FINANCIAL SECTOR
Banking sector
As of October 1, 2010, the banking sector of the Republic of Kazakhstan comprised 38 tier two banks. Total assets of banks equaled KZT 11 927.1 billion, having decreased during September 2010 by KZT40.3 billion (0.3%). Total calculated own capital of the banking sector equaled KZT 1777.5 billion, having increased during September 2010 by KZT12.0 billion or 0.7%.
In 2007-2009 Kazakhstan’s financial system was hit by the global financial crisis harder than most of CIS countries. The crisis affected the ability of Kazakh banks to borrow on external debt capital and equity markets, which in return significantly decreased their lending capacity. A lack of lending has had a negative impact on loans-dependent sectors of the national economy (construction, small and medium size businesses, trade).
In order to support the financial system in 2008 the Government drafted a comprehensive plan to support and further increase the capitalization, maintain financial sustainability and liquidity of systemically important financial institutions. The Government together with the National Bank and the Agency on Regulation and Supervision of Financial Market and Financial Organizations (Agency) throughout 2009 gradually implemented the Program of the economy and financial sector stabilization. Under this program banks were provided with supplemental liquidity to build up an adequate level of capital which has secured stability of the banking sector.
In the meantime, throughout 2009 Kazakhstan’s financial sector had to continue its operations in difficult conditions due to persisting instability in the global financial markets. The lending activity of Kazakhstan banks remained objectively low over the past year. The main reason for this was an unbalanced growth of the financial system in the previous years and lending conservatism driven by current losses and persisting expectations of high economic and financial risks, insufficient capitalization and liquidity. Nevertheless, as a result of anti-crisis measures of the Government, the banking system has shown a moderate growth of the loan portfolio over 2009-2010.
The banks’ loan portfolio (inclusive of interbank loans) as of October 1, 2010, equaled KZT9258.9 billion, having increased during September 2010 by KZT140 billion (1.5%). Loans by sectors of economy (exclusive of natural persons and entrepreneurs) equaled KZT7116.6 billion, having increased during September, 2010 by KZT134.8 billion or 1.9%. Herewith, the breakdown of loans was as follows: construction – 25.9%; trade – 26.2%; non-productive area – 24.6%; industry – 15.2%; agriculture – 4.3%; transport – 2.6%; entrepreneurship – 0.6%; communication – 0.6%.
A high level of credit risk and the deteriorating quality of the loan portfolio remain to be weaknesses of national banking system. Following struggling business activity and devaluation of the national currency, in 2009 the volume of non-performing loans (NPL) of commercial banks increased 4.5 times to 3.5 trln tenge, which now makes up 36.5% of the aggregate loan portfolio. The coverage ratio (measuring the extent to which the made provisions cover nonperforming loans) - 1.03. The overwhelming share of nonperforming loans is accounted for BTA and Alliance, which have recently completed the main part of their external debt restructuring negotiations (see detailed information below). Exclusive of the two above mentioned banks, the shares of nonperforming loans and made provisions total at a lower level, 17.9% and 19.6%, respectively.
Along with credit risks, there were liquidity and refinance risks which gave rise to special concern because external funding on international capital markets accounted for a significant share in banks’ liabilities. Nevertheless, due to the realization of abovementioned anti-crisis measures the foreign liabilities of commercial banks significantly decreased.
Total liabilities as of October1, 2010, equaled KZT10 697.6 billion, of which amount, liabilities to non-residents equaled KZT2 523.5 billion of total liabilities, having increased during September 2010 by KZT46.9 billion or 1.9%. Total corporate and retail deposits attracted by banks from legal entities and individuals (other than banks and special purpose subsidiaries) equaled KZT6730.7 billion, having decreased over September 2010 by KZT118.2 billion (1.7%).
Despite adverse trends in the economy and banking system, the public’s confidence in the banking system was not lost. As a result, total income of tier two banks equaled KZT 5144.2 billion. Expenses totaled KZT 3662.2 billion (exclusive of income tax, which as of reporting date equaled KZT7.8 billion). The banks’ retained net earnings equaled KZT 1474.3 billion at October 1, 2010.
BTA and Alliance Bank
BTA’s restructuring plan was approved by the Agency’s Board on September 26, 2009. On October 16, 2009, the specialized court of the city of Almaty granted in full the bank’s petition for restructuring. BTA and the Creditors’ Committee have accordingly signed the Restructuring Agreement, i.e., “Principal Commercial Terms Sheet”. As of March 23, 2010, BTA has received a preliminary approval from the Creditors’ Committee for the restructuring plan.
BTA’s subsidiary bank, Temir Bank has also undergone the restructuring process. On November 18, 2009, the Agency’s Board approved the Plan for Restructuring and Recapitalization. On December 18, 2009, the Temir Bank and the Creditors Committee agreed the terms and conditions of the restructuring through the signing of Agreement Letter concerning the terms and conditions of the restructuring. On January 11, 2010, the court granted the bank’s petition for restructuring and its conduct in a time frame before July 1, 2010. Temir Bank as of March 31, 2010, has received a preliminary approval from the Creditors’ Committee for the restructuring plan.
Alliance Bank’s petition for restructuring was granted by the court on September 18, 2009. This petition obligates bank to implement a proper set of actions to restructure liabilities. On October 5, 2009, Alliance Bank together with National Wealth Fund “Samruk-Kazyna” and the Creditors’ Committee of the bank signed the Restructuring Agreement “Term Sheet” detailing the mechanism for the realization of options for creditors and detailing the bank’s strategy for next several years. The creditors meeting of December 15, 2009, approved the plan to restructure the bank’s liabilities which the Agency’s Board approved in its decision of July 21, 2009. As of March 15, 2010, Alliance Bank in accordance with the court’s decision completed the procedure for the restructuring of liabilities.
