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Funding ofFunding ofDepositDeposit Insurance SystemInsurance System
Kazakhstani caseKazakhstani case
Discussant:Bakhyt MazhenovaGeneral DirectorJSC «Kazakhstan DepositInsurance Fund»
2
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
22 Forecasting approach
11 KDIF’ contingency funding
33 Alternative sources of funding
ContentsContents
3
KDIF contingency fundingKDIF contingency funding
KDIF’ fund deficit
KDIF’ fund deficit
Additional premiums
Additional premiums
Member banks Member banks
Pay-out to depositors
Pay-out to depositors
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
4
KDIF contingency funding KDIF contingency funding (cont-n)(cont-n)KDIF’ fund
deficit
KDIF’ fund deficit
Extraordinary premiums
Extraordinary premiums
Member banks Member banks
LoanLoan
Central BankCentral Bank
RepaymentRepayment
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
5
Funding key issues:Funding key issues:
What banks are tending to fail?
How much additional funds KDIF needs?
How to plan possible costs in order to pay reimbursement to depositors fully?
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
6
Banks’ distribution by risks, premiums and coverage Banks’ distribution by risks, premiums and coverage amountsamounts
Rating of banks
Number of banks
Banks
(%%)Premiums in ‘000 KZT
Premiums
(%%)
Coverage amount in ‘000
KZT
Coverage amount
(%%)
A 1 3% 556.66 0.08% 351 513.00 0.11%
B 2 6% 1 936.67 0.27% 721 250.00 0.23%
C 13 39% 549 813.59 75.95% 247 488 170.00 78.17%
D 15 45% 126 076.67 17.42% 54 277 588.00 17.14%
D≤ 85 1 3% 45 467.59 6.28% 13 617 025.00 4.30%
E 1 3% 42.11 0.01% 159 935.00 0.05%
Total 33 100% 723 893.29 100.00% 316 615 451.00 100.00%
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
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Illustration of banks’ distributionIllustration of banks’ distribution
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
8
KDIF in accordance with the “Law on mandatory deposits insurance” has a right to borrow from the National Bank of Kazakhstan (the central bank).
National Bank of Kazakhstan has no obligation to provide the loan.
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
9
Alternative sources of Alternative sources of fundingfunding
Credit derivatives
Reassurance of risks
Issue of bonds
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
10
Advantages and disadvantages of alternative sources
Advantages DisadvantagesLower Credit Default Swap’s (CDS) costs in foreign financial market comparing to the costs of the money supply in the domestic market.
Inability to define an occurrence time of risk event.
Quick access to the required funds after risk event occurrence.
Absence of credit ratings or their low level of infirm banks.
Less operating costs comparing to the costs of other alternative sources of funding.
Idle costs on CDS in the case of no occurrence of risk event.
Future trends to operate in the foreign financial markets.
Credit derivatives
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
11
Advantages and disadvantages of alternative sources (cont-n)
Advantages Disadvantages
Reinsurance via local insurance companies
Direct reinsurance at foreign insurance companies is under ban.
Local insurance companies do not operate with financial risks of local entities
Reassurance of risks
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
12
Advantages and disadvantages of alternative sources (cont-n)
Advantages DisadvantagesAccess to the significant funds in the domestic financial market
There is no mandate of KDIF to issue bonds.
Yields on KDIF’ bonds should be high enough to be interesting for financial market.
Absence of repayment mechanism. Insufficient banks resolution process do not make sure reimbursing bonds from recoveries.
Issue of bonds
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
13
Raising the Bar:Raising the Bar:
May be the time to develop IADI standards has come?
Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund
14
Thank you for Thank you for your attentionyour attention!!