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Content

Introduction

1. Theoretical basis of formation and management of second tier banks' resources

1.1 The concept, structure and management of the bank's own capital

1.2 Essence, classification and role of deposits

1.3 Bonds and syndicated loans as the main sources of non-deposit funds

1.4 Assets liability management

2. Analysis of the current practice of formation and management of resources of JSC Kazkommertsbank

2.1 Analysis of the formation, management and evaluation of the capital adequacy of JSC Kazkommertsbank

2.2 Analysis of activity of Kazkommertsbank in formation of deposit market and implementation of deposit policy

2.3 Analysis of non-deposits sources of funding of JSC Kazkommertsbank

2.4 Analysis of assets and liabilities of JSC Kazkommertsbank

3. The ways of improvement in funding of banking operations and asset management of the bank

3.1 The implementation of Basel III

3.2 The implementation of certificate of deposit

Conclusion

Appendixes



Introduction

The actuality of diploma work lies in the following:

-The banking sector of Kazakhstan is in a post-crisis state. Despite economic growth and favorable monetary policy, there is still concern about the cost of assets and quality of capital of most banks.

-Nowadays the most important source of funding for the commercial banks of Kazakhstan are the deposits of customers. The stability and growth of the deposit base is one of the main pledges of stability in the Kazakh banking system. However, according to conducted study by Ulagat Business Group, only 3% of deposits of commercial banks of Kazakhstan may not be withdrawn without loss of interest during the year. The experience of recent banking crises in developed countries (U.S., UK, etc.) showed that in the case of panic among depositors, the State has to send hundreds of billions of dollars to maintain the liquidity and stability of the banking system.

- On January 1, 2013 in Kazakhstan was planned to start a phased introduction of the new version of the document - Basel III - with the full transition to the new standards in 2015. However, it was postponed indefinitely. At the same time implementation of Basel III has strengths and weaknesses. Nobody knows what effect the implementation of Basel III will have on the economy of Kazakhstan.

To ensure its activities, commercial banks must have a certain amount of money, i.e. resources. The scope of their activities depends on the amount of the resources. With the building of two-tier banking system of the Republic of Kazakhstan and the change of ownership from the state to the Joint-commercial nature of banking resources has undergone significant changes and the concept of banking competition originated. It is explained by the following reasons:

Firstly, national fund of bank resources significantly narrowed. Secondly, creation of enterprises and organizations with different types of ownership means the emergence of the new owners of temporarily free funds, self -determining place and method of their storage that encourages creation of market of credit resources, organically included in the system of monetary relations. This situation exacerbates the competition between banks to attract resources. Thus, in the present conditions of economic development problem of the formation of resources has paramount importance.

Management of bank resources is a complex process of their formation and placement, which faces certain restrictions in the form of prudential standards developed by international and national supervisory authorities. The aim of these bodies is regulation of an activity of commercial banks provided by a certain level of equity.

Equity capital for a commercial bank, as for any other commercial structure is the core activity that defines its scope and volume of attraction of resources. In other words, the activity of commercial banks is largely determined by the size and structure of the equity.

In a market economy the resources of commercial banks have paramount importance. This is confirmed by the fact that they are an indispensable element of bank activity. Commercial bank, on the one hand, attracts free money resources of individuals and legal entities, thus forming its resource base, on the other hand, a bank places resource base on his behalf under the terms of return, maturity and payment. In this case, a commercial bank may conduct its operations only within the limits of available resources. The nature of these operations depends strongly on the quality resource base of the bank.

A commercial bank, whose resources have mainly short term nature, is unable to make long-term credit investments. Consequently, in the market conditions the amount and quality of resources that are owned by the commercial bank, determine the magnitude and direction of its activities. In connection with this question of the resource base, optimizing of its structure and stability become urgent in the work of a bank.

The aim of diploma work is to examine the state of the resource base of banks in the Republic of Kazakhstan, to reveal the main problems of funding of banking operations and asset management of the bank, barriers preventing the development of banks, what Government can make for supporting banks, find out solutions to existing problems.

