
ownership structure, relationships with affiliates.
3) Take steps to reduce banking risks associated with the growth in
lending to real estate, banks' expansion to foreign markets, consumer
finance and small business lending, as well as the development and expansion
of banking services.
In order to assess the credit risk of banks, as well as the above-mentioned
risks, as appropriate and taking into account the economic viability
will improve the existing banking laws, particularly in terms of prudential
regulation and methods of classification of assets of banks.
4) Improvement of banking legislation with international standards.
In order to bring regulation of the banking sector in Kazakhstan to
international standards, will continue to implement the transition of
the banking system of Kazakhstan to the new agreement the capital adequacy
of the Basel Committee on Banking Supervision, "International convergence
of capital calculation and capital standards" (International Convergence
of Capital Measurement and Capital Standards) ( Basel II). In the medium
term will be made to complete the transition to Basel II, which involves
a series of measures, including:
- To agree a schedule for the Agency for Basel II with the representatives
of the Group for the implementation of Basel II (Accord Implementation
Group);
- In order to spread awareness and greater understanding of the principles
of Basel II be placed on the official website of the Agency Russian-language
version of the text;
- Send appropriate requests to the supervisors of their intent and conditions
for the transition to Basel II;
- Consider the appropriateness of the use of domestic banks method of
centralized ratings.
In addition, work will continue to raise the requirements for banks,
further improving risk management in banks in the light of international
practice.
5) The interaction with the supervisory authorities of foreign countries
for the exchange of supervisory information.
As part of measures to improve banking legislation with international
standards, especially regarding the transition of the banking system
of Kazakhstan to Basel II is expected to expedite the conclusion of
memoranda of cooperation and information exchange with all the regulatory
bodies of financial institutions, which are affiliated financial institutions
in Kazakhstan ( In particular, the United States, the Netherlands),
and, accordingly, with the countries that have subsidiaries and branches
of financial institutions in Kazakhstan, as well as develop a strategy
for interaction with supervisors parent banks with subsidiaries in Kazakhstan
(in particular the U.S., the Netherlands, UK), the parent banks in applying
the provisions of Basel II, including to improve relations with the
supervisory authorities of foreign countries in technical cooperation.
6) Improvement of obligatory deposit insurance system.
In order to comply with the Kazakhstan system of deposit insurance (hereinafter
- the system) with international best practices necessary to implement
the following key measures: further improvement of the system, taking
into account best international practices and recommendations of the
International Association of Deposit Insurance Systems (IABI); introduction
in 2007 of differential rates of compulsory contributions to calendar
for banks participating in the system, participation in the development
of the regulatory framework for carrying out operations on simultaneous
transfer of liabilities and assets compulsorily liquidated the bank
the other (s), bank (s).
Will be explored alternative ways of funding systems, in case of shortage
of funds for the payment of compensation to depositors of liquidated
banks in the form of reinsurance abroad, or the use of credit derivatives.
7) Improving the management of external borrowing by the banking sector.
Taking into account adopted in the current year indirect measures to
limit external borrowing by banks, based on the examination of international
practice, taking into account the recommendations of international financial
organizations in the future, within the prevailing situation, the economic
feasibility and impact of these measures on the volume of external borrowing
by the banking sector, if necessary , possible revision of certain standards
and limits in a given direction to the improvement of prudential regulation
of banks.
8) Improvement of financial statistics.
Lack of statistical long-term lending by the financial sector of economy
does not allow a proper assessment of the investment banking system
credit creation and modernization of plant and equipment industry, which
in turn requires the adoption of appropriate measures in this direction.
Thus, the main measures in the banking sector will be aimed at liberalizing
access for foreign banks on the domestic financial market, improve management
of the growth of external borrowing by the banking sector and assess
its impact on asset quality of banks, promote the reduction of possible
negative impact of destabilizing the real estate market on the quality
of banking sector assets as well as increased transparency of domestic
banks.
Conclusion
On the basis of theoretical and practical consideration of issues relating
to regulation and supervision of commercial banks in Kazakhstan, we
have reached the following conclusions and suggestions.
1) The need for banking regulation and supervision justified by the
need to maintain and strengthen confidence in the banking system, prevent
violations of banking laws and regulations, the ability to understand
the depth and determine the cause of problems in a particular bank.
Government regulation and banking supervision is aimed at improving
the stability of the banking system of Kazakhstan and to create conditions
to prevent violations of rights and legitimate interests of consumers
of banking services.
Undertaken by the National Bank of measures to regulate the activities
of commercial banks contribute to banking sector stability and resilience
of the financial system as a whole. Activities of the National Bank
and the FSA aims to address the challenges identified in the relevant
policy documents on development of sectors of the financial market,
to ensure growth and maintain high quality financial services, as well
as transparency and financial market stability.
2) In recent years, the Agency increased attention to the banking sector
risks associated with an increase in its external obligations. In this
regard, the Agency annually undertaken prudential measures aimed at
reducing short-term liabilities to nonresidents and increase foreign
exchange liquidity in the banking sector.
Since the limited sanctions in 2006, used by 20 banks from 91 violations
of banking laws, including the requested letter of commitment in 13
cases, issued a written prescription in 44 cases, warnings in 9 cases,
signed an agreement in writing. Sanctions in the form of fines have
been applied in 23 cases, and in Valut-Transit Bank revoked the license
to conduct operations under the banking legislation in the national
and foreign currencies.
