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Kazakhstan Institute of management, Economics and Strategic Research
FIN5260.15 Selected Topics in Finance (Contemporary Issues)
JSC Alliance Bank and JSC ATF BankPrepared by
Assanov Bekzat 20113076
Danara Basbayeva 20111064
Summer I Semester 2013
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Table of Contents
Introduction
Literature review
Comparative Financial analysis of the Companies
Impacts of the recent financial crisis
Conclusion
References
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Introduction
The banking system isthe fastest growing sector of the economy of Kazakhstan. According
to the level of penetration on the economy (about 90% of GDP), it is comparable with
banking system of the European Union. The external funding is a major factor in the growth
of the banking system of Kazakhstan.
Bankscenters where basically starts and ends business partnership. The health of the
economy depends crucially on clear competent activities of banks. Without extensive
network of banks that operating it on a commercial basis, the desire to create a real and
effective market mechanism is only wishful thinking.
Commercial banksuniversal credit institution, created to raise funds and organize the terms
of repayment and payment, as well as for many other banking operations:
Commercial banks conduct active and passive operations. Passive operations are not possible
without the active operations, and no active operations are meaningless without passive
operations. However, all banking operations pursue the same goalincrease revenue and
reduce costs.
Impact of the global crisis on Kazakhstan began in the second half of 2007, when the U.S.
was a problem with subprime loans.
Causes of the crisis in the banking sector of Kazakhstan:
- Integration of the economy of the Republic of Kazakhstan into the world economy;
- An excess of available funds;
- Aggressive credit policy of banks.
In view of the fact that stagflationary trends in the global economy strengthens, access to
external commercial borrowings from financial institutions in Kazakhstan will remain
limited.
In terms of growth, the banking system of Kazakhstan is experiencing now is not the best
time. The main problem is the quality of the assets of Kazakh banks. Reason for the decline
in asset quality of commercial banks largely lies in the credit boom that took place in
Kazakhstan before the global financial crisis.
However, despite the growth potential of the crisis in the banking system of Kazakhstan, one
can say that the situation in the banking sector is quite manageable and mostly amenable to
correction by the regulatory authorities of Kazakhstan.
The main goal of this work is to learn about the activities of JSC "Alliance Bank" and JSC
ATF Bank, toobtain a small number of the key (most informative) parameters that give
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objective and accurate picture of the financial performance of two banks, to describe impacts
of the recent financial crisis and remedies applied by banks against crisis.
Literature Review
JSC Alliance Bank
Joint Stock Company "Alliance Bank" is one of the most dynamically developing
Kazakhstan's banks and has successful experience in banking sector for over 10 years. In the
ranking of banks of 2 Level in the Republic of Kazakhstan, JSC "Alliance Bank is on the 5th
place. Its branch network includes 19 branches and 108 cash offices in 51 cities and rural
settlements of the Republic of Kazakhstan. The company was founded in 1993 and is
headquartered in Almaty, Kazakhstan. Alliance Bank JSC is a subsidiary of Sovereign
Wealth Fund Samruk Kazyna JSC.
According to the decision of the National Bank of the Republic of Kazakhstan at 245 of
June 25, 2001, JSC "Alliance Bank" is recognized as fulfilling the requirements of the
Regulations on the procedure for transferring of banks to international standards. Also in
accordance with the resolution of 73 of the National Bank of Kazakhstan on May 15, 2004,
JSC "Alliance Bank" is included in the list of banks that have fallen to the international
financial reporting standards in the automation of the banking information system and its
certification.
At the beginning of 2004 the market share of JSC "Alliance Bank" slightly exceed 2.5% (by
total assets), and the beginning of 2005 amounted to nearly 4.5%. This is the largest growth
rate among Kazakh banks in real terms, which allowed JSC "Alliance Bank" on the basis of
the given year (2005) to become the 5th Bank of the Republic of Kazakhstan.
Alliance Bank has a license for operations with precious metals and occupies a leading
position in the interbank market of gold and is one of the participants of currency trading on
the Kazakhstan Stock Exchange. Also the bank has good partner relationship with the
National Bank of Kazakhstan. Alliance Bank is licensed to conduct brokerage and dealer
activities on the stock market with the right to handle client accounts as a nominal holder.
Alliance Bank previously had the name "Irtyshbusinessbank" and fully retains all of its
property rights and obligations. In general, the client base of JSC "Alliance Bank" is more
than 11 thousand legal entities and individuals. To date, the financial assets of JSC "Alliance
Bank grew to 1.5 billion. Deposit portfolio of JSC "Alliance Bank" increased almost 2 times
by contributions from individuals and legal entities. Credit portfolio of Alliance Bank has
grown by almost 71%. The focus of lending to the real sector of the economy was an appeal
to the enterprises of small and medium businesses.
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JSC "Alliance Bank" provides a wide range of banking services to individuals and legal
entities:
- Cash management services;
- Loans;
- Transactions with securities;
- Operations with precious metals;
- Currency exchange;
- Safe-deposit;
- Pawnshop;
- Collection;
- Money transfer system Western Union, etc.
In January 2005, around the world authoritative financial magazineThe Banker
recognized Alliance Bank as the fastest growing bank in the countries with transition
economy. Overall, the research covered 377 banks in the CIS countries, the Baltic States,
Central Asia and Europe on the basis of their activities in 2002-2003.
