Authors: Trofimova Yulia, Kazakh American free university, Kazakhstan
Popov Alexander, Kazakh American free university, Kazakhstan
Today's rapidly changing internal and
external environment of the second-tier bank operation increases the need for
theoretical understanding of the loan portfolio quality management, for the search of new approaches and tools to
work with the borrowers. To do so, it is necessary to explore the specifics of
the environment in which the banks function and render lending services and
analyze the nature and content of basic definitions: "bank loan
portfolio", "bank loan portfolio quality", "loan
quality" and others.
In the scientific literature offers a
variety of definitions of the loan portfolio and a variety of scientific
approaches to defining its structure and place in the banking system.
"Portfolio" (from the French
Feuillet – a sheet, and porter–to carry) is a set of different types and forms
of financial and economic activities and corresponding objects, documents,
orders, monetary funds. Strategic management theory defines a portfolio as
"a set of independent business units belonging to the same owner" [1,
p. 18].
Banking sector plays an important role in
the economic development of the country. This role is determined by the ability
to establish a channel of uninterrupted flow of temporarily free funds into the
sector of economy, which requires significant capital investment for the modernization
of its fixed assets and to overcome a crisis and achieve sustained economic
growth. Speaking about the role of the banking sector in the economy of the
country, we should be note a decrease in the share of bank loans in the
country's GDP. By the end of 2015, this index was lower than that in pre-crisis
2005. We believe that this decline is caused by many external and internal
factors, which include the devaluation processes, lack of funding, increase in
non-performing loans, external liabilities and many other economic and
political factors. Among qualitative indicators of decline in the share of
credit portfolio there is economy diversification can unbalanced lending.
Bank lending as a source of investments
into fixed is very low - about 5-6%. However, the amount of annual investments
increases: in 2015 it amounted to 7 trillion tenge. Mainly, companies use their
own funds, whose share in total investment also increased to 58% in 2015. At
the same time, the share of annual government subsidies remains at the same
level - about 18-22% [2].
The sum of loans to the economy, issued by
banks over the period from 2005 to 2015 is 75.7 trillion tenge.
After several years of decrease in the
overall amount of loans caused by the mortgage-lending crisis, beginning with
2011, there was a positive dynamics of growth of bank loans. Oil overproduction
crisis, which started in 2015, makes its own adjustments, which will directly
cause reduction in lending in short and medium term.
The loan portfolio of issued credits is
characterized by an increasing concentration of non-manufacturing sector, characterized
by a high turnover, mainly in trade and services, and bringing quick and high
returns, but not participating in production and not contributing to real GDP
growth. The share of lending to the real sector decreased from 42.8% in 2005 to
32.1% in 2015, mainly due to the reduction of borrowing in the construction industry
after the mortgage crisis. In this analysis, the real sector includes industry,
agriculture, construction and services that aid real economy development - transport
and communications, in particular.
An important, but negative parameter is a
short-term funding of the real sector, which is insufficient for maintaining a
full production cycle and can result in slowing down or suspension of production.
The banking sector is aimed at a quick return on investment. The amount of
loans in the industrial sector has a cyclic trend, and the structure of the
loan portfolio in the manufacturing industry has varied, which is associated
with significant changes in the sectoral structure as a result of the
implementation of various economic reforms. A significant reduction was
observed in metallurgy, which is the largest sector of the economy with huge
production complexes represented by monopolistic companies under foreign control.
Mechanical engineering and chemical industry, on the contrary, significantly increased
their share in the total amount of lending, mainly in the sector of the chemical
production.
The analysis of the use of loan funds since
2005 reveals the fact that more than a half of the borrowed funds is used for
financing working capital, which at best indicates business expansion, and at
worst - refinancing of existing problem loans. The share of loans for the
purchase of fixed assets reduced from 6% in 2005 to 3% in 2015. Industry
surveys conducted in a number of industrial sectors reveal that depreciation of
fixed assets is relatively high; therefore we assume that the update is carried
out either in an ill-timed manner or at the own expenses of the enterprises.
Weighted average interest rates changed
cyclically in accordance with the demand for borrowed funds with consideration
of changes in the amount of issued loans. During the crisis, banks, instead of
easing the debt interest burden on borrowers, increase interest rates for
granted loans, thereby forcing economic agents to issue loans at even higher
cost. The most attractive sector for the banks to get an interest margin is a
non-productive sphere (16.6%) and trade (12.6%). Due to the high agricultural
risks, the weighted average rate in agriculture is 13.2%, followed by
construction (12.4%), transport (11.5%) and industry, and communications
(11.2%) [2].
At the end of 2015 the total loan portfolio
of second-tier banks of Kazakhstan increased by 4.7% to 12.67 trillion tenge.
