Tulegenov Adlet
Kalymkaidarovich
THE STATE REGULATION OF BANKS
IN THE REPUBLIC OF KAZAKHSTAN
The state regulation and supervision of the activity
of the banking system are based on the RK Constitution. The control and
supervision of the activity of second-tier banks of the Republic of Kazakhstan
are realized by the Committee for control and supervision of the financial
market and financial organizations of the National bank of RK (further – the
Committee) in compliance with the Law of the Republic of Kazakhstan No. 61
dated 18/04/2011. In addition, the organization of the banking supervision in
Kazakhstan relies on the national regulatory framework and the recommendations
of committees of international banks.
One of the parts of the RK policy in the area of
regulation and supervision of the national financial market represents the
priorities of formation of a new system of the state regulation of the activity
of financial institutions which provides for, considering the positive global
practice in this issue, the unification of all regulatory and supervisory
functions within one specialized agency.
In the Republic of Kazakhstan, for the purposes of
introduction of supervision of the activity of banks on the basis of
consolidation, as early as in 2001, at the initiative of the National Bank of
RK, changes and additions to the Law “About banks and banking activity of the
Republic of Kazakhstan” which establish the main principles of implementation
of such supervision were accepted. At the same time, the National bank
developed several normative legal acts concerning the consolidated supervision
which consisted of:
1) "The rules of participation of a second-tier
bank in the authorized capital of other legal entities, as well as issuance of
the permission for a subsidiary creation and acquisition by a second-tier bank”
No. 427, adopted on 14/11/2001;
2) "The rules about provision of statements and
information by large participants-banks and bank holding companies" No. 256,
adopted on 25/06/2001;
3) The rules about the procedure of provision of the
consent of the National bank of the Republic of Kazakhstan for acquisition of
the status of a large participant-second tier bank or a bank holding company
No. 255, adopted on 25/06/2001;
4) The rules of preparation of consolidated financial
statements by second-tier banks of RK No. 25 adopted on 11/02/2000;
5) The rules about the prudential regulations for
banking groups No. 250, adopted on 25/07/2003;
6) The law of RK "About the state regulation and
supervision of the financial market and financial organizations" adopted
on 12/07/2003.
The key motive of the reforms was the approximation of
banks to the interests of the economy and the activization of their activity.
The peculiarity of the new stage of reforms consists
in creation of clearly organized structures of the market which provide
conditions for development of competition in the banking sector. The state
regulation provides the opportunity to determine the most important, priority
sectors of economy, the purposeful and rational use of the available resources
[1].
By 2003 the National Bank of the Republic of
Kazakhstan occupied the key position in the regulation of the financial market
of the country. Such accumulation of regulatory and supervisory functions in
the central bank of Kazakhstan was an intermediate link in the chain of
creation of an independent state supervisory body by its detachment from the
National Bank of RK.
Until 2004 the National bank represented the only organization regulating the activity of the banking sector of the Republic of Kazakhstan. The significant factor of the
development of the banking sector of Kazakhstan was the start of the activity,
since 01/01/2004, of the Agency of the Republic of Kazakhstan for regulation
and supervision of the financial market and financial organizations (COMMITTEE
OF RK) which was assigned relevant authorities and functions from the National
Bank.
In compliance with the Law “About banks and banking
activity in the Republic of Kazakhstan” the bank is a legal entity representing
a commercial organization eligible to realize the banking activity. The
official status of a bank is established by the state registration of a legal
entity as a bank in the authorities of the Ministry of justice of RK (further –
the authorities of the Ministry of justice) and the availability of the license
of the National bank of the Republic of Kazakhstan (further – the National
bank) for performance of banking operations.
Within the
first decade of 2008 the Management Board of the Agency has adopted nine
resolutions regarding the issues of regulation of the activity of banking
conglomerates and second-tier banks:
–
"About changes to the resolution of the Management Board of the Agency of
RK for control and supervision of financial markets and financial organizations
No. 76 adopted on 30/03/2007 "About additions and changes to a number of
legal normative acts regarding the issues of submission of documents to the
Agency of RK for control and supervision of financial markets and financial
organizations";
–
"About ratification of the Rules of issuance, rejection and renunciation
of consent regarding the acquisition of the status of a banking holding, a
large participant-bank, a large participant-reinsurance (insurance) company,
large participant-public pensions savings fund";
–
"About additions and changes to the resolution of the Management Board of
the National Bank of RK No. 262 adopted on 02/06/2000 "About approval of
the Instruction on placement of a share of the funds of banks in internal
assets";
–
"About additions and changes to the resolution of the Management Board of
the Agency of RK for control and supervision of financial markets and financial
organizations No. 6 adopted on 09/01/2006 "About approval of the Rules of
appointment and work of a temporary administrator (temporary administration) of
a bank, reinsurance (insurance) company and a pension savings fund";
–
"About additions to a number of normative legal acts of the Agency of RK
for supervision and regulation of financial markets and financial
organization".