On April 8, 2005 the international rating agency Fitch Ratings has assigned ratings to
Alliance Bank: Long-term"B +", short-term"B", Individual"D" and support rating
"4". The outlook on the long-term rating is"Stable". Long-term and short-term ratings, as
well as the support rating reflects Fitch's view regarding the likelihood that bank would
receive support from the Kazakh authorities in case of need.
On May 20, 2005, the international rating agency "Moody's Investors Service upgraded the
Alliance Banksthe long-term rating on liabilities in foreign currency from Ba3 to Ba2, thus
changing the outlook of the rating from" positive "to" stable. "
Thus, Alliance Bank is rated by Moody's: long-term rating on liabilities in foreign currency
Ba2 "stable", Short-term rating on liabilities in foreign currencyNP and financial stability
ratingE + "positive outlook".
Impact of recent financial crisis
Financial crisis in Kazakhstan, which began in the second half of the 2007 due to problems in
the mortgage market in the U.S., first, hit the construction companies. At the beginning of
2008, some of them already ceased their existence, leaving hundreds of unfinished housing
estates and business centers across the country. Real Estate in Kazakhstan actually became
illiquid. As a result, more and more people who took loans for real estate, refused to pay the
high interest rates for non-existent objects.
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Now the problems began to grow with the banks, which in turn had to pay for foreign loans.
According to unofficial data, by the end of 2008 the debt of Kazakh banks to foreign
creditors reached an astronomical summore than $ 35 billion. Moreover, in the most
difficult position in this situation was exactly "Alliance Bank", which not only took
considerable funds abroad, but also invested in risky projects abroad, and actively made loans
of purchasing real estate in the country.
On October 2008, the anti-crisis plan was developed under which the government has
allocated funds for the purchase from leading banks (Halyk Bank, Kazkommertsbank, BTA
Bank and Alliance Bank) 25% of the voting shares.
On February 2, 2009, The Government of the Republic of Kazakhstan reported on
redemption of 76% of the shares of Alliance Bank. Unfortunately really buybacks did not
take place until the end of 2009.
On April 13, 2009, JSC "Alliance Bank" applied to creditors with a proposal to restructure
the debt. Experts regarded this statement as a technical default.
On December 15, 2009 the head of the Alliance Bank reported that lenders have approved the
restructuring plan of its obligations. As a result the bank's debt reduced by $ 1 billion from $
4.5 billion
The restructuring of the external debt was a condition of nationalization of the bank following
the example of other survivors at the expense of the treasury financial institutions in
Kazakhstan.
After the restructuring of debts of JSC Alliance Bank was completed on April 2010,
Sovereign Wealth Fund Samruk-Kazyna" acquired a controlling packet of shares of "Alliance
Bank" and spend $ 856 million on its capitalization.
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Conclusion
The banking system of Kazakhstan in recent times is developing very dynamically.
Moreover, each bank has to choose its own path, to rely on a particular resource that allows
to outstrip competitors. In an effort to increase economic efficiency and improve resource
allocation mechanism, the government is taking steps towards creating in economy an
atmosphere of openness, competition and market discipline. In order to survive and prosper,
the bankers will have to drop their bureaucratic tradition and become entrepreneurs, reacting
and adapting to a market economy. Judging by the growth rate, both JSC "Alliance Bank"
and JSC "ATFBank" have found its own special path to the heart of the customer, whether it
an individual or a large industrial corporation.
Impact of the global economic crisis on Kazakhstan began in the second half of 2007, when
the U.S. had problems with mortgage loans.
The consequences of global financial crisis for banks in Kazakhstan:
- A sharp reduction in the rate of growth of the banking system;
- Significant deterioration in asset quality;
- Decline in profitability of Kazakh banks.
The main reason for the decline of profitability of banksis formed in the provision due to
the deterioration in asset quality.
Due to resource mobilization in a number of significant amounts, major banks were in trouble
in paying foreign debts.
Kazakh banks have developed measures to mitigate the impact of the crisis:
- Tightening of monetary policy;
- Increase interest rates for the loans;
- Refusal of further borrowing;
- Restructuring of the internal and external obligations.
Both banks JSC "ATFBank" and JSC "Alliance Bank" now have problems with credits.
Currently, in any commercial bank there is the problem of bad loans issued to both
individuals and legal entities. This problem is unsolvable within the same bank, it is more
global and encompasses many economic processes in the country. Therefore, issues of
reducing the credit risk of banks have always been and remain relevant. Maintaining a
balance between return and risk is one of the most important and the most difficult problems
of the Bank. Currently, commercial banks are actively working to resolve the problems of
bank risk management, uncertain source of their occurrence, in order to survive in a
constantly changing economy.
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References
Zemtsov, A.V. (2003). Overview of the modern banking system,Banking, Vol. 1, 2003
Balabanov, I.T. (2011). Banks and Banking, pp. 304
Arynov, E.M. (2002). Kazakh banks in the domestic financial market,Almaty, pp. 140
Ayesheva, G.A. (2010). The financial crisis in Kazakhstan: experience and prospects.
http://news.nur.kz, Alliance Bank is preparing to sign an agreement with creditors, 2009
http://ru.wikipedia.org, The financial crisis of 2007-2009 in Kazakhstan".
http://slon.ru/news/215458/ "Alliance Bank" was approved the debt restructuring
http://www.dw.de/Kazakhstan "Alliance Bank" announced the partial default
http://www.kase.kz/
http://slon.ru/news/215458/http://slon.ru/news/215458/http://www.dw.de/http://www.dw.de/http://www.kase.kz/http://www.kase.kz/http://www.kase.kz/http://www.dw.de/http://slon.ru/news/215458/