Objectives of the study are:

To determine what are the resources of commercial banks, their essence and necessity;

To classify resources;

To consider the resources of commercial banks as a basis for their activities;

To consider the formation of resources of commercial banks;

To analyze the resource base of Kazkommertsbank;

To determine the ways of improvement in Kazkommertsbank's conditions.

Object of the research is an activity of Kazkommertsbank in Kazakhstan.

The subject of the study is the problem of the formation of resource base of commercial banks.

In theoretical part such works were studied and used as: Larionova, Mishkin F.S., Beloglazova, Bertayev K.Zh.,Batrakova L.G., Maidyrova D.N.,Polfreman D., Ford R. and others.

In this project in practical part the statistics from official websites AFN, Kase, NationalBank, Centras Securities and the consolidated financial statements of Kazkommertsbank for the last 3 years were used and analyzed.

The scientific novelty of diploma work is presentation of solutions to the problems of banks. We'd like to underline that these solutions such as Basel III and certificate of deposit were not used before in Kazakhstan. We suppose that these ideas stimulate the development of banks as well as an economy of Kazakhstan.

Scientific and practical importance of the research is defined by the fact that formulated conclusions, suggestions can be applied in the banking system.

While working on diploma work the following research methods are used such as: logical, settlement and constructive methods of analysis and synthesis. The logic of the study and its content determined the structure of the final work, consisting of: introduction, three chapters, conclusion, list of used literature and appendixes.

In the first chapter theoretical issues of assignment, the structure and the formation of resource base of banks are considered. In this chapter the following questions are considered:

-The concept, structure and management of the bank's own capital;

-Essence, classification and role of deposits;

-Bonds and syndicated loans as the main sources of non-deposit funds;

-Assets Liability Management;

This chapter is devoted to the analysis of the current practice of formation and management of resources of and asset liability management of Kazkommertsbank.

It includes:

-Analysis of the formation, management and evaluation of the capital adequacy of JSC Kazkommertsbank;

-Analysis of activity of Kazkommertsbank in formation of deposit market and implementation of deposit policy;

-Analysis of non-deposits sources of funding in Kazkommertsbank RK;

-Analysis of assets and liabilities of JSC Kazkommertsbank.

The third chapter contains description of existing problems in banks and ways of improvement. In this chapter Basel III and certificate of deposit are considered as ways of improvement in funding of banking operations.



1. Theoretical basis of formation and management of second tier banks' resources

1.1 The concept, structure and management of the bank's own capital

Commercial banks, like other subjects of economic relations, to ensure its commercial and business must have a certain amount of money, i.e., resources. Under modern conditions of economic development problem of the formation of resources is of paramount importance. This is because the transition to a market economy model, the elimination of state monopoly on banking, building a two-tier banking system the nature of bank resources is undergoing significant changes. This is because, firstly, greatly narrowed nationwide fund banking resources and the scope of its operations concentrated in the first link of the banking system - the Central Bank. Secondly, the formation of companies and organizations with various forms of ownership means the emergence of the new owners of temporary free funds, independently determining the location and method of storing money, creating a market of credit resources, organically included into the system of monetary relations. commercial kazkommertsbank deposit

In addition, the scope of activities of banks, defined by the object of its active operations, depends on the totality of resources available to them, especially the amount of borrowed resources. This situation aggravates the competition between banks to attract resources.

Simultaneously with the market credit starts functioning securities market, where banks are the sellers or buyers of their own government and corporate securities. Availability of insurance, financial and other lending institutions will intensify competition in the market of credit resources and exacerbates the accumulation of banks temporarily idle cash.

Resources of commercial banks or bank resources represent a set of own and borrowed funds at his disposal and used to carry out active operations.

By way of education, all commercial banks' resources are divided into equity and debt (borrowed).

The main source of commercial banks' resources is borrowed funds, constituting about 70-80% of total bank resources. The share of own funds of banks to between 22 and 30%, which is broadly in line with the existing structure of the global banking practice. As part of its own funds the bulk of the bank accounts for different funds. The second part of its own funds - profits this year.

The structure of the banking resources of individual commercial banks is very varied, because of its individual features.

