Current situation of banking system of the Republic of Kazakhstan

     The representation is the isolated division of commercial bank located out of a place of its finding, not possessing the rights of the legal person and not having independent balance. It is created for maintenance of representation functions of bank, fulfillment of transactions and other legal actions. The representation isn't engaged in settlement-credit servicing and has no correspondent subaccount. For realization of household expenses to it the current account opens. [4]

     The essence of activity of banks is shown in performance of certain functions by them, which distinguish them from other bodies. Grouping the basic operations of commercial banks, it is possible to formulate basic functions carried out by them:

     1. Accumulation and mobilization of the monetary capital;

     2. Intermediary in the credit;

     3. Carrying out of calculations and payments in an economy;

     4. Creation of means of payment;

     5. The organization of release and placing of securities;

     6. Consulting servicing.

     Mobilization of temporarily free money resources and their transformation into the capital – one of the oldest functions of banks. Free money resources accumulated by bank legal and physical persons, on the one hand, will be brought in to their owners by the income in the form of percent, and with another – create base for carrying out of loan operations. The concentrated savings can be used on any economic and social needs. By means of banks there is a concentration of money resources and their transformation into the capital.

     Other important function of commercial banks is intermediary in the credit. With direct credit relations between owners of free money resources and borrowers interferes not coincidence volume of the capital offered in the loan, with requirement for it, and also term of liberation of the capital with term on which it is necessary to the borrower. Direct credit communications between owners of the capital and borrowers complicates. The proprietor of the capital can not have the information on a financial position of the borrower. Commercial banks, acting in a role of financial intermediaries, eliminate these difficulties. Bank credits go in various sectors of economy, provide manufacture expansion. The stable economy can't exist without the organized and debugged system of monetary calculations. From here the great value has a role of banks in carrying out of calculations and payments.

     The basic part of calculations between the enterprises is carried out by a non-cash way. Banks, representing itself as the intermediary in payments, carry out calculations on the instructions of clients, accept money for accounts and keep account all monetary receipts and deliveries. Centralization of payments in banks promotes reduction of distribution costs, and for acceleration of calculations and increase of reliability of payments electronic systems of calculations take root.

     Special function of commercial banks is their ability to create or destroy money that is to increase or reduce monetary weight. Creation of means of payment is directly connected with depositary and credit activity of banks. The deposit can be created by two ways: entering by the client of cash into bank or delivery to the borrower of the credit. Thus specified operations by various image influence volume of monetary weight in circulation.

     However banks are capable not only to create, but also to destroy money. It is possible at repayment by borrowers of credits by write-off of money from their depositary accounts. In this case the general monetary weight in an economy is reduced.

     In the presence of demand for the credit the modern issue mechanism allows to expand borders of monetary issue that proves to be true growth of monetary weight in industrially developed countries. But it is required to economy optimum, instead of the excessive quantity of active money, therefore commercial banks operate within restrictions (obligatory reserves), established by the central banks.

     Commercial banks carry out issue-promotional function, carrying out release and placing of securities, in particular, shares and bonds. Thus banks have possibility to direct savings on the industrial purposes. The securities market as though supplements system of the credit and cooperates with it. On the instructions of the enterprises needing long-term investments both resorting to a share issue and bonds, banks incur definition of the size, conditions, issue term, a choice of type of securities, and also duties on their placing and the organization of the secondary reference. Banks guarantee purchase of the let out securities, getting and selling them at own expense or organizing for this purpose bank syndicates, give to buyers of actions and loan bonds. Obligations for the considerable sums which have been let out by the large companies can be placed by bank through sale to direct clients, instead of a method of free sale at a stock exchange.

     The sufficient economic awareness and possibility of control of economic situations allow banks to carry out consulting service. Banks carry out the analysis of financial activity of the enterprises, conditions of their accounting, estimate strategy of development and reveal possible directions of increase in incomes. Being engaged in operations with securities, banks estimate perspective of release of new actions of the client and a reality of their placing; advise clients in a choice of the firms, ready to incur placing of new securities, and other consulting services render: from opening of accounts to the recommendation about fulfillment of operations in the monetary and commodity markets. [5]

     Recently commercial banks have faced a sharp aggravation of a competition from numerous specialized credit institutions which stimulates search by banks of new fields of activity, increase in number of services offered clients and improvement of quality of service.

     Development of a tendency of expansion of functions of commercial banks in modern conditions proceeds. For strengthening of the positions in the market they carry out operations not characteristic for banks more actively, taking root into nonconventional spheres for them financial business. The role of banks in economy functioning thereby rises.