Pension system
As of October 1, 2010, there are 13 pension accumulation funds operating in Kazakhstan, with 75 branches and 49 representative offices in regions across the country. 13 legal entities are currently holding licenses for investment management of pension assets, of which number, 12 funds are licensed to independently manage pension assets.
As a part of its anti-crisis management program the Government has taken actions to increase capitalization and ensure the safety of pension savings. The monitoring of the financial condition of accumulation pension funds, particularly monitoring of profitability, structure and value of the investment portfolio, assessment of capital adequacy was significantly strengthened with consideration for the necessity to make a contingent liability to possible compensations.
Currently, capital adequacy has been retained at the previous level, while the size of pension savings and “net” investment income have stabilized. The number of individual pension accounts on mandatory pension contributions reached 7 903 567 by October 1, 2010, with pension accumulations on them totaling KZT2124.1 billion. During September 2010, the number of accounts owned by contributors of mandatory pension payments has increased by 33242 (0.4%), while pension accumulations increased by KZT40.3 billion (1.9%).
Contributors/beneficiaries’ pension accumulations have increased over September by KZT40.3 billion (1.9%) to reach KZT2 129.6 billion by October 1, 2010. Total received pension payments have increased over September, 2010 by KZT31.6 billion (1.9%), to reach KZT1 720.4 billion by October 1, 2010.
Total net investment income from invested pension assets (less commission fees), distributed among contributors/beneficiaries’ individual pension accounts have increased over September 2010 by KZT12.9 billion (2.5%), and as of 1 October, 2010 equaled KZT532.5 billion.
Insurance market
As of October 1, 2010, there were 40 insurance/reinsurance organizations operating in financial market of Kazakhstan as licensed by the Agency; herewith. 7 organizations are licensed to engage in life insurance activity, while 27 are in mandatory insurance of civil responsibility of car owners. Also operating in the insurance services market are 13 insurance brokers and 65 actuaries. 28 insurance/reinsurance organizations are participating in insurance payments ensuring system.
Weakening general economic conditions in the country have negatively affected the insurance segment, particularly affecting the inflow of insurance premiums. In 2009 there was a slump in the total amount insurance premiums. The total amount of insurance premiums taken in direct insurance over the year 2009 over 113.3 bln tenge, down by 15.1% against the indicator for the year 2008. In analyzing the changes in insurance premiums, one can note that the slum in the total amount of premiums was due to a drop in insurance premiums from voluntary property insurance by 28% against the indicator for the year 2008, including the amount of premiums from insurance against other financial losses dropped by 74%, that from liability insurance (except automobile liability insurance) dropped by 56%. Positive changes in the insurance market development were driven by personal insurance and mandatory insurance since premiums from them increased by 16% and 2%, respectively.
In order to mitigate the impact of the crisis on the insurance sector and maintain stable growth, it was throughout the year 2009 that work was carried on to raise the public confidence in insurance through reinforcing financial sustainability and transparency of insurance organizations, strengthening protection of interests of insurance services consumers. Measures are taken to enhance the system of mandatory insurance, develop voluntary products of insurance (including those of life insurance with a savings element) and also strengthen insurance organizations as investment institutions.
Total assets of insurance/reinsurance companies as of October 1, 2010,have increased by 14.2% to reach KZT339.6 billion. Total equity (own capital) has increased by KZT17.1 billion (11.4%) and equaled KZT201 billion. The volume of insurance premiums taken under direct insurance contracts equaled KZT106.1 billion, having increased by 26.6% vs. the same indicator of the last year. The volume of insurance premiums in “life insurance” branch equaled KZT12.7 billion (a 2 times increase vs. the last year indicator), percentage-wise, life insurance accounted for 12% (vs. 7.4% on October 1, 2009).
Stock exchange
As of October 1, 2010, there were 2169 joint stock companies with current issues operating in corporate securities market. Also operating in the market are 78 brokers/dealers, 11 registrars, 10 custodian banks, 15 IMPAs (investment managers of pension assets, i.e. organizations engaged in investment management of pension assets), 43 investment portfolio managers and 3 transfer agents.
The global financial crisis had a negative impact of Kazakhstan’s emerging stock exchange. As a result 26 issuers defaulted on 63 issues of nongovernment bonds whose nominal value totaled 632.0 bln tenge or 12.1% of the total volume of nongovernment bonds in circulation. A plenty of measures was taken by the Government to minimize the adverse fallout of the crisis, take measures aimed at the strengthening of the financial health of professional players in the securities market, minimize risks associated with their activity, provide protection of interests and rights of investors and improve their financial literacy.
Capitalization of shares and bonds on the stock exchange has reached 11.6 trln. tenge as of January 1, 2010 (2.2 times more than in 2008). One of the main factors of growth of stock exchange capitalization was an increase in the value of listed financial instruments. As of 1 October 2010, there were 387 current corporate bond issuers in circulation with total face value of KZT5 860.8 billion. There were 168 mutual funds operating in securities market, of which number 129 were closed-end, 15 open-end and 24 interval ones. Also, there were 34 joint-stock investment funds currently operational in the market.
For more information about the financial sector development, please download the Press Release No 229 of the Agency of Republic of Kazakhstan on regulation and supervision of financial market and financial organizations.