At the same time, the amount of loans to legal entities showed a higher growth
(5.2%) than the amount of loans to individuals (3.7%). A previous year saw the opposite situation: with the overall growth
of the loan portfolio by 7.2% in 2015, the amount of loans to businesses grew
by only 5.6%, the amount of loans to the population - by 10.7%.
Industry statistics also shows a faster
growth of lending to enterprises. The loan portfolio in the non-manufacturing
sector (including consumer loans, loans to individual entrepreneurs and service
companies) decreased over the year by 5.6%, and its share in the amount of
total second-tier bank lending fell from 50.9% to 46.9% [3].
At the same time, bank financing of mining
industry increased by 52.8%, communications sector - by 41.1%, the transport
sector - by 40.2%, agriculture - 35%, the amount of loans to the manufacturing
industry and trade increased by more than 9.3%.
Besides the non-production sphere, another
industry, where bank credit portfolio decreased, is the construction (-13.3%).
However, this is more likely due to the fact that in 2015 the developers, received
a significant state support on more favorable terms.
The information on second-tier bank loans
at the end of December 2015 is provided in Table 1.
Table 1. Second-tier bank loans as of December 2015, bln. tenge [5]
Industry
Total
Growth to the total
Share of the total loan in Kazakhstan, %
12.2015
12.2015
в bln.
tenge
%
12.2015
12.2015
Kazakhstan
12 674,2
12 106,1
568,1
104,7%
100,0%
100,0%
Other (non-productive industry, entrepreneurial activity )
5 938,7
6 158,6
-219,9
96,4%
46,9%
50,9%
Retailers and wholesale traders
2 645,7
2 419,9
225,8
109,3%
20,9%
20,0%
Processing industry
1 037,8
948,3
89,5
109,4%
8,2%
7,8%
Construction
991,7
1 143,6
-151,9
86,7%
7,8%
9,4%
Agriculture, forestry and fishery
653,6
484,1
169,5
135,0%
5,2%
4,0%
Transport and warehousing
609,2
434,4
174,8
140,2%
4,8%
3,6%
Mining
456,3
298,6
157,7
152,8%
3,6%
2,5%
Other industries
204,6
121,7
82,9
168,1%
1,6%
1,0%
Information and communication sectors
136,7
96,9
39,8
141,1%
1,1%
0,8%
Analyzing the data in Table 1, we can be
conclude that the amount of loans granted by the second-tier banks of the
Republic of Kazakhstan in 2015 increased by 568.1 billion tenge or by 4.7%,
with the largest growth observed in mining - by 157.7 billion tenge or 52.8%;
transportation and warehousing - by 174.8 billion tenge or by 40.2%;
agriculture, forestry and fisheries - by 169.5 billion tenge or 35%; other
industries - by 82.9 billion tenge or by 68.1%. In the non-manufacturing sector
and individual entrepreneurial activity in 2015, there is a decrease by 219.9
billion tenge or by 3.6%., while their share also decreased from 50.9% in 2015
to 46.9% in 2015.
The most noticeable trend in lending by
regions is a swap of the two capitals (Table 2).
Analysis of the data in Table 2 shows that
the share of Almaty in total loan portfolio declined over the year from 57.1%
to 53.3%. At the same time, the share of Astana increased from 13.4% to 17.9%.
In total, the share of the two metropolitan cities in creased over the year
from 70.5% to 71.2%.
Table 2. Second-tier bank loans in the
regions of the Republic of Kazakhstan at the end of the period (December 2015),
bln. tenge [3]
Regions
Total
Growth to the total
Share of the total loan, %
12.2015
12.2015
bln. tenge
%
12.2015
12.2015
Kazakhstan
12 674,2
12 106,1
568,1
104,7
100,0
100,0
Almaty
6757,1
6 908,0
-150,9
97,8
53,3
57,1
Astana
2 269,8
1625,3
644,5
139,7
17,9
13,4
Karaganda
427,8
433,1
-5,2
98,8
3,4
3,6
SouthKazakhstan
402,0
405,1
-3,1
99,2
3,2
3,3
East Kazakhstan
376,1
384,6
-8,5
97,8
3,0
3,2
Atyrau
340,1
312,7
27,5
108,8
2,7
2,6
Aktyubinsk
326,7
291,5
35,2
112,1
2,6
2,46
Pavlodar
319,4
303,7
15,8
105,2
2,5
2,5
Kostanai
271,6
268,9
2,7
101,0
2,1
2,2
Mangistau
229,9
238,3
-8,4
96,5
1,8
2,0
West Kazakhstan
195,7
187,8
7,8
104,2
1,5
1,6
Akmola
179,9
155,7
24,2
115,6
1,4
1,3
Almaty region
169,0
168,6
0,5
100,3
1,3
1,4
Zhambyl
154,7
160,4
-5,7
96,4
1,2
1,3
Kyzylorda
149,9
148,9
1,0
100,7
1,2
1,2
North Kazakhstan
104,4
113,7
-9,4
91,8
0,8
0,9
Analysis of the data in Table 2 shows that
in 2015 the volume of loans issued in the capital increased by 644.5 billion
tenge, gaining almost 40%. Good growth also is also observed in Akmola region -
15.6%, which took the whole Astana agglomeration to the leadership position in
terms of credit growth.
