Consumer lending in Kazakhstan and abroad

In a market economy, an important role is played by commercial banks, whose number and range of services make a significant impact on the economic situation of the country. The most popular type of lending both among banks and among consumers is consumer lending. Due to consumer lending both parties are in a win-win situation, which is so difficult to achieve in real life: the buyer can buy anything he wants at the moment, and the bank has an effective interest rate, which is often as high as 60 percent. Currently, commercial banks increasingly pay attention to retail customers.

The research analysis of the credit policy of second-tier banks of the Republic of Kazakhstan, and, in particular the status and forecasting of consumer lending in the country is presented in Figures 1 and 2.

Figure 1. Changes in supply and demand for loans in the Republic of Kazakhstan

According to Figure 1, the banks customer lending offer starts decreasing significantly beginning with the second quarter of 2013, reaching a critical point in the 2nd quarter of 2014. Until the 3rd quarter of 2014, the banks expected the demand for this type of lending to be higher than it actually turned out. But, nevertheless, the banks started increasing their offer in Quarter 3, 2014 and, as a result, the actual demand increased and tuned out to be higher than the banks expected in this period.

The increase in consumer lending is closely associated with the goods-glutted market and the financial solvency of the middle class. The lending volume increases with the turnover growth, because the demand for goods generates demand for loans. Thus, consumer lending can be viewed as the means to promote the demand for goods [1]. Changes in the credit policy of banks in Kazakhstan is shown in Figure 2.

Figure 2. Changes in credit policy of banks

According to the respondent banks’ data on the state of consumer lending in Kazakhstan, taken from the official Internet resource of the National Bank of the Republic of Kazakhstan, the credit policy of banks will be directed at a slight increase in the interest rates on loans: 32 percent of banks plan to increase interest rates for consumer lending and 27 per cent of respondents expect to increase their mortgage [2].

Bank risks associated with the deteriorating financial condition of borrowers slightly increase: about 12 percent of banks expect a further deterioration in the financial condition of borrowers and collateral quality.

Analyzing the Western experience of consumer lending we can note that the most common form of consumer lending in Germany is a cash lending. This form of credit is beneficial for the borrower because shops can make a discount of up to 5 percent of the good’s value for customers paying cash. For the entire period of the credit agreement the bank sets a fixed interest rate, and its level is relatively low. The maximum loan term is six years. The amount of the monthly payment depends on the loan sum. After determining the amount of payment, is automatically collected monthly from the client’s current account.

To demonstrate the availability of consumer lending we took the average interest rates in foreign countries and banks of the Republic of Kazakhstan. The information is presented in Table 1.

Table 1. Average interest rates in banks of the Republic of Kazakhstan and in foreign countries

Interest rates are largely dependent on the rate of inflation in the country, bank competitive environment, credit expansion, population financial solvency and credit risks.

For comparison, in the US there are three groups of consumer loans:

- Installment loans;

- Revolving (renewable) loans;

- Non-installment loans;

Installment loans with take more than 80 percent of the total consumer lending. Maturities ranges from 2 to 5 years. Unlike the case with revolving credit loans, the majority of installed loans are secured. In the United States, as in other Western countries, installment loans may be issued in direct or indirect ways [3].

Data on consumer lending in the United States (as a percentage of the total) is presented in Table 2 [4].

Table 2. Consumer lending in the United States (percent to the total)

Commercial banks (44 percent) issue the major part of consumer loans to the population of the United States, but they are actively competing with financial companies (around 24 percent), credit unions (13.9 percent) and specialized financial institutions (10.7 percent).

A similar practice can be seen in other foreign countries, where the majority of credit institutions from universal commercial banks to specialized thrift institutions render a variety of services for individual credit borrowers.

Currently, the Kazakhstan market of consumer lending is significantly lower than the foreign markets.

