**data across the system is given without BTA Bank, JSC and Alliance Bank, JSC.
Year 2007 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, 2008. 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.
Total estimated own capitalofsecond tier banks increased by 167.7 bln.tenge (9.4%) from the beginning of 2008 and reached 1 947.8 bln. tenge as of 1 January 2009. 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, 2009 is the least but positive.
Table 5 - Change in liquidity of the banking sector, [7]
| Indicators: | Jan 1. 2008 | Jan 1. 2009 | Jan 1. 2009* | Jan 1. 2010 | Jan 1. 2010* |
| bln. tenge | bln. tenge | bln. tenge | bln. tenge | bln. tenge | |
| Current liquidity ratio k46(min value 0.3) | 1.43 | - | - | 0.9 | 1.1 |
| - | 3.1 | 3.7 | 5.1 | 5.9 | |
| Quick liquidity ratio k4-1 (min value 1) | |||||
| Quick liquidity ratio k4-2 (min value 0.9) | - | 1.8 | 1.9 | 2.6 | 3.2 |
| Quick liquidity ratio k4-3 (min value 0.8) | - | 1.6 | 1.7 | 2.1 | 2.4 |
*data across the system is given without BTA Bank, JSC and Alliance Bank, JSC.
In table 5, as of 1 January 2008, the liquidity of the banking system remained at excessive level. Composite current liquidity ratio, as of 1 January 2008, was 1.43 (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 2008 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 2009 there wasn’t any violation of term liquidity and term currency liquidity coefficients (considering liquidity norms changes). Herewith, As of 1 January 2009 in banking system there are: coefficient of term liquidity up to 7 days (k4-1) constituted 3.1 (vs. minimum norm 1); coefficient of term liquidity up to 30 days (k4-2) constituted 1.8 (vs. minimum norm 0.9); coefficient of term liquidity up to 90 days (k4-3) constituted 1.6 (vs. minimum norm 0.8).
Composite current liquidity ratio, as of 1 January 2010, was 0.9 (vs. minimum standard for a particular bank of 0.3), coefficient of term liquidity up to 7 days (k4-1) constituted 5.1 (vs. minimum norm 1); coefficient of term liquidity up to 30 days (k4-2) constituted 2.6 (vs. minimum norm 0.9); coefficient of term liquidity up to 90 days (k4-3) constituted 2.1 (vs. minimum norm 0.8).
Mainly all indicators of liquidity for January 1, 2010 are the highest, it means that the liquidity of banks increases and for banking sector it is good.
Table 6 -Summary performance indicators reflecting the earnings of the banking sector, [7]
| Indicators: | Jan 1. 2008 | Jan 1. 2009 | Jan 1. 2010 |
| bln. tenge | bln. tenge | bln. tenge | |
| Net income before tax to total assets (ROA) | 2.25 | 0.23 | -24.06 |
| Net income before tax to equity (ROE) | 18.41 | 1.88 | -1192.63 |
| Interest income to total assets | 10.64 | 12.39 | 11.04 |
| Interest income on loans to total loan portfolio | 12.76 | 14.64 | 11.87 |
| Interest expense to total liabilities | 6.40 | 7.63 | 7.43 |
| Provisioning expenses to total assets | 2.11 | 11.09 | 50.27 |
In interest income, the largest proportion falls on interest income on loans to customers, while in interest expense prevailing are interest payments on due to customers. Net income before tax to total assets ratio (ROA) totaled 2.25%, net income before tax to equity ratio (ROE) was 18.41% (table 6).
Net income before tax payment to total assets ratio (ROA) totaled 0.23%, net income before tax payment to own capital ratio (ROE) was 1.88%.
Net income before tax payment to total assets ratio (ROA) totaled (-24.06)%, net income before tax payment to own capital ratio (ROE) was (-1192.63)%.
The results of the banking sector in 2009 are waning, despite the tremendous support of several big banks, huge losses and negative equity have not been overcome.
In the global economic crisis banking system of Kazakhstan was one of the most affected in country's economy. Standard & Poor's attributes this to its structural weaknesses, which are due to the strong dependence on external financing, as well as high-risk concentration (including the connection with significant risk of some major banks in foreign loans), weak risk management, a significant share of unhedged loans and deposits denominated in dollars, coupled with the ineffectiveness of measures taken by regulatory authorities, as well as the rapid growth of banks over the last decade. The seriousness of these problems, evidenced by recent defaults of four Kazakhstany credit institutions, including two of the top four systemically important banks - JSC BTA Bank and Alliance Bank. At stake are in default of BTA Bank, Alliance Bank, JSC Temirbank and Astana Finance "accounts for about one-third of total outstanding loans of the banking system, and their reporting rates of gross problematic assets (GPAs) and loan losses on settlements of Financial Institutions’ Association of Kazakhstan will be significantly higher than the average for the system.