Analyzing the current state of security for
the repayment of bank loans, we should note that in the Republic of Kazakhstan there is a variety of ways to ensure the completeness and timeliness of lending
money return: mortgage, insurance, guarantees, etc. The share of loans secured
by pledge of various types of property and rights comprises more than 50% of
all secured loans. The main share among other types of loans belongs to loans issued under the guarantee
of the third parties - 26.8% and insured loans -10.2%.
The most significant problem of the banking
sector is the poor quality of the loan portfolio (Table 3). Therefore, much
attention is paid to competent
and effective management of the total loan portfolio of the banking system as a
whole, and individual commercial banks in particular. One of the key issues of
“The concept of development of the financial sector of the Republic of
Kazakhstan until 2030” is the further development of the banking sector through
solving the existing problems of high levels of non-performing loans and a
shortage of long-term funding sources, which provide a disincentive for banks'
credit activity [3, p. 63].
Table 3. Quality of the loan portfolio of the second-tier banks in
the Republic of Kazakhstan [3]
Indicators
01.01.2013
01.01.2014
01.01.2015
01.01.2016
Bank loans including:
100
100
100
100
Loans for which there is no outstanding
debt
66,9
65,5
72,3
84,3
Loans with 1 to 30-days past due payments
1,8
1,6
2,5
4,3
Loans with 31 to 60 days past due payments
1,1
0,7
1,1
1,4
Loans with 61 to 90 days past due
payments
0,4
1,1
0,5
0,8
Loans with over 90 days past due payments
29,8
31,2
23,5
9,2
Analyzing the data in Table 3 we can
conclude that over the recent years, starting with 2013, the share of
non-performing loans (categories 4 and 5) in the loan portfolio of banks
reduced significantly (from 30.2% in 2014 to 10% in 2015). This is evidence
that the potential of the banks 'classic' tool to improve the quality of
assets, such as debt restructuring and other measures of the National Bank are
used effectively. During the studied period there is an increase in the share
of loans for which there is no outstanding debt from 66.95% in 2013 to 84.3% in
2015. We should also note that the improvement of the quality of the loan portfolio
during the year 2014-2015 was due to loan restructuring performed by the
second-tier banks.
Thus, summarizing the results of studies
made by various well-known scientists, we can conclude that the loan portfolio
is a system of socio-economic and financial relations established between the
bank and its clients, providing the return of loan debt in the form of credit
assets of the crediting organization, on the basis of risk, profitability,
liquidity and purposive nature. It is believed that the basic quality of the
bank loan portfolio is determined by its ability to provide the highest
possible loan interest yield at acceptable levels of liquidity and credit risk.
In assessing the quality of the loan portfolio, we suggest differentiating
between such concepts as "current" (satisfying the criteria of liquidity,
profitability, risk) and "perspective" (including an additional
criterion - purposefulness) quality of the loan portfolio. The former is more
acceptable under conditions of the post-crisis development, when the most
pressing need is restoration of the activity scope and the main financial
indicators of commercial banks, while the latter reflects the long-term goals
of lending activity of the banking system.
Commercial banks credit portfolio quality
management is a subsystem of bank management, functioning to ensure
minimization of the credit risk of the credit institution by means of a set of
measures allowing to provide a compromise between risk, liquidity,
profitability and purposefulness of the bank credit operations. This is a
complex multifactorial process, which involves identifying criteria of the loan
portfolio quality; adherence to the basic principles of loan portfolio quality
management and additional principles of its formation; consideration of macro-
and micro-economic factors affecting the criteria of the loan portfolio quality.
The purpose of quality management of the
bank loan portfolio is to organize the effective lending to borrowers, i.e., to
ensure minimum credit losses, required bank reserves liquidity, satisfying the
requirements of the National Bank of Kazakhstan; a return on credit operations in the amount stipulated by the
contract, compliance of the bank operations with the state economic policy,
etc. The effectiveness of the loan portfolio quality management depends on the
competent organization, which systematically takes into account all factors
influencing this process, that comply with the loan laws, the methods and
principles within the existing scientific concepts, formed on the basis of the
existing bank management paradigm.
REFERENCES
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riski: otsenka, Upravlenie, Portfel Investitsiy [Economic and Fi-nancial Risks:
Assessment, Manage-ment, Investment Portfolio]. – 9th edi-tion. – М.: Dashkov
and Co, 2014. – 543 p.
3. Analiz Bankovskogo Sektora Respub-liki
Kazakhstan za 2015 god [Analysis of the Banking Sector of the Republic of
Kazakhstan for the year 2015]. Re-trieved from http:
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