The banks' own capital, which consists for the banker (or banking house) of the means which belong to him and which, for joint-stock banks, consists of the receipts from the floating of bank shares. Banking capital brings its holder banking profit, the profit norm of which is equal to average profit in the economy as a whole, just as is the case with industrial and commercial profit. Thus, banking capital is functioning entrepreneurial capital, as distinguished from loan capital-capital as property. Under premonopolistic capitalism, banking capital kept itself apart from industrial capital and serviced the latter through short-term credit and accounting transactions. In the era of imperialism, monopolistic banking capital is intertwined with monopolistic industrial capital; as a result, financial capital is formed.

Under the bank's own funds should understand the various funds set up by the bank to ensure its financial stability, trade and economic activities as well as profits as a result of the current and previous years.

The structure of the bank's equity (according to Picture 1)base is heterogeneous in composition and quality varies throughout the year depending on several factors and in particular on the quality of the assets of its own profits, the bank's policy to ensure the sustainability of its capital base.



Figure 1. Equity structure

Statutory fund creates the economic basis of existence and is a prerequisite for formation of the bank as a legal entity. Its value is governed by legislative acts of the central banks and, moreover, is subject to agreement of the European Economic Community (EEC), which in 1989 regulated its minimum value of $ 5 million ECU.

Regulation of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations of September 2, 2008 № 140.Registered with the Ministry of Justice of the Republic of Kazakhstan, October 13, 2008 № 5339. Lost by the Board of the National Bank of Kazakhstan on December 24, 2012 № 383.

In order to ensure the financial stability of banks and protect the interests of their depositors Management Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations has decided:

The minimum capital: for newly established banks, including the Agency received permission to open a bank, in the amount of 5,000,000,000 (five billion KZT).

The minimum capital for banks with no branches: for banks in the amount of 1,000,000,000 (one billion KZT);

For banks located outside the cities of Astana and Almaty, housing savings banks in the amount of 500,000,000 (five hundred million) KZT;

For existing banks, equity of each of them on October 1, 2009 is less than 10,000,000,000 (ten billion KZT) in the amount of 2,000,000,000 (two billion KZT), provided: re-registration of the bank outside the cities of Astana and Almaty; presence of deposits accepted from individuals and legal entities registered outside the cities of Astana and Almaty, except for deposits of special purpose subsidiaries of the bank and interbank deposits, in an amount not less than 50% (fifty percent) of the bank's liabilities./1, p.234/

Equity funds commercial banks play an important role:

- For the bank, since the volume and nature of ongoing both active and passive operations directly related to the amount of capital, which ultimately has a significant influence on the formation of performance;

- For the bank's creditors, as well as customers are on cash and settlement services, which is associated with ensuring the safety of their investments and guarantee the stability of service;

- For government agencies, including the Central Bank, who are interested in the stability of the overall economy, in particular, the banking system and the non-cash payments, as this stability can be achieved only if the commercial banks' own funds, inadequate, adequate market situation in its quantitative and qualitative parameters.

Thus, before the bank's management is a recurring problem replenish their funds.

Replenishment of bank capital in two ways:

- Increase of capital from domestic sources;

- Increase of capital from external sources.

The first method is to perform a specific dividend policy, the essence of which is to increase the share of profit retention by reducing (or relative reduction at constant profit growth) the payment of dividends to holders of common shares.

The second method consists primarily of additional issue of equity securities with the right to exchange for shares. By this method also includes sale of fixed assets, primarily real estate leaseback. This kind of transactions are most attractive in periods when inflation and economic growth well ahead of the current increase in value compared to its original value, as reflected in the balance sheet of the bank.

For the calculation of the equity capital of the bank can be used different methodologies. In most developed countries used the methodology proposed by the Basel Committee on Banking Supervision at the Bank for International Settlements. This technique is being implemented gradually and in banking in Kazakhstan.

According to this methodology, adjusted for specific features, in the sources of their own funds, in the calculation of basic equity, include:

- The authorized capital of the credit institution, organized as a joint stock company formed as a result of the issue and placement of ordinary and preference shares (other than cumulative, which cannot be paid dividends);

- Share premium for its shares at a price above their face value;

- Property, donated the property received by the bank from legal entities and individuals;

- Funds of the bank, formed from the profits of previous years and the current year, as well as retained earnings of the current financial year, confirmed by an audit firm;

- Provisions made by the bank for impairment of investments in shares of subsidiaries and affiliated companies.