In terms of Financial Institutions’ Association of Kazakhstan in the next few years the banking sector in Kazakhstan will be subjected to risks associated with the quality of assets and refinancing. Even if conditions improve, and economic growth resumes, banks can not quickly cope with the problems caused by their aggressive expansion in the lending market in the recent past. [8]
CHAPTER III. PROBLEMS AND PERSPECTIVES OF DEVELOPMENT OF BANKING SYSTEM OF THE REPUBLIC OF KAZAKHSTAN
The crisis of the world financial system which has begun in 2007, has negatively affected the development of financial sector of Kazakhstan. Most painfully it was reflected in bank system of the country.
Following negative tendencies have started to be shown:
- decrease in possibilities of domestic banks to involve external financial resources lead a reduction of volumes of crediting of internal economy;
- decrease in rates of growth of actives and reduction of volumes of capitalization of banks;
- were problems with repayment of external obligations.
Each of the listed factors is in itself important and, anyhow, influences functioning of two-tier banks. But their set leads to system failures and threatens effective work of financial sector as a whole. Therefore the measures accepted by the Government, National bank and Financial Supervision Agency of RK on their elimination became paramount steps on overcoming of the crisis phenomena in national economy. [9]
According to the majority of bank experts, officially beginning of financial crisis in Kazakhstan it is necessary to consider the September, 2007. Throughout 2008 decrease in indicators of bank sector, in comparison with the previous periods was more than obvious. After considerable growth of crediting in 2006-2007, in 2008 rates of crediting have decreased more than in 2 times. But problems with a credit portfolio in first half of 2008 weren't such obvious yet. For June, 1st, 2008 the share of hopeless credits were 1,65 %, against 0,7 % for June, 1st, 2007.
By that moment in the USA mortgage crisis has already burst, and the wave of shortage of liquidity has covered all developed and emerging markets. In Kazakhstan during this moment was observed the acute shortage of funding. So, from August, 2007 till February, 2008 index Kazprime reflecting the rate of interbank credits, has risen from 6,5 till 12,4 % that testifies to increase in demand at money resources and falling the offer.
It is necessary to notice that as the most part of loans has been given out in 2006-2007 also the most part of loans is necessary for this period. Mortgage crisis in America and deficiency of liquidity in the world have led that banks couldn't obtain external loans in sufficient volume any more against decreasing volumes of crediting.
By this time reports of the international rating agencies draw not iridescent prospect for the Kazakhstan banks. So, Moody’s notices that increase of rates in the international debt markets for the long period can complicate refinancing for the Kazakhstan banks involving means from abroad. Agency Standard and Poor’s passed an opinion for a long time fears of steady growth of external loans of Kazakhstan banks. By estimations of S&P sounded in the beginning of 2008, the next 12 months on the refinancing purpose to the Kazakhstan banks will be required 3 bln. dollars quarterly, and 70 % of refinanced obligations will make the syndicated loans.
Having problems with a credit portfolio and practically having lost of the operative income, under external obligations the largest banks of the country "have arrived" to margin call. In I quarter of 2007 the external debt of republic at the expense of growth of external loans of a private sector has increased up to 95,7 % of GDP. Experts have unanimously remembered that the Kazakhstan bank system – unique system which borrowed means in such quantity. As much as possible external debt of commercial banks of the country has reached 46 billion dollars.
In the second half of the year 2008 index Kazprime has fallen on former level, but hasn't relieved the Kazakhstan economy and bank system of larger shock – the second wave of crisis which was already characterized not only local problems of banks, and pressure of their external debts upon all economy of Kazakhstan.
Expecting such course of events, the government in November, 2008 has suggested to generate monetary "pillow" and to help backbone banks with volume of 5 bln. dollars by time occurrence in structure of their share capital. Technically the scheme looked so: banks let out additional volume of shares which the government through the authorized operator fund Samruk-Kazyna redeems for 5 bln. dollars, in the list of "happy" recipient of public funds are six banks among which were Kazkommertsbank, BTA, Halyk, Alliance, CenterCredit and АTF have entered. In aggregate, on all above-stated banks financing was necessary over 80 % of not raw sector of national economy.
