Toktabayeva A.

L.N. Gumilev’s Eurasian National University

BANK SYSTEM DEVELOPMENT IN THE REPUBLIC OF KAZAKHSTAN

One of the most important elements of market economy is the bank sector. Kazakhstan’s formation and intensive development of banking became integral part of the complicated and many-sided process of the economic development of the country. Banks’ functions and their role are dictated by new macro economic conditions. According to their definition, commercial banks are one of the most reliable public institutes. They represent the basis of economic system stability.

The Republic of Kazakhstan has two-level bank system. National Bank of the Republic of Kazakhstan is the central bank of the country. It represents the highest (first) level of the bank system of the Republic of Kazakhstan. All the other banks represent second level of the bank system.

The activities of the bank system’s participants are regulated by the following laws: «Concerning the National Bank of the Republic of Kazakhstan», «Concerning the banks and bank operations in the Republic of Kazakhstan», «Concerning the securities market» and others.

Now the Kazakhstani bank system is one of the stable bank systems in post-soviet space. (Table 1). The Kazakhstani bank system was first among CIS countries which was awarded the investment level rating by the popular rating agencies. It was said that as a state it “… left behind the weaker bank systems of Russia and other CIS countries rapidly in a few steps”. The investment rating at such a high level allowed our state to consolidate its official status in the world financial markets as a state with a reliable and attractive investment climate, as well as to enhance the confidence of external and internal investors in the national economy.

Table 1 – The main banking indices of CIS in 2004, % to GDP

Country

Assets/GDP

Credits/GDP

Capital/GDP

Russia

42.5

18.8

5.6

Kazakhstan

48.5

32.7

6.3

Ukraine

41.1

28.2

5.4

Moldova

41.6

23.1

8.1

Byelorussia

31.2

20.0

5.9

Uzbekistan

42.6

…

6.8

Turkmenistan*

30.2

26.3

…

Armenia

19.6

7.9

3.4

Azerbaijan

20.0

10.0

2.6

Georgia

17.1

9.0

3.7

Kirgyzstan

18.8

6.2

2.9

Tajikistan

19.8

15.3

2.7

*Data of 2003

Source: V. Alferov, M. Golovin «The role of financial market in bank system development in Russia and CIS countries»

On the 1st of December 2006 there were 34 banks of the second level in the Republic of Kazakhstan, 14 of them had foreign support including 9 branch banks – non-residents of Kazakhstan and Bank of development of Kazakhstan, Inc., which was not a second level bank.

            Bank of Development of Kazakhstan and Zhilstroisberbank are the credit institutes, which are owned by the state. Their main function is financing of long-term social projects.

At present the qualitative characteristics of the banks are approximately equal. In bank rating they define the best three and ten banks of the country according both to service quality and to main financial indices, such as ownership capital, assets, profit and their role at the market as a whole. Among the best three leaders there are «Kazcommercebank» Inc., «BankTuranAlem» Inc., and «Narodnyi Bank of Kazakhstan» Inc. among the leading ten banks there are «BankCenterCredit» Inc, «Almaty Commerce-Financial Bank» Inc,  «TemirBank» and others, which run with an aggressive competitive policy. (Figure 1).

 

Figure 1 – Part of the leading banks of the republic on the basis of assets volume, 2005

The International magazine «The Banker» has defined the rating of 1000 world leading banks. It put Kazcommercebank Inc., the only bank from Kazakhstan, in 718 place on its list by the results of 2004. In 2005 more than 90% of assets, credits and deposits were with the first ten banks, and more than 60% of credits to the first three banks. Regarding deposits, 80% of them were with the 10 large-scale banks and 65% go to the three leading banks. 

The Bank sector of the Republic of Kazakhstan is a very dynamic and progressive developing segment of the financial market.

National Bank of Kazakhstan conducted the data analysis in a sectional “Monetary Survey” (including monetary review of the National Bank of Kazakhstan (hereinafter NBK), second level banks (hereinafter SLB), bank system, credit partnerships, deposit organizations, non-deposit organizations, (including mortgage companies and Bank of Development of Kazakhstan), and a particular review of the financial sector. As well as monetary aggregates and deposits in deposit organization. The analysis demonstrated that there was positive dynamic development in the economic sector.


During 2000-2005 the internal assets of the second level banks increased in 8.7 times. (Figure 2).

Figure 2 – Development dynamics of internal assets of the second level banks of the Republic of Kazakhstan, mln. tenge

Credit market. To achieve the set goals the banks of Kazakhstan give a high priority to balancing assets and liabilities.  The banks support the appropriate liquid level that allows executing the obligations to clients in a timely manner. As a whole, assets placement continues be an increasing of the part of assets operations with clients. First credit was increased because this kind of operation precisely gives high, steady-state income. At the end of 2005 the credit investments grew 1.7 times (in comparison with 2004) and became 2592061 (figure 3).