In January 2008, the Agency received 77 complaints of physical and legal
persons as well as other government agencies. Of the total number of
appeals received 50.65% of the letters touched on issues of second-tier
banks, 5.19% - on the activities of securities market subjects, 10.39%
of the letters - on the activities of insurance companies, 33.77% -
on the activities of pension funds.
3) As a result of the above measures taken by the FSA part of the regulation
of banks, a decrease in loan growth, which has a "chilling"
effect on the "overheating" of the segment. For example, growth
in consumer lending in 2006 was 2.6 times, I while in 2007 the volume
of issued consumer credit grew in 1,6 times.
With a view to strengthening and improvement of financial situation,
as well as improving the quality of the banks, the FSA conducts a series
of administrative, legal, financial, organizational, technical and other
measures for banks, which is conservation.
Mode of preservation of the bank entered in the case of systematic (for
3 consecutive months) non-capital adequacy ratio or on the basis of
Article 48 of the Law of the Republic of Kazakhstan "On banks and
banking activities in Kazakhstan and is funded from the bank itself.
Regulation and the vector of financial market development in Kazakhstan
aimed at achieving the goal set by the Head of State - in the next 10
years to make Kazakhstan one of the 50 most competitive countries in
the world. With this is also closely related to strategic issues, such
as Kazakhstan's joining the WTO, the deepening of relations within the
framework of integration associations like the EurAsEC, CES, CIS, SCO,
improvement of operating parameters of the domestic financial market
in the light of international practice.
4) Existing problems and additional risks in the financial sector of
the Republic of Kazakhstan will be addressed through new initiatives
of the Government, the National Bank and the Agency for Regulation and
Supervision of Financial Markets and Financial Institutions. This will
facilitate implementation of the Concept of financial sector development
for 2007-2011, which determines the main priorities of financial sector
development, as well as directions and approaches to government regulation
of its individual sectors.
A key role in the way of closer integration into the global economy
is further improving the domestic banking system. Liberalisation of
the banking sector promotes the introduction of progressive international
experience in capital management, improving the quality of management
and, consequently, the level of development of the banking system. The
issue of liberalization of the banking sector is considered in the framework
of negotiations on Kazakhstan's accession to the WTO. In this regard,
excluded a number of restrictions on access by non-residents of Kazakhstan
to the Kazakh banking market with a view to further liberalization,
as well as creating equal conditions for their activity on the territory
of the Republic of Kazakhstan.
In order to enhance transparency of the banking system was developed
and offered to banks to sign a memorandum on cooperation and collaboration
on enhancing the transparency of the bank, which provides for the disclosure
by banks of information about the real owners of the bank, controlled
by the bank on the list of organizations about the affiliates of the
bank and transactions made with them about the bank's business development
strategy for the next five years.
Continuous economic growth, favorable investment climate in the country,
the sustainable development of the banking sector in recent years have
strengthened the confidence of international lenders and as a consequence,
active inflow of foreign borrowing, which in turn can lead to greater
dependence on the banking sector by borrowing from abroad.
It should be noted that the increase in foreign borrowing increases
the exposure of the banking sector to foreign exchange risk significant,
negative impact which may be due to the revaluation of foreign exchange
liabilities of banks, and refinancing risk, interest rate risk and liquidity
risk.
It is extremely important to note that Kazakh banks are involved in
external borrowing, mostly on a floating interest rate. In turn, a sharp
change in the situation on the world market and conditions of credit
agreements, the banks may be unable to respond in a timely manner its
obligations, which could negatively affect both the ranking of individual
banks and the banking system of the republic.
In order to limit external borrowing by banks in the current year had
been taken indirect measures of prudential nature.
Despite the steps taken to improve the domestic banking system must
continue to work in this direction.
In order to further develop the banking sector, as well, given the forthcoming
accession to the WTO, according to the concept it is supposed to work
on further improvement of banking legislation with international standards,
competition and liberalization of foreign banks on the domestic financial
market, measures to improve consolidated supervision based on risk assessment
(taking into account existing conglomerates in Kazakhstan and raised
the risks), reduce banking risks associated with the expansion of banks
to foreign markets, consumer finance and lending to small businesses,
improving financial statistics.
Thus, over time, reforming the banking sector of the country, the level
of competitiveness and capacity of domestic banks has increased significantly,
which allows us to speak about their ability to compete with foreign
banks if they came to the financial market of Kazakhstan.
List of literature
1.Message from
the President of Kazakhstan Nursultan Nazarbayev to the people of Kazakhstan
"The growth of welfare of citizens of Kazakhstan - the main goal
of public policy. " Astana. February6,2008
2.Banking (Handbook banker): A Textbook. Manual / Under scientific ed.
AA Abisheva, SA Svyatov.-Almaty:Economics,
3.SeytkasimovGS,Banking.-
4.KonakbaevAG.Banking.
5.Banking (Handbook banker): A Textbook. Manual / Under scientific ed.
AA Abisheva, SA Svyatov.-Almaty:Economics,
6.Law "On banks and banking activities in the Republic of Kazakhstan"dated
31.08.1995, № 2444.
7.Law of the Republic of Kazakhstan "On State Regulation and Supervision
of Financial Market and Financial Organizations " dated July 4,
2003 № 474 (as of 10/06/2006 year)
8.Ilyasov AA
Gilimov AK Journal Journal of execution. "A series of economic.
№ 4 (26). 2006.
9.Lavrushina OI, "Money, credit, banks. " Second edition,
Moscow 2000.
10. Azhimetov NN The procedure of conservation banks urovnya. / Publication / www.afn.kz
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