Subsequently, because of support from the parent companies, АТF and CenterCredit haven't resorted to the help of the state. The remained distances the oral consent. According to the governmental plan, in each of four banks the state share in a share capital will be 25 %. Occurrence process should occupy no more than 2-3 months.
The external debt of domestic bank sector has decreased for the end of 2008 to 39 billion dollars. From February, 2nd government session where were considered its joint actions with National bank and FSA on acquisition of shares of joint-stock company BТА bank and joint-stock company Alliance bank has taken place. With a view of maintenance of stability and safety of bank system the government has established control at the above-stated financial institutions on personal for each of banks scenarios. The chairman of board of directors of joint-stock company BТА bank Muhtar Abljazov and the first deputy of the chairman of the board of joint-stock company BТА bank Zhaksylyk Zharimbetov were discharges of performance of official duties by FSA decision, in connection with a recognition of their actions not corresponding to interests of investors and creditors of bank and current legislation requirements. The chief shareholder of bank Alliance – Financial corporation "Seimar Alliance"– has sold 76 % of common shares belonging to it to Fund Samruk-Kazyna for 100 tenge.
On February, 4th National bank of RK made devaluation of national currency on 25 % with the established corridor 150 tenge per dollar, plus-minus 5 tenge. One day later also was reduction of refinancing rates from 10 till 9,5 %. Government "occurrence" in a financial position of two banks considerably becomes more active.
In March within the limits of a program government aid to banks the minimum reserve requirements decreased from 2 till 1,5 % on internal obligations and from 3 till 2,5 % on other obligations that allows to give liquidity to bank system at a rate of 50 bln. tenge. And on March, 27th, 2009 placing of 20,91 % of shares of joint-stock company Halyk Bank of Kazakhstan for the sum 27 bln. tenge in Fund Samruk-Kazyna has come to the end.
By April, 1st the sum of an external debt of banks was decreased up to 35 bln dollars. Simultaneously FSA has already considers possibility of re-structuring of obligations of some large banks.
The Alliance bank was the first which declared about re-structuring. On April, 13th the bank management officially declared impossibility of repayment of the debts under internal and external loans. The debts total sum is defined in 4,5 billion dollars. Agency Standard and Poor’s has established credit ratings of the counterpart of bank on a mark "SD" – a selective default. The estimation was based on the payment admission on one of financial obligations. Fitch Ratings has lowered a long-term rating of a default of the emitter bank from level "CCC" to "RD" (the limited default).
A bit later, on April, 20th, 2009, BТА bank declared about stay of payments on the basic debt to the creditors and about plans on re-structuring of external debts of bank. Agency S&P has decreased long-term and short-term credit ratings of BТА bank from "CC/C" till "D" (default). Fitch Ratings also has decreased ratings of BТА bank from "СС" till "RD".
So started the first in the history of Kazakhstan process of re-structuring of banks external debts. It is necessary to notice that the Kazakhstan experience in this question was specific enough as in the world community before a problem with banks solved different ways. The most popular decision in the western practice was to divide banks on "bad" and "good". This scheme was also used in last decision of problems with banks in Iceland and the Baltic countries in 2008. The similar way of re-structuring provided division of all shares on "bad" and "good". Further was created a uniform bank for "toxic actives" or uniform bank for "good actives". The Kazakhstan experience had differences and became in some measure axiomatic.
The latest (on November, 23rd, 2009) which declared about the re-structuring was Temirbank. Temir couldn't make payment on November, 6th, 2009 for the sum 5,8 bln. tenge, and also on November, 9th, 2009 for the sum 1,9 bln. tenge to the main shareholder BТА bank. Also Temir Capital B.V. couldn't pay compensation for the 23,6 million dollars sum, subject to payment on November, 23rd, 2009 under the senior bonds.
And in the meantime the Alliance bank has already signed the agreement with committee of creditors. In the Alliance agreement were contained five options for creditors and was registered the future corporate structure of bank with the mechanism of realization of re-structuring of debts. The given signing any more didn't leave doubts in successful procedure of re-structuring of debts of Alliance bank.
It is necessary to note that Alliance and BТА in structure of external obligations great volume of debts has had on such credit product as the trading financing, having more difficult structure, rather than the usual syndicated loan. Aggravated a situation the fact that trading financing with participation of export-credit agencies occupied a considerable part in a credit portfolio especially of BТА.