Reduce the amount of sources of capital intangible assets, own shares purchased by the bank from shareholders; uncovered losses and losses of the current accounting year.

Reserve capital (fund) is created from net profit (after tax) in an amount not less than 15% of the paid amount of the share capital and is designed to absorb unexpected losses in the bank's activities and ensure the stability of its functioning.

The second group of funds formed as a result of the distribution of net profits, remaining at the disposal of the bank (funds for special purposes), and also reflects the use of net profit for certain purposes.

The third group of funds, the combined name of “additional capital, consists of:

- Proceeds from the sale of shares of the first holder at a price above face value - “seignior age.” These funds increase the initial capital of the bank and its stable part;

- Capital gains, formed by the revaluation of fixed assets. The presence and magnitude of this fund is a reflection of inflation in the country and, therefore, do not act the qualitative characteristic of its activities. In its economic essence and nature of use of this fund can be regarded as a provision for impairment of fixed assets (fixed assets);

- The value of donated property received. The volume of the fund shows a source of growth of tangible assets of the bank, and the rules of use (to cover possible losses) can take it to a group of reserve funds.

The fourth group of funds established to cover the risks of certain banking operations and thus achieve the stability of banks by absorbing the losses due to the accumulated reserves. These include: provisions for losses on loans, securities and other assets. The value of these reserves suggests, on the one hand, the qualitative structure of bank assets, and on the other - on the margin of safety of the bank, especially with regard to reserve funds created from net profit (for example, reserves for possible losses on loans first group).

The funds the second, part the third and fourth groups according to their intended purpose are very mobile, as they are used for current expenses or capital investment bank associated with the development of its own facilities (ego, payment of premiums, benefits, equipment, costs, ongoing in excess of the limits, classification of them on the operating costs, the provision of charity care, etc.), i.e. the use of these funds due to the decrease of the bank property.

Therefore, the funds of such funds or their equivalent can not be left in the bank and use them for other purposes, i.e. act as a bank's capital.

Thus, the theory of banking distinguishes the concept of equity and equity of the bank. The concept of “own funds” - the most common include all liabilities, formed during the bank's activities: the charter, reserve and other funds of the bank, all the reserves by the bank, and retained earnings from previous years and current year. Bank's own capital - a value determined by calculation. It includes the articles of their own funds (and even borrowed funds), which on the economic meaning can serve as the bank's capital. The main elements of its own funds, i.e. underlying funds established in accordance with the law, and reserves established by domestic sources in order to maintain the bank's activities are included in the bank's capital if they meet the following principles:

- Stability;

- Subordination to the rights of creditors;

- The absence of fixed charges of income.

Under the bank's own capital should be understood specially created funds and reserves that are intended to ensure its economic stability, absorption and possible losses are to use the bank for the entire period of its operation. The bank's capital includes statutory, reserve capital, other funds that do not have the period of use, promoter's profit (the result of the emission), undistributed profits of the current and previous years, left at the disposal of the bank and confirmed by the auditors, the reserves to cover various risks and performs a number of important functions in the activity Bank.

Functions performed by the bank capital, ambiguously defined as a domestic and Western literature. There are three main functions: protective, operational and regulatory. Since a large proportion of bank assets financed by investors, the main function of a very limited amount of equity capital is protecting the interests of depositors. In addition, the capital of the bank reduces the risk of the bank's shareholders. Protective function means that you can compensate depositors in the event of liquidation of the bank, as well as the preservation of solvency by creating a pool of assets, allowing the bank to work despite the threat of damages. In this case, however, it is assumed that most of the loss is covered by the expense of capital and current income of the bank. Unlike most companies preserve the solvency of the commercial bank to cover only part of equity. Typically, the bank is solvent, remains intact equity, i.e. while the value of assets is not less total liabilities (net of unsecured) issued by the bank and its shareholders' equity.

