KZ RU EN
Write us +7 (727) 388 8020 +7 (717) 254 2710
искать через Tengrinews.kz
искать через Google
искать через Yandex
USD / KZT - 335.46
EUR / KZT - 374.81
CNY / KZT - 50.30
RUB / KZT - 5.29

Central bank cleans the house in Kazakhstan’s banking sector

17 september 2014, 19:34
0
©Tengrinews file photo
©Tengrinews file photo

Kazakhstan National Bank has introduced a new ban prohibiting Kazakh banks from keeping over 30% of their funds abroad, but offered them tenge rate stability and cheap funding at the same time.

Central bank Governor Kairat Kelimbetov announced the new ban prohibiting Kazakh banks from transferring abroad the funds they raise from the domestic market at the press-conference on September 5.

The ban comes into effect on October 1 for all the Kazakhstan-based banks except Kazkommertsbank and Halyk Banks, the governor said. He did not specify the reason why the two banks were exempt from the ban, but promised that the ban would be applied to them, but later.

In the interview he gave to Panorama the week before he spoke about the ban being introduced "starting next year", so that may be the deadline for the two favorites.

According to Kelimbetov this is done to stimulate the banks to reduce their non-performing loans that constitute 33% of their cumulative portfolio, and start lending again.

"The banks are not reducing their non-performing loans, they are relying on currency speculation (for profit) and don't feel much need to issue loans. Over the past 3-4 years the average growth of their loan portfolios was at 10%, but it is more of a half-statistical discrepancy or refinancing of the loans issues earlier. I don't see them returning to their normal lending activities. They have chosen a "half-zomby" stand for themselves," he said.

Kelimbetov specified that "most of the Kazakhstani banks were participating in currency speculations and keeping parts of their funds overseas in 2012, 2013 and the beginning of 2014".

At the press-briefing he confirmed that the banks were keeping some of their funds "on their correspondent accounts abroad", but he never specified that amount of funds he was talking about.

"The banks will be limited to 30% of their balance in their operations with derivatives. Roughly speaking, they are no longer allowed to play with currency derivatives," the Governor said in the interview.

Derivatives are high-risk financial instruments. A foreign exchange derivative is a financial derivative whose payoff depends on the foreign exchange rates of two or more currencies. These instruments are commonly used for currency speculation and arbitrage or for hedging foreign exchange risk. The instruments include binary options, currency futures, currency swaps, foreign exchange forwards, foreign exchange options and etc.

So basically Kazakh banks are not prohibited from trading in derivatives and speculating on their value, they are only prohibited from using more than 30% of their funds to do it. And they have to make sure that 30% have their origin outside Kazakhstan.

According to Kelimbetov the banks' foreign debt currently totals at $11 billion. This roughly the amount of the bank’s funds of non-Kazakhstan origin.

Since the new limit specifically targets the "domestic" money and limits the banks only to keeping 70% of their funds in Kazakhstan, not 100%, it seems reasonable to believe that the amount of funds that the ban would return “home” through this ban must be fairly large and that now the banks are using a large portion of their money abroad.

However, at the same press-conference, Vice-Governor of the National Bank Kuat Kozhakhmetov said that the new ban was expected to return around $1.3 billion to Kazakhstan. This sounded like a substantial amount. But then he said that Kazakhstan citizens were keeping a total of $24 billion on their deposits in Kazakh banks. These are household deposits only. And deposits of Kazakhstani companies make $37.8 billon (as of August 1, 2014 according to the Financial Regulation Agency). Overall, the deposits in Kazakh banks that originate in Kazakhstan make over $62 billion. So the new ban is adopted to return 2% of the deposits back to Kazakhstan?

These figures hint that the Kazakhstan banks have not been excessively using the "domestic" funds for their foreign transactions even without the new ban in place.

Another news revealed by Kelimbetov in the interview is that the 'ban' is not the only thing flying in the banks' direction. They are also getting a number of bonuses to aid them in their development.

"The National Bank has provided Kazakhstani banks a cross-currency swap opportunity," Kelimbetov said. A cross currency swap, also referred to as cross currency interest rate swap, is an agreement between two parties to exchange interest payments and principals denominated in two different currencies.

The banks can make security deposits with the central bank in US dollars to get access to tenge at a fixed exchange rate for 1 to 3 years, he said.

"We are providing the tenge at three present interest rate. This money can be used to fund small and medium businesses. And unlike the government-sponsored programs, we are not limiting the parameters of the bank's work with the businesses," Kelimbetov said. State-run support projects channel money into commercial banks for the latter to lend to specific sectors of the economy, like agriculture, or to specific types of businesses, like innovation-driven or processing industries, or to 100% solvent borrowers. Besides, they require banks to do a lot of reporting on the money. So the banks often try to dodge the state-run programs even through they involve cheap government money.

There is also another way the central bank is going to help the Kazakh banks restart lending. "We are buying up long term bonds of (Kazakh) banks and providing them long-term deposits from the Single Savings Pension Fund - for terms of 5 to 10 years, with the only limitation that the money may not be used at spot foreign exchange markets," Kelimbetov said.

By doing this we send the banks a signal that they should "write off the bad loans" and clear up their portfolios in two years, and from now on "avoid overheating on consumer lending and start funding medium and small businesses, start thinking about diversification and the banks' own commercial projects" and stop worrying about the tenge rate and availability of long-term funding, Kelimbetov summarized.

By offering all this, the National Bank creates very favorable conditions for the country’s banking sector to get a new lease of life and take Kazakhstan’s economy with it.

Hopefully this stimulation package in combination with the ban limiting the bank’s from profiting solely on speculations in derivatives will inspire the Kazakh banks to get back to their core activities – start lending again, help them refocus from mortgage loans to lending to medium and small businesses, and inspire them to stop covering their rears and finally start playing their role in bridging Kazakhstan’s economy forward.

By Tatyana Kuzmina (Dinara Urazova contributed to the story)


Нравится
Add comment