Figure 3 – Credits of the second level banks of Kazakhstan, billion tenge

 

         Table 2  – Credits of the second level banks of Kazakhstan

 

2001

2002

2003

2004

2005

Credits in total

489817

672407

978128

1484010

2592061

Non-banking juridical persons

459002

613793

856345

1179969

1923247

Natural persons

30815

58614

121783

304041

668814

In national currency

141284

211862

435437

714071

1255803

Non-banking juridical persons

129818

190173

388320

605933

958741

Natural persons

11466

21689

47116

108139

297062

In foreign currency

348533

460545

542692

769939

1336258

Non-banking juridical persons

329184

423620

468025

574036

964506

Natural persons

19349

36925

74667

195903

371752

Short-term credits

241135

289014

369775

508596

869136

Long-term credits (more than 1 year)

248682

383393

608353

975414

1722924

 

In accordance with the table above you can see that in 2005 non-banking juridical persons (corporate clients) had the greatest influence on the general credit structure – 74.2 %, natural persons – 25.8% accordingly. The credits in national currency compose – 48.4%, in foreign currency – 51.6 % .

Deposit market. In transition to market economy a new stage in the financial sector has appeared, that meant development of the deposit market. The effective functioning of the deposit market caused not only receiving of funds by the separate market subjects in a timely manner, but also increases the tempo of economic development of the country as a whole.

At present time this segment of the bank sector is in active development in Kazakhstan. (table 3).

Table 3 – Development dynamics of the bank deposit volume in Kazakhstan

 

2000

2001

2002

2003

2004

2005

Deposits, in total on the end of the period, billion tenge, including:

 

290.6

 

444.8

 

603.3

 

732.5

 

1255.4

 

2482.6

 Deposits of non-banking juridical persons, %

 

69.6

 

58.5

 

56.9

 

64.7

 

64.9

 

60.1

Deposits of natural persons, %

 

30.4

 

41.5

 

43.1

 

35.3

 

35.1

 

39.9

 

  According to the data above, you can see the positive dynamic of deposit market development. The whole deposits volume within 2000-2005 increased in 11.7 times (by 2192 billion tenge) (figure 3).

         Figure 3 – Dynamics of deposit market development in the Republic of Kazakhstan, in billion tenge.

        As you can see in table 5, there are notable changes in the deposits structure. Thus, within 2000-2005 there was increasing of the deposits part of natural persons from 30.4 % in 2000 to 39.9 % in 2005. these changes were caused by the following reasons:

-        In 2000 the Foundation of Deposit Insurance to natural persons was created. It assisted restoration of the population’s loss of confidence in the bank system  and increased the volume of bank deposits of the population during last years as bank reliability is the main factor in a depositor’s choice. 

-        In 2000 the Decree «Concerning banking secrecy» was issued that increased the population’s confidence to the bank system.

-        In 2001 the abrupt increasing of the deposits’ amount was influenced by the capital legalization in Kazakhstan that caused considerable flow of capital into the republic from abroad and in the bank system accordingly.

-        According to the data of the Statistics Agency of the Republic of Kazakhstan at the end of 2004 the average monthly wage was 28270 tenge. In comparison with 2003 it increased by 21.7 %. The actual money income of the population increased by 13.9 %. That is also one of the reasons of deposit base increasing. In 2004 the volume of natural persons’ deposit increased by 31.5 % in comparison with 2003, despite of a reduction in the natural persons’ deposit weight in the total deposits amount.

         During 2004 there was reduction of the dollars level conditioned mainly by strengthening tenge with regard to USA dollar. Deposits in national currency grew by 84.6 % up to 715.7 billion tenge, and deposits in foreign currency insignificantly increased by 56.2 % and were 539.7 billion tenge.

         As the result in 2004 the deposits’ proportion in tenge in the total deposits volume first increased from 52.9 % to 57 % from the time of the floating exchange rate was introduced and surpassed the data of April 1999.

         The dynamics of deposits’ interest rate is characterized by the next changes. In comparison with previous year in December 2005 the average interest rate in tenge time deposits of natural persons increased from 9.3 % to 9.5 %, and deposits of non-banking juridical persons reduced from 3.4 % down to 3.1 %.

      Nowadays in the conditions of high competitiveness the banks offer a wide-range deposits to clients in national and foreign currency, both current and time deposits with a variety of terms and conditions that take into account the requirements of all sections of the population. Each new deposit is developed on the basis of real financial possibilities and requirements of the different groups of potential clients.

      The different conditions of deposits include interest of depositors and provide comfortable terms for account functions and interest accumulation.  It allows guaranteeing the growth of stable sources for the banks.

      Banks define the interest rate policy on the attracted deposits by the current and forecasted banking profitableness, from the analysis of the statistical data on population income level, from the data of sociological and marketing research, from analysis of deposits interest rate that the bank-competitors offer, and from economical situation of the Republic of Kazakhstan. 

Nowadays the bank sector of Kazakhstan is recognized as the most financially stable and the most harmonically developing system among CIS countries. Therefore, the bank sector is one of the most dynamically developed branches of the economy in Kazakhstan. There is not only quantitative growth of banking indices, but also improvement of quantity and quality of bank services. Meeting international standards of banking and the Main principles of effective bank supervision of Basel Committee allow supporting the financial stability of the bank sector on an appropriate level.   

Today a Kazakhstani bank is a partner not only to economic subjects (companies), but also to population in each separate case. Nowadays the banks provide a wide-range of bank services, offer a numerous bank products, consulting services, and have become an integral part of each person’s life.