Capital plays the role of a protective “cushion” and allows the bank to continue operations in case of large unexpected losses or expenses. To finance these expenditures, there are various reserve funds are included in shareholders' equity, and for mass non-payment customers on loans to cover losses; you may want to use a portion of equity.

Operational function of bank capital is of secondary importance compared to the defensive. It includes the allocation of own funds to purchase land, buildings, equipment, and the establishment of a financial reserve for unexpected losses. This source of funding is indispensable in the initial stages of the bank, when the founders engaged in a number of priority spending. At subsequent stages of development bank role of equity capital is not less important part of the funds invested in long-term assets, the establishment of various reserves. Although the main source of financing for the expansion of operations is the accumulated profit, the banks often resort to new issues of shares or a long-term loan for events of a structural nature - the opening of branches, merges.

Implementation of the regulatory function of capital is linked to the special public interest in the successful functioning of banks. According Picture 2 ,with the index the bank's capital by public authorities assesses and monitors the activities of banks.

Typically, rules relating to equity of the bank include requirements to its minimum size restrictions on assets and conditions of purchase of assets of another bank. Prudential standards set by the central bank, mainly based on the size of the bank's own capital. In terms of the classification of the functions attributed to the regulatory function and use the capital to curb lending and investment operations (to the extent that bank loans and investments are limited to available equity).

Figure 2. Bank Capital adequacy

Other sources, recognizing that the primary purpose of bank capital is to reduce risk, emphasize the following features:

- Capital serves as a buffer to absorb losses and preserve solvency;

- Provides access to capital markets, financial resources and protect banks from liquidity problems;

- Inhibits the growth of capital and reduces risks.

All these features help to reduce capital risk. Such an approach is more practical and suited for management purposes, a commercial bank.

The role of capital as a buffer against loan losses evident when considered in the context of cash flow.If bank customers fail to fulfill their obligations under the loan, instantly reduced cash flow from interest and principal payments. Outflow does not change. Bank remains solvent, while the amount of inflow exceeds the outflow. Here, capital serves as a buffer, because it reduces the induced outflows.

The Bank may postpone the dividend but shares not being able to pay. Interest payments on bank debt, by contrast, are mandatory. Banks with sufficient capital release new bonds or shares to replace the lost cash inflows of new and buy time until they solved the problem with the assets. Thus, the higher bank capital, the more assets may be unpaid, before the bank becomes insolvent, and the less the risk of the bank.

Adequate bank capital reduces the operational problems by providing free access to financial markets. Capital gives the bank to make loans from traditional sources at normal rates. Large shareholders `equity provides a stable reputation of the bank depositors' confidence in him.

Capital inhibits growth and reduces the risk of restriction of new assets that the bank can purchase through financing with debt. This function is closely related to the norm established by the state authorities of capital to assets. So, if banks decide to increase the size of loans or buy other assets, they should support growth through additional equity financing. This prevents speculative asset growth, as banks must always remain within its capacity a successful asset management.

These functions of bank capital show that equity - the basis of commercial bank activities. It ensures its independence and its financial sustainability as a source to offset the negative impact of various risks, which are borne by the bank.

Management of the bank resources is a complex process of their formation and placement, which is faced with certain restrictions in the form of prudential standards developed by international supervisory authorities and national, to which the acts regulating the activities of commercial banks provided a certain level of equity.

Equity capital for a commercial bank, as for any other commercial structure is the core activities that define its scope and volume of resource mobilization. In other words, the activity of commercial banks is largely determined by the size and structure of the equity.

Thus, in accordance with the Basel Capital Accord 1 as the main criteria for capital adequacy ratio of commercial bank to provide protection against financial risk indicator is proposed, where the capital is related to the bank's assets, which are weighted to risk. However, the basis for calculating the value of assets was put only the credit risk and other risks that the bank faces in operations accounted for indirectly through credit risk. In the future, this agreement was included in capital and market risk represents the loss of the bank as on-balance sheet and off-balance sheet positions due to adverse changes in market prices. Included in the calculation of risk positions of the trading portfolio for interest rate risk and equity instruments, the investment portfolio of the bank, etc. Changes in the practice of the banking business, manifested, in particular, changes in the structure and nature of banking risks, prompted the need for a new Capital Accord, known as Basel 2.

