Экономические науки/1. Банки и банковская система

PhD Ayezkanov A.B.

KazEU after named T.Ryskulov, Kazakhstan

Implementation of credit portfolio risk in second-tier banks of Kazakhstan

Formation of national banking system with the needs and scope of Kazakhstan is an essential prerequisite for the development of our country, its dignified exit and consolidation at the international level. In this important aspect is the need to improve the competitiveness of financial institutions and the banking sector of Kazakhstan by creating conditions for the functioning of the financial system that meets the needs of the real sector of the economy for financial resources and providing quality services in an environment of free competition. Kazakhstan needs highly capitalized, transparent and extensive national banking system. In today's world has been a significant increase in the levels of uncertainty and complexity of the global economic system, including the relationships between its elements, which lead to the growth and qualitative change and the increasing influence of different types of risks.

Slow growth rate of the global economy of increasing instability in international financial markets and the more recent years, the global financial crisis had a negative impact on the growth rate of Kazakhstan's economy heavily concentrated, but also significantly restrict the ability of the country's banking sector in attracting foreign borrowings, on which he heavily influenced. This negatively affects the growth of the banking sector in Kazakhstan and could lead to increased bank risk.

Since 2002, the bank's assets grew more than 10 times, with the pace of development of risk management in banks were much lower. In the face of lingering tensions on the global and national financial market asset quality of Kazakh banks has deteriorated. To prevent this, the banking sector to implement the transformation of business strategy, industry structure and business models, which increases the level of uncertainty, and leads to an increase in bank risk, particularly operational risk.

For several years, starting at the beginning of the two thousandth until 2007, Kazakhstan's banking sector showed strong growth. This process was accompanied by increased competition, the emergence of new types of banking products and the active output of Kazakh banks in the international market borrowings. It
 recently and a high dependence of Kazakhstan are banking system from the external market.

In the second half of 2007, the situation on world financial market has undergone dramatic changes: the onset of the crisis of liquidity in the sector related to mortgage lending, covering the entire financial sector. One consequence of this is raising the rates on external borrowing for Kazakhstan banks. The level of external bank debt at the end of 2007 amounted to 46 billion, of which more than 14 billion dollars were to be repayable over a period of 2008. Given the fact that the primary source of repayment of previous debt was to attract new loans, it is clear the reasons for the sharp slowdown in the banking sector in 2008. At the end of 2008, growth in total loan portfolio of second-tier banks amounted to about two per cent, while in 2007 this figure was significantly higher and amounted to 35.74%. In addition, in 2008, the bank revealed the risks associated with the quality of the assets included in the loan portfolio of banks. The level of overdue loans over 90 days exceeded the 5%. A related provision established for the entire loan portfolio reached 12%. These indicators point to increased credit risks of domestic banks.
Let us analyze the condition of the loan portfolio of the banking system of the Republic of Kazakhstan on the example of 6 largest banks in the country. Namely, the following subjects: Kazkommertsbank, JSC "BTA Bank" JSC "National Bank of Kazakhstan", JSC "Alliance Bank", JSC "ATFBank and Bank CenterCredit. As at 1 February 2009 the total loan portfolio of these banks stood at 7 742, 49 billion tenge and was 85% of all loans in the Kazakh banks.

It should be noted a tendency to slow growth in the loan portfolio when, in 2007 there was a significant increase in outstanding loans in 2008, the increase was negligible: only 1.97% against 35.74% in 2007. This is due to start in the second half of 2007, the global financial crisis. Because of the crisis cost of borrowing in the international market has become more expensive, which, coupled with liquidity constraints and risks recruited in the domestic market has become a major obstacle to further expansion of the loan portfolio. So we can say that in 2008 the rate of growth of lending by banks fell Kazakh economy in times.
On reducing the rate of growth in the loan portfolio impacted negatively impact the following factors:

First, because of the outbreak of problems with liquidity in the second half of 2007, Kazakh banks have found it difficult to refinance foreign borrowings. According to the NBRK in 2008 the volume of foreign borrowings of banks has declined dramatically, from 46 billion dollars to 39.2 billion U.S. Obviously, in 2008, banks had to spend substantial resources to servicing foreign debt, resulting in growth in lending declined.