Over the period of one year from March 2014 to March 2015 the market grew by only 7 percent. For comparison, in March 2014 and 2013 the market grew by 48 and 45 percent respectively. Nevertheless, the level of consumer debt load remains in the comfort zone.

Consumer loan debt per employee for the period of 2010-2015 is shown in Figure 3.

Figure 3. Consumer loan debt per employee (average monthly salary, number)

Dynamics of consumer lending in Kazakhstan in March by region is shown in Tables 3 and 4.

In March 2015, the amount of consumer debt to the bank per employee amounted to 3.4 monthly salaries or 407 thousand tenge, while in March 2010 it was 2.1 monthly salaries.

The highest consumer loan debt among the regions of the Republic of Kazakhstan is in Almaty. Consumer loan debt per employee in Almaty is 8 salaries or 1.2 million tenge. Besides Almaty the tops five regions with the highest consumer loan debt include Mangistau region, Astana, Atyrau and Kyzylorda regions.

The lowest level of consumer debt is in the Almaty region with the loan debt of 1.8 salaries per employee or 156 600 tenge.

The main reason for this situation is supposedly the fact that many residents of Almaty region take loans in Almaty banks, while Almaty has a high concentration of entrepreneurs, taking personal loans for business development.

Table 3. Individual consumer loans by regions of Kazakhstan

Data on individual consumer loans by region(in March 2014 and March 2015, growth to the total, the share of the total loans in the Republic 0f Kazakhstan) is presented in Table 4.

Table 4. Individual consumer loans by region (growth to the total sum, share of KZ loans)

Analyzing Table 4, we can note that in March 2015 the amount of consumer loans of the population amounted to 2.5 trillion tenge. Every year the amount of issued consumer credits increases, both in Kazakhstan and in separate regions. In 2015 the banks issued 160.9 bln. more in consumer loans than in 2014, while the growth of the total was 53.9%. 37.7 per cent (942.5 billion tenge) of the loans falls to the share of Almaty [5].

The market analysis in terms of income levels and purchasing power of the population has shown that consumer lending development is an urgent issue in Kazakhstan. The banks bear the burden of certain risks:

- the risk of an exceptional depreciation of the securities received in the loan collateral;

- client asset loss as a result of the natural disaster;

- fraud on the part of the borrower.

An important characteristic of the modern state of the credit market is the ability to provide greater repayment of consumer loans than loans to enterprises and organizations.

Modern Kazakhstan practice of consumer lending to individuals requires its improvement both in terms of expansion of credit facilities, and the differentiation of the conditions for granting loans. We need to develop comprehensive banking services to the population, providing a wide selection of the latest banking products, increasing revenues, forming the resource base of the bank, developing credit relations with the population.

In the current difficult economic situation, macroeconomic stability in general and overcoming the inflation in particular will allow a wider use of bank loans by the population in order to solve vital problems. All this points to the need for further development and improvement of credit bonds of commercial banks with the population based on the study of domestic and foreign experience.

REFERENCES

1. O Bankakhi Bankovskoi Deyatelnosti v Respublike Kazakhsan. Zakon Respubliki Kazakhstan 2007 god. (s izmeneniyami I doponeniyami 2014 god) [On Banks and Banking Activity in the Republic of Kazakhstan. Law of the Republic of Kazakhstan 2007 (with amendments o f2014)] Retrieved from the official site of the National Bank of the Republic of Kazakhstan at http: // www. nationalbank. kz/

2. Shirinskaya Y.B. Operatsii Kommercheskikh Bankov i zarubezhnyi opyt [Operations of Commercial Banks and Foreign Experience]. –М.: Finansy i Statistika, 2006

3. Problemy i Perspektivy Razvitiya Potrebitelskogo Kreditovaniya v Kazakhstane. [Problems and Prospects of Development of Consumer Lending in Kazakhstan]. Retrieved from http:// www. newreferat. com/

4. The official website of Statistics of the second tier banks of the Republic of Kazakhstan http://ranking.kz/