The main purpose of the adopted new Capital Accord is to provide greater sensitivity oversight mechanisms to risks assumed by banks and increase their composition to be included in the calculation of weighing the risk-adjusted assets.

Resource management of domestic commercial banks in terms of equity is also facing constraints in the form prescribed by the National Bank in accordance with the Basel prudential regulations that have a direct impact on the level of resources, the ability of banks to carry out high-quality storage and placing them with all the necessary requirements of the environment./2, p.142/

One of the main features is the constraints of banking capital requirements, which require banks to comply with the required level of its components. It's Tier 1 capital adequacy of allocated resources in the assets and the bank's ability to cover its own capital resource investment in risky assets. These figures make it possible to limit the risk of banks at the stage of resource allocation. The emergence of risk is seen as a result of active operations and, therefore, greater attention on the part of the supervisory authority is given to risky assets. That, in accordance with the rules on prudential standards for banks adopted the decision of the National Bank of 3.06.02, the number 213 is made for the calculation of assets, commitments and contingent liabilities, which are weighted according to the standard risk set these rules. However, this method only allows you to subsequently assess the risk of investing the bank, but it does not take into account the possibility of the risk of demand means that in the first place will affect the risks for active operations.

Therefore, it should be noted that, along with the risks of active operations, which are accounted for and the Basel Accord and the National Bank, in determining the capital adequacy of the bank, there are risks of passive operations that are appropriate to take into account, calculating the ratio of equity to total deposits. Since the bank's equity capital and its protective function define it as a measure of protection of depositors' funds, it is necessary to define a measure of the adequacy of equity capital to meet their own obligations.

In the USA, for example, one of the oldest indicators used to assess the adequacy of bank capital is the ratio of capital to total deposits, which should not be below 10%. It was used in the United States in the early 20th century by the Department of the controller in the analysis of monetary balances of national banks. In this regard, it is proposed to also determine the risk of attracted deposits from banks and for this use the following figure, which reflects cover potential risks in the formation of the bank's liabilities./3/

Based on the fact that as a result of liability management of the bank to comply with the required level of liquidity, it is useful in determining the ratio of equity capital to total deposits take into account the sustainability of the deposit base of the bank.

There is a lot of regard for different methods of rating of validity of business banks in mass media recently. After interbank depression it has become more actual. The most available method of rating evaluation of reliability has become method by V. Kromonov./4, p.75/(look at the Picture 3)

Really, this method permits sufficiently good to rate bank stability by using monthly and quarterly balance sheet.

Figure 3.The system of coefficients by Kromonov

According to this method of evaluation criteria of reliability and stability of the banks are capital adequacy, asset quality, management quality, profitability and liquidity. Feature of the technique is the use of aggregate indicators in the evaluation of each criterion, as well as an assessment of the bank on a separate indicator./6, p.432/The set of these indicators are weighed according to the degree of importance among other indicators, a score is assigned, according to which there is a ranking criterion signs and overall ranking of the bank.

1.2 Essence, classification and role of deposits

In the economic literature there is a large number of definitions of deposit, but there is no generally accepted definition of deposit, which could serve as a starting point for analysis.

Let's consider the comparative theoretical approaches to the definition of "deposit".

Ricardo defines a deposit as attracted resources as required capital of the bank. The bank would never have been established if he had made a profit only from the use of equity. The real benefit of the bank obtained only when it uses someone else's capital. "

Pigou gives the following definition: "deposit is real value of the population."

James Keynes: "Deposit is the share of income that people prefer to keep in cash."

In the book "The banking portfolio," the authors, referring to historical information, explain that the original form of deposit operations was deposited on monetary yards from me, etc. gold coins for their better preservation. For possession of gold coins owner had to pay a fee to the keeper, the latter guaranteed by the client returns just those coins that were given to him for safekeeping. Of course, in such circumstances, the money-changer could not perform loan business with the received coins, could not make a profit, from which they would have to pay the owners of the money rate of interest. Historically, the owners of money ceased to demand the return of the same coin, returning only the amount of money placed. Lengthened and storage time. Only then you can use these loans for credit, get a loan to pay the interest and the amount of their owner's money. If before the moneychangers in the provision of loans to rely only on equity, but now they can also use the borrowed funds, given the conditions of the premises of the depositors for deposits./2, p.275/

Interpretation of the term "deposit" in the economic literature is complex. In the foreign literature deposits are defined as all time and demand deposits from customers of the bank, with the exception of saving deposits.