 

CHAPTER II. THE CURRENT SITUATION OF  BANKING SYSTEM OF THE REPUBLIC OF KAZAKHSTAN 

     For January 1, 2010 38 second-tier banks operate in Kazakhstan, including the city of Almaty where are registered 35 banks, 34 branches and 372 additional premises of banks, in 2009 the number of banks was 37, and in 2008 - 35, increase in the number of banks is due to an improving economic situation in the Republic of Kazakhstan. More detail the structure of the banking system of Kazakhstan can be observed in table 1. 

Table 1 - Structure of the banking sector, [6]

 

     Table 1 shows that on January 1, 2010 there was an increase in the number of tier two banks’ representative offices abroad, number of non-resident banks’ representative offices in the Republic of Kazakhstan, number of participant banks in mandatory collective insurance system for individuals’ deposits, number of banks licensed to engage in custodian activity.  
 Next, let’s consider the structure of assets of two-tier banks, of liabilities of two-tier banks, of capital of two-tier banks, of liquidity and profitability of the banking sector.

     For 2007 the banks’ total assets increased by 2,811.4 bln. tenge (31.7%) and for January 1, 2010 totaled 11,557.3 bln. tenge (table 2).  

Table 2 - Structure of total assets of the banking sector, [7]

 

     The banks’ asset mix shows the prevalence of loans to customers, followed by cash, refined precious metals and correspondent account balances, securities portfolio, deposits in other banks.

     During 2008, bank total assets increased by 205.0 bln. tenge (1.8%), and on the January 1, 2009 constituted 11 889.6 bln. tenge.

     From 2008 bank loans and reverse REPO transactions have increased by 376.2 bln. Tenge or by 4.2%; cash, refined precious metals and correspondent account balances decreased by 192.9 bln. tenge or by 19.0%; securities increased by 100.4 bln. tenge or by 12.7%, deposits in other banks decreased by 65.7 bln. tenge or by 10.2%, capital investments increased by 97.0 bln. tenge or by 43.6%.

     On-balance sheet debt increased from 100.5 bln. tenge by 156.5 bln. tenge (2.6 times) up to 256.6 bln. tenge

     Account balances reflecting the past due interest payments increased from the beginning of the year by 31.6 bln. or by 2.8 times and reached 49.0 bln. tenge as of 1 January 2009.

     During 2009 the decrease in assets has equaled to 332,3 bln. tenge (2,8 %), bank loans and repo operations have increased by 394,4 bln. tenge (4,3%), reserves (provisions) have increased by 2 968,4 tenge.

     In 2009 in comparison with 2008 and 2007 are the lowest rates of total assets. 

Figure 1 - Structure of assets, [7]  

     The largest share of the asset structure falls on Bank loans and reverse Repo as they bring great profit (figure 1).

     During  2007, total liabilities of two-tier banks have increased by 2,255.1 bln. tenge. (that is by 28.2%), and totaled 10,256.7 bln.tenge, as of the end of the reporting period (table 3). 

Table 3 - Structure of total liabilities of the banking sector, [7]

 

     The greatest contribution to the increase in banks’ liabilities came from special-purpose deposits (SPV) of bank subsidiaries, which have increased by 971.9 bln.tenge, that is by 62.4%, followed by due to individuals, which increased by 413.6 bln. tenge, that is by 40.0%; while loans from other banks and institutions engaged in certain types of banking operations have increased by 379.1 bln. tenge to 1,798.2 bln. tenge.

    From beginning of 2008 total liabilities of second tier banks increased by 177.5 bln.tenge (or by 1.7%), and formed 10 437.0 bln.tenge, as of 1 January 2009.

     SPV deposits in total liabilities of the banking sector decreased by 244.5 bln. tenge, or by 9.7%, liabilities to individuals increased by 52.4 bln. tenge, or by 3.6%; while loans from other banks and institutions engaged in certain types of banking operations decreased by 348.0 bln. tenge to 1 450.2 bln. tenge.

     Total liabilities of commercial banks in 2009 increased by 2 099.8 bln. tenge or by 20,1%. In the structure of liabilities, corporate deposits have increased by 978.2 bln. tenge or 31,7%, retail deposits by to 437.1 bln. tenge or 29,1%. Special purpose deposits of subsidiaries have decreased by 489.0 bln. tenge or 21,4%, loans from other banks and institutions engaged certain types of banking operations by 202.7 bln. tenge or 14,0%.  
 Foreign currency deposits in 2009 increased by 966.2 bln. tenge or 1.5 times. 

Figure 2 - Structure of liabilities, [7]  

     The largest share of the liabilities structure falls on corporate deposits and SPV as they are based on large sums of money.

     Line-item change in capital for 2007-2009 is presented in Table 4. 

Table 4 - Calculated own capital of two-tier banks, [7]