Secondly, on the basis of 2008 marked slowdown in GDP growth in Kazakhstan. According to the Statistics Agency of Kazakhstan (ARKS), the rate of growth of GDP in 2008 amounted to 3.2%, significantly lower than in 2007 (8.5%). The slowdown had a negative impact on the level of business activity. Although, in turn, led to a decline in demand for credit resources.

And thirdly, the impact of reducing the impact of income. According to the ARKS, since September 2007, been a slowdown in real incomes. According to the operational data of the Agency in September 2007 began slowing income growth. For example, if on the basis of July 2007, growth in real income for the corresponding month the previous year amounted to 22,9%, in July 2008 this figure amounted to only 3.9%. It is obvious that the economic slowdown affecting the welfare of the citizens of the country.

The reduction of lending has led to problems with liquidity throughout the economy and generated a huge credit risk for Kazakh banks.

Next table shows the classification of the assets of Top 6 banks for the period 2006-2008 (1).

ths. tenge

Credits (loans)	2006	2007	increase	2008	increase
Standard	2 771 733 339	2 579 629 141	-6,93%	3 008 961 101	16,64%
Uncertain	2 816 948 805	5 028 798 146	78,52%	4 499 791 669	-10,52%
Bad	95 681 453	107 360 373	12,21%	358 784 623	234,19%
Total	5 684 365 603	7 715 789 667	35,74%	7 867 539 401	1,97%

Table reflects increased credit risk in the banking sector of Kazakhstan's economy. According to this table shows that in 2008 the amount of bad loans had increased markedly. This trend towards an increase in this category of loans has already manifested itself in 2007. At the end of 2007, the amount of bad loans grew by 12.21%, while in 2008; bad loans have increased by 234.19%. Given that growth in the loan portfolio in 2008 was at 1.97%, it becomes clear that in 2008 the situation on the quality of credit portfolio of banks first six deteriorated.
At the same time, it is worth noting that in 2007 the amount of doubtful loans had increased markedly. During 2007 the growth of this category of loans was 78.52%. But in the next period, the amount of these loans declined to 10.52%. Given the sharp rise in bad loans, we can say that the reduction of doubtful loans in 2008 was partly due to the transfer of these credits in the category of hopeless.
According to the AFN on 1 January 2009, the volume of loans related to bad loans 5 th category, and hopeless, was 744.2 billion tenge, or 8.1% of the total loan portfolio.

Deteriorating asset quality, coupled with other problems (high inflation, increasing unemployment, entering the state capital in the bank's second-tier) has led to a decline in the Kazakh banks' credit ratings by international rating agencies. This in turn has created new challenges for the banking system of Kazakhstan. Conditions and without it have been difficult to external borrowing became more difficult for domestic banks.

The increase in bad loans has been reflected in the amount of provisions, which are second-tier banks must establish, in accordance with the requirements of the supervisory body (AFN). If, in 2006 and 2007 related provisions to total loan portfolio was at the level of 5-6%, in 2008, the relevant provisions established for doubtful and bad loans rose to 12.02%. This demonstrates the increased credit risk in the loan portfolio of six leading banks in Kazakhstan. Provisions are recorded as losses incurred by the bank during the reporting period, and have a negative impact on the financial performance of the bank.

In addition, the increase in risk reduction has affected the prices of export commodities (oil, base metals, uranium, grain, etc.). Because the bulk of Kazakhstan's exports of petroleum and petroleum products, the level of world prices for these products is of great importance to the economy of our country. According to the National Bank of Kazakhstan on the basis of 2008 the share of the value of oil exports amounted to 61.1% of total merchandise exports of Kazakhstan. In the past six months, the price outlook for crude oil and petroleum products deteriorated.

To all this must be added the disappointing macroeconomic performance of the Kazakh economy: a reduction in GDP growth, declining incomes, declining prices of export goods. All this together is a real threat to sustainability and sustainable development of the banking sector of our country. And given the fact that over the last decade, the banking sector, along with the commodity sector has been one of the locomotives the rapid development of the Kazakh economy, it can be assumed that the problem of the banks most painful impact on all of its
 spheres. This situation raises questions not only bankers but also the Government.

It is obvious that the main reason for the negative results of the banking system was the implementation of credit risk in the loan portfolio of second-tier banks. Therefore, there is no doubt the claim that there is a need to improve risk management of credit portfolio in the second-tier banks in Kazakhstan.

Sources:

1. Official site of AFN. www.afn.kz. AFN / Banking / statistics / information on the classification of assets and contingent liabilities for the 2006-2008.