Analysis of commercial bank asset-liability management efficiency in the Republic of Kazakhstan

As of January 1, 2013, there were 38 second-tier banks and 362 bank branches in Kazakhstan. Second-tier bank assets made up 13,870.3 billion tenge, which was 1,052.4 billion tenge, or 8.2%, more than compared to January 1, 2012.

The reason for this is the increase in the following articles:

- "Bank Loans" and "The Reverse Repurchase Agreement Activities" - 1,167.6 billion tenge, or 11.2%;

- "Cash, Affined Precious Metals, and Correspondent Accounts" – 82.8 billion tenge, or 5.9%;

- "Other Assets" – 185.2 billion tenge, or 9.1%.

The loan portfolio of the Kazakhstani banking sector made up 11,656.6 billion tenge as of January 1, 2013, which was 1,183.8 billion tenge, or 11.3%, more than it was at the beginning of the year.

In this case:

- Loans for legal persons made up 7,049.7 billion tenge, thus having increased by 344.5 billion tenge, or 5.1%, in the accounting period;

- Loans for natural persons made up 2,530.4 billion tenge, thus having increased by 511.9 billion tenge, or 25.4%, in the accounting period;

- Loans for small and medium businesses made up 1,870.7 billion tenge.

In the system of the loan portfolio of second-tier banks, the majority of loans are constituted by those:

- For legal persons – 60.5%;

- For individual persons – 21.7%;

- For small and medium businesses – 16.0%;

- The Reverse Repurchase Agreement activities – 0.5%.

As of January 1, 2013, customers' deposits accounted for 8,532.8 billion tenge (71.9% of second-tier bank joint liabilities), thus having increased by 735.3 billion tenge, or 9.4%, since the beginning of the year.

Legal persons' deposits made up 5,117.7 billion tenge, which is 84.3 billion tenge, or 1.7%, more than that as of January 1, 2012.

Individual persons' deposits increased by 651.0 billion tenge, or 23.6%, thus having accounting for 3,415.1 billion tenge at the balance sheet date.

Customers' deposits in foreign currency made up 2,671.8 billion tenge, thus having increased by 119.3 billion tenge, or 4.7%, in the accounting period.

The banking sector of Kazakhstan is characterized by a high concentration of assets possessed by a small group of banks. The banks, which have assets that are no more than 1 trillion tenge, constitute no more than 46% of total assets belonging to the country's banking sector. As of January 1, 2013, their amount made up 34, or 89% of the total number of banks. Consequently, the majority of assets are concentrated in five major banks (Table 1).

Table 1 – Dynamics of the number of banks in terms of their assets value

The strengthening of banks that have assets more than 1 trillion tenge has been evidenced since 2006 when there share made up about 26%. In spite of their financial problems, major Kazakhstani banks still dominate on the market. The reason for this is the financial support provided by main shareholders, on behalf of either the state or financial industrial groups.

Some smaller banks can strengthen their market position in the short term. However, this will not cause any profound changes in the banking sector system during 2013 [1].

Long-term credit ratings of major Kazakhstani banks are made by such international rating agencies as Standard & Poor's (S&P), Moody's, and Fitch Ratings.

There are following top five banks in the country in terms of their assets value:

– "Kazkommertsbank" JSC;

– "Halyk Bank of Kazakhstan" JSC;

– "BTA Bank" JSC;

– "Bank CenterCredit" JSC;

– "ATF Bank" JSC.

According to the statutory records data, as of January 1, 2013, the total assets of the banking sector accounted for 13.87 trillion tenge. Given these data, 54% of assets fall within the following top four banks:

– "Kazkommertsbank" JSC;

– "Halyk Bank of Kazakhstan" JSC;

– "BTA Bank" JSC;

– "Bank CenterCredit" JSC

Furthermore, the leaders in terms of their owned capital are the following banks:

– "Kazkommertsbank" JSC (461.6 billion tenge);

– "Halyk Bank of Kazakhstan" JSC (302.8 billion tenge).