–
"About changes and additions to the resolution of the Management Board of
the Agency of RK for regulation and supervision of financial markets and
financial organizations No. 300 adopted on 25/12/2006 "About approval of
the Rules of provision of statements by second-tier banks of RK and changes to
the resolution of the Management Board of the Agency of RK for regulation and
supervision of financial markets and financial organizations No. 310 adopted on
27/08/2005 "About changes and additions to a number of normative legal
acts of RK regarding the issues of regulation and supervision of final markets
and financial organizations";
–
"About changes and additions to the resolution of the Management Board of
the Agency of RK for supervision and regulation of financial markets and
financial organizations No. 128 adopted
on 30/04/2007 "About approval of the minimum rating for bonds and rating
agencies with which the bank may effect transactions";
–
"About changes and additions to the resolution of the Management Board of
the Agency of RK for regulation and supervision of financial markets and
financial organizations No. 358, adopted on 30/09/2005 "About approval of
the Instruction on the methodology of calculation of prudential standards and
regulatory values for second-tier banks";
–
"About changes and additions to the resolution of the Management Board of
the Agency of RK for supervision and regulation of financial markets and
financial organizations No. 136, adopted on 17/04/2006 "About approval of
the Rules of submission by second-tier banks of the second-level report on
implementation of the prudential standards".
The area of responsibility of the Agency
involves the determination and decrease to a stipulated extent of main risks
faced by second-tier banks in the process of customers crediting.
In compliance with the Rules of classification of
assets, contingent liabilities and creation of reserves (provision) against
them (further – the Rules of classification) ratified by the decision of the
Management Board of the Agency No. 296, adopted on 25/12/06 which became
effective on 01/04/2007 the notion of “portfolio of homogeneous loans" and
the sequence of their creation, monitoring, formation of reserves (provision)
against them were accepted.
The Rules of classification establish the differences
of classification of homogenous loans, main requirements to internal policies
and homogenous loams of a bank.
Considering this, the internal policy of a bank is
assigned an important role in the portfolio method of risks assessment which in
details reveals the signs of homogeneity, including terms, methods and
procedure of their grouping, as well as methods of monitoring, procedures of
classification (reclassification) and organization (reorganization) of
provision (reserves) against such type of loans [2].
With the view of diversification of the loan portfolio
the internal policy of a bank may include the requirements to the volume of
certain types of loans included in the portfolio and the volume of the
portfolio of homogenous loans.
It should be noted that prior to creation of a
portfolio of homogenous loans the bank should arrange the approval of its internal
policy and organize the activities for creation of the portfolio of homogenous
loans. An authorized body of the bank accepts the decision on formation of the
portfolio of homogenous loans, and the internal rules in respect of this type
of homogenous loans which content should correspond to Item 34 of the Rules of
classification are approved. The grouping of loans to the portfolio of
homogenous loans is carried out in accordance with the internal policy within
0.02 percent of the size of the bank’s own capital calculated according to
requirements set by the authorized body with regard to the methodology of
calculation of prudential standards for banks.
In compliance with Item 41 of the Rules of
classification, the realization of the quarterly portfolio analysis is
determined, while the first day of each quarter following the reporting one is
designated the date of risk assessment. Accordingly, during the reporting
quarter the loans which size is no more than 0.02 percent of the size of the
bank’s own capital calculated to the beginning of the quarter are introduced to
the portfolio of homogenous loans.
It should be remembered that the comprehensive debt
size per each borrower is used as a basis for calculation of the volumes of
loans included in the portfolio of homogenous loans.