As a result of its reorganization, the BTA Bank JSC reconstructed its owned capital that accounted for 209.9 billion tenge as of January 1, 2013. The complete recovery of capital adequacy (more than 21.6%) is expected to be achieved within next four years.

The owned capital of the Sberbank JSC bank subsidiary is increasing at a rapid pace, thus having raised its position from the 8th to the 5th place within 2012.

The KASPI BANK JSC also experienced an intensive increase in its owned capital (41.2%).

Such two top ten banks as the Bank CenterCredit JSC and the TEMIRBANK JSC had a decrease in their owned capital by 0.3% and 0.2% respectively.

During the 2010 – 2013 period, two banks (the Kredit Altyn Bank JSC and the Masterbank JSC) broke the banking legislation of the National Bank of the Republic of Kazakhstan as well as they did not comply with its instructions to remedy those violations. Thus, these banks' licenses were terminated.

34 out of 38 operating banks complied with the standards. Besides, the rating made by the Kursiv.kz Analytical Group provides the data received from 33 second-tier banks for the first quarter of 2013.

However, this rating does not provide any information on the following banks:

– "KAZAKHSTAN ZIRAAT INTERNATIONAL BANK" JSC bank subsidiary;

– "ALFA-BANK" JSC bank subsidiary;

– "RBS (Kazakhstan)" JSC bank subsidiary;

– "TAIB KAZAKH BANK" JSC bank subsidiary;

– "Industrial and Commercial Bank of China in Almaty" JSC [2].

According to the Kursiv.kz Analytical Group rating, medium-sized banks had an advantage over large banks in terms of their credit portfolio quality. Given the largest share of their conventional loans as of early January 2013, the top three banks were the Tsesnabank JSC, the Sberbank JSC bank subsidiary, and the Eurasian Bank JSC.

Thus, the Tsesnabank JSC had the largest share of conventional loans that constituted 76.7% (364.4 billion tenge) of the total share, the Sberbank JSC bank subsidiary had the one of 72.9%, or 386.0 billion tenge, and the Eurasian Bank JSC had this figure fixed at 48.7%, or 179.2 billion tenge.

Within this year, the number of bad loans increased by more than one third. For example, compared to the beginning of 2012, the number of non-performing loans increased by 44.8% and accounted for 3.292 trillion tenge. Thus, the top ten banks' share of bad loans exceeded 93.2% of the total share of bad loans (as of January 1, 2012, it made up 91%). [3]

In 2012, seven banks had an increase in their assets. Out of ten leading banks, the Sberbank JSC bank subsidiary had the best growth rate (49.2%).

Three banks in the top 10 group had a decrease in their assets. The ATF Bank JSC had the largest decrease in its assets (13.4%). The BTA Bank JSC had this index fixed at 6.1%, and the Bank CenterCredit JSC had it fixed at 0.1%.

As of year-end 2012, the BTA Bank JSC had a negative financial result.

In spite of the sufficient state financial aid delivered to the banking sector, as of year-end 2012, 8 out of 38 Kazakhstani banks had negative profit, among them there were such top ten banks as the BTA Bank JSC, the ATF Bank JSC, and the Nurbank JSC.

The Halyk Bank of Kazakhstan JSC is the leader among the largest credit organizations by profit margin. The reason for that can be the fact that the Samruk-Kazyna National Wealth Fund provides state support for this bank. The second and third place are taken by the KASPI BANK JSC (18,770.4 million tenge) and the Sberbank JSC bank subsidiary (13,529.8 million tenge) respectively.

Interestingly enough, the smaller the bank, the more net profit it has. Experts believe that the main reason for such a trend is a conservative approach such banks apply to loan services provided to citizens and construction field. On the other hand, such an approach is applied by the banks in terms of their own corporate customer focus. The aforementioned reason can also be explained by a small amount or the absence of foreign loans [1].