The loans are included in the portfolio of homogenous
loans starting from the date of their issue in the amount established by the
bank loan agreement and do not assume the inclusion of loans according to the
balance of debt. Also Item 39 of the Rules of classification does not provide
for withdrawal of separate loans from the portfolio due to deterioration of
their quality.
The portfolio of homogenous loans may be formed
separately for legal entities and individuals, with internal breakdown by
relevant signs of homogeneity.
According to Item 21 of the Rules of classification
the criteria applied by the banks during the creditworthiness analysis of
borrowers, including during assessment of the financial position of the
borrower and the collateral price, as well as the procedures of performance and
adoption of decisions on creation of reserves (provision), are regulated by the
Rules of classification, as well as by the bank’s internal documents which
determine the loan, accounting and investment policies and at the same time
contain the requirements to the procedure of accrual of the remuneration and
suspension according to assets.
In addition, in the consideration of this issue
the banks should follow the provisions of IAS (International Accounting
Standards).
The regulation of the rights of depositors in RK
is based on the Law of RK "About the obligatory guaranteeing of deposits
placed at second-tier banks of the Republic of Kazakhstan" adopted on
12/01/2007, No. 222-III. This Law is created for protection of the rights of
depositors relative to individuals and establishes the legal foundations of the
operation of the system of obligatory guaranteeing of deposits which are placed
at second-tier banks of RK, the sequence of creation and operation of the
organization realizing the guaranteeing of deposits, participation of all
second-tier banks in the system is the obligatory guarantee of deposits, as
well as other issues of interrelations between the participants of this system.
The objective of the system of obligatory
guaranteeing of deposits consists in provision of the consistency of the
financial system, as well as in the support of confidence to the banking system
through payment of guarantee compensations to depositors in case of closure of
a bank-participant.
The main principles of the system of obligatory
guaranteeing of deposits are:
1) obligatory participation of each bank
realizing the acceptance of deposits in provision of the services for
individuals, creation of bank accounts, within the system of obligatory
guaranteeing of deposits;
2) support of the transparency of the system of
obligatory guaranteeing of deposits;
3) decrease of risks connected with the
operation of the system of obligatory guaranteeing of deposits;
4) accumulative nature of the creation of the
special reserve meant for payments under the guarantee compensation.
The depositors in most cases bear sole
responsibility for the risks connected with investment of funds in the bank,
except for the amounts of balances under deposits guaranteed by Kazakhstan fund
of deposits guaranteeing JSC (hereinafter - the Fund), without the accrual of
remuneration for maximum amounts of guaranteed compensations.
The banks received the opportunity to attract
deposits according to the rates established by them, without following the
restrictions of their largest volume determined earlier by the Fund.
Accordingly, presently the quasi-regulating measure providing endurable
“ceiling” of rates in the attraction of deposits of individuals is absolutely
absent.
In case of severe competition separate banks
conduct aggressive policy, including by means of establishing remuneration
rates of deposits and loans higher than the statistic ones in the market of
crediting, without guaranteeing of the solvency of the borrower, offer of
various prizes and other special bonuses for clients [3].
Similar policy in the bank must arouse at least
discretion and very careful study of its indicators of availability of
concealed problems of liquidity and possible bank insolvency.
In particular the increased income from deposits
is established by the bank itself – for example, during attraction of funds for
investment highly-profitable projects, promotion of new products, increase of
the share in the retail sector or assimilation of new regions of the market.
However, larger rates under deposits may be an indication of a risk-taking
banking policy.
So, the increase of the volume of accumulations
is caused by the increase of the bank loan portfolio. Striving to occupy the
highest position in the niche or increase its share in a new rapidly developing
market, for example, mortgage, consumer crediting, overdraft from credit cards,
crediting of small business subjects, etc., the banks often credit companies
and individuals not having the credit history, without guaranteeing their
income and availability of the collateral.
Accordingly, the state supervision and regulation of
the banking activity is aimed at increasing the stability of the banking system
of RK and creation of conditions not allowing the violation of the rights and
legal interests of the consumer of banking services.
List of references:
1. Konakbayev A.G. Banking
industry. Tutorial. – Karaganda, 2007. – 223 p.
2. Yerpylyova N.Yu. Mechanism of legal regulation of the banking activity
// Economy and right. 2008. No. 2.
3. Legal regulation of the banking activity / Edited by Ye.A. Sukhanov. M.:
YurInfo Educational-Consultation Center, 2007.