Analysis of assets management activities. As of January 1, 2013, second-tier bank assets made up 13,880.0 billion tenge, thus having increased by 1,062.1 billion tenge, or 8.3%, compared to January 1, 2012. This was possible because of the increase in such articles as "Bank Loans" and "The Reverse Repurchase Agreement Activities" by 1,168.8 billion tenge, or 11.2%; "Cash, Affined Precious Metals, and Correspondent Accounts" – by 82.8 billion tenge, or 5.9%; as well as other assets – by 106.8 billion tenge, or 5.2% (see Table 2).

Table 2 – Structure of total assets of the banking sector in Kazakhstan

In terms of assets structure, financially stable banks have the largest share of cash on hand and account balance in the National Bank of the Republic of Kazakhstan (46%), as well as loans and other invested assets (30%).

Financially stable banks have producing direct receipts assets that constitute 34%, whereas an appropriate level is considered to make up more than 50%.

Table 3 – Structure of the loan portfolio of the banking sector in Kazakhstan

Over the last few years, there has been a trend in Kazakhstan to increase the amount of consumer loans. Providing consumer loans (such as emergency loans, loans to buy property, and property construction loans) is becoming an attractive investment field for commercial banks.

The efficiency of bank activities depends on the deliberateness of their loan policy and the quality of their loan portfolio.

The share of loans in the assets portfolio accounts for 60 – 65%, which is considered to be appropriate for a bank. Generally, Kazakhstani banks comply with this standard.

However, as is seen from Table 3, which demonstrates assets allocation as loans, the majority of loans were given to legal persons. On the other hand, the amount of loans given to legal persons tends to decrease (from 64% in 2010 to 60.5% in 2012), while the amount of loans given to natural persons tends to increase (from 19.5% to 21.7%). It demonstrates that it is more profitable for banks to deal with small loans rather than give loans to large industrial enterprises.

The loan portfolio of the banking sector in Kazakhstan as of January 1, 2013 made up 11,657.9 billion tenge. Compared to January 1, 2012, it increased by 1,185.1 billion tenge, or 11.3%.

Loans for legal persons increased during the specified period by 345.7 billion tenge, or 5.2%, and accounted for 7,050.9 billion tenge. Loans for natural persons increased by 512.0 billion tenge, or 25.4%, and constituted 2,530.5 billion tenge. Loans for small and medium-sized enterprises made up 1,870.7 billion tenge.

The share of non-performing loans was 36.7%, and the share of overdue payment (more than 90 days) was 29.8%. Besides that, at the beginning of 2013 the share of non-performing loans accounted for 36.7%, and that of overdue payment (more than 90 days) was 30.8%.

Table 4 – Quality of the loan portfolio of the banking sector in Kazakhstan

In general, Kazakhstani banks have short-term liabilities, while long-term assets remain unsecured. It encourages them to give loans for a term of three months and does not enable them to finance long-term projects, which also slows down loan growth.

For the purpose of the acceleration of the bank balance clearing process, the National Bank of the Republic of Kazakhstan has introduced the threshold amount for the share of non-performing loans in the loan portfolio since 2013.

Non-performing loans are those loans, which have more than 90 days in arrears.

As of January 1, 2013, the largest amount of non-performing loans that had more than 90 days in arrears could be observed in the following banks: the BTA Bank JSC – 78.2%; the Alliance Bank JSC – 46.2%, and the ATF Bank JSC – 42.6%. Among the banks where the share of such loans accounted for more than 15% there turned out to be the Kazkommertsbank JSC (a quarter of the loan portfolio) and the Halyk Bank of Kazakhstan JSC – 16.9%.

It is well known that the quality of loan portfolio is determined according to the relative share of overdue payment in relation to the total amount of granted loans.

The optimal value of this indicator is no more than 4%. However, it should be noted that 7 problem banks as well as one financially stable bank had the share of overdue loans that constituted 15 or over 15 percent.

According to the standards of the National Bank of the Republic of Kazakhstan, in 2013 non-performing loans that have more than 90 days in arrears are to make up less than 20% of the loan portfolio, and by the beginning of 2014 this number is supposed to constitute less than 15% [3].

Otherwise, banks will have to develop and submit a plan on assets quality enhancement to the National Bank of the Republic of Kazakhstan. Such a plan is supposed to use the following techniques developed in 2012 in order to clear the loan portfolio:

- The Fund of Problem Loans;

- Bank subsidiaries to manage distressed assets;

- Temporary tax exemption to write off bad assets.

If the National Bank of Kazakhstan considers the measures taken by a bank to be ineffective, it has the right to impose sanctions on this particular bank and its shareholders.

Analysis of liability management. Liability-related transactions provide for the funding base of commercial banks as well as extensive opportunities for assets-related transactions and their structure.

As for January 1, 2013, the joint liabilities of second-tier banks made up 11,874.6 billion tenge, thus having increased by 360.0 billion tenge, or 3.1%, compared to January 1, 2012.

The increase in customers' deposits within the year constituted 735.4 billion tenge, or 9.4%. Issued bonds decreased by 501.6 billion tenge, or 33.5%.

In the system of second-tier banks joint liabilities, the major share was constituted by customers' deposits (71.9%) and issued bonds (8.4%).

Kazakhstani second-tier bank liabilities to the non-residents of the Republic of Kazakhstan made up 1,637.2 billion tenge, or 13.8% of second-tier bank joint liabilities.

The relative share of bank stock in the system of liabilities accounts for 14.4%.

As is seen from Table 5, as of January 1, 2013, customers' deposits made up 8,532.9 billion tenge (71.9% of second-tier bank joint liabilities) that has resulted in the increase of 735.4 billion tenge, or 9.4%, since the beginning of the year. Legal persons' deposits made up 5,117.8 billion tenge, thus having increased by 84.4 billion tenge, or 1.7%, compared to January 1, 2012. Natural persons' deposits increased by 651.0 billion tenge, or 23.6%, which was 3,415.1 billion tenge in total as of the date mentioned above. Customers' deposits in foreign currency made up 2,671.9 billion tenge that resulted in the increase of 119.4 billion tenge, or 4.7%, for the period under review.

Table 5 – Structure of the banking sector state funding in Kazakhstan

As of January 1, 2013, in the system of second-tier bank state funding, customers' deposits constitute 61.5 %, authorized capital stock – 20.1 %, and issued bonds – 7.2 %. It demonstrates the ability of second-tier banks to credit large-scale projects.

On the other hand, there are some inconsistencies in the ratio of granted loans to raised funds. The average rate in terms of all 38 Kazakhstani banks makes up 83.9 %.

Given this, it can be concluded that the credit policy conducted by problem banks is risky. This is also expressed in the insufficient diversification of credit risk.

The management teams of the aforementioned banks understated the credit risk in terms of loans either unprofessionally or deliberately. When the term expired, loans were not always transferred to the financial accounts of overdue payment.

As a result, this has led to the increase of bad debt and bad loans, the majority of which was given to natural persons without adequate security.

Conclusion. Based on the analysis of commercial bank operating efficiency in terms of assets and liability management, the following conclusion can be made:

1) Almost all the Kazakhstani second-tier banks do not have a clear development and operation strategy focusing their activities on the needs of a current period.

2) Commercial banks have a low relative share of performing assets that indicates insufficient effectiveness of bank management.

3) There is a tendency to increase the amount of consumer needs loans given to natural persons.

4) Second-tier banks are not so active in attracting citizens' money as well as legal persons' deposits.

5) Interbank lending in Kazakhstan has just started to develop. Its level is mainly determined by interpersonal relationships between commercial bank executives and founders.

6) In the process of assets and liabilities management, bank managers should take into account the external and internal conditions and factors of second-tier bank activities:

The external conditions and factors are as follows:

- Confidence of citizens and businesses;

- Competitive environment, including that at the regional level;

- Economic environment, including that at the regional level.

The internal conditions and factors are as follows:

- Bank maintenance support and human resourcing;

- Bank administration and its management.

REFERENCES

1. Official website of the Almaty Regional Financial Center Rating Agency

2. http://finance.delovoimir.kz/cpages/

3. Official website of the National Bank of the Republic of Kazakhstan

4. Khamitov, N. N. Bank Management. – Almaty, 2007 (in Russian)