According to Section I "of the Law on Banks and Banking Activities in the Republic of Kazakhstan" deposit is defined as money transferred from one person (depositor) to another person - the bank (including - National Bank) under the terms of their return in nominal terms irrespective of whether they should be returned on demand, or through any time in whole or in part, with a predetermined premium or without it, directly or transferred to the depositor, on behalf of third parties./3/

Economic category of the deposit is the main part of the category of savings. However, if the savings, in general, are related to the distribution and redistribution of income and savings deposits that cover only the area of redistributive relations.

Savings can be any type of investment. Deposit is one of the forms of savings.

We can distinguish following essential features that characterize deposit:

1. Deposits are closely linked with the capital as part of personal income. The occurrence of such redistributive relations is caused by the fact that the deposit generates income because at the time of withdrawal of deposit money is returned with interest paid.

2. Deposits are characterized by a variety of terms of withdrawal. They may be the immediate investments and investments for the long term and demand deposits.

Deposit operations reflect the activities of the bank as an intermediary between investors and users of funds in purchasing resources for the free money market. Through deposit, the bank extends the possibility of credit investments to clients, other banks, creating a base for revenue. On the basis of deposit operations the largest part of credit resources of banks is formed, they are one of the important traditional banking operations directed towards mobilization of temporarily free funds of legal entities and individuals. The subjects of deposit operations on the one hand as debtors are commercial banks, on the other hand as creditors are public and private companies and organizations, commercial banks and other lending institutions, public organizations and foundations, financial and insurance companies, investment and trust Companies and Funds: some individuals and their associations./4, p.64/

In banking practice deposits are classified according to several criteria: type of withdrawal, category of investors, purpose, and the degree of profitability.

Demand deposits are funds deposited on current accounts of investors indefinitely. They can be withdrawn or transferred to the investor to another account at any time without prior notificationof the bank. These include settlement and current accounts and subaccounts of clients, republic and local budgets, public organizations, and other extra-budgetary funds.

Features of demand deposits lie in the following:

-Depositing and withdrawing money is implemented partly and completely at any time without any restrictions;

-Money can be withdrawn from the account in cash or by check;

-The account holder shall pay a fee for use of the account in the form of a fixed or a monthly rate for each check written out;

-For demand deposits, the bank is obliged to keep a minimum reserve in the National Bank of Kazakhstan in a higher proportion than for fixed-term deposits.

The main advantage of demand deposits is high liquidity, the possibility of their use as a means of payment. These deposits are primarily intended for current accounts. The money on these accounts are credited and removed with the implementation of economic and other activities, reflected in the terms of money in these accounts. The main disadvantage for the investor is the lack of payment of interest on the account or a small percentage./6, p.432/

In the U.S., the law prohibits banks pay interest on demand deposits. Commercial banks in order to keep their investors offered them a new type of savings account - now-account, which, on the one hand, it would provide a high level of liquidity, the ability to use it for payment, and on the other hand, would allow investors to get some income. It opens only for individuals.It is a deposit account on demand, which can be calculated to write a bill, similar checks. On it you can receive income in the form of interest payments at the market rate.

Time deposit has a clearly defined period on it a fixed rate is paid. As a rule there are restrictions on early withdrawal of deposits. Time deposits are funds of individuals, businesses enterprises placed in bank accounts for a predetermined period of time but, as a rule, at least 1 month.

Features of time deposits are:

- Funds in the accounts are not intended for payments and are not writing checks;

- Funds in the accounts turn slowly;

- Time deposits pay a fixed rate. A maximum interest rate, in some periods, can be regulated by the National Bank;

- For time deposits is set lower form of mandatory reserves than demand deposits. For bank depositor the meaning of long-term investment of money lies in getting higher percentage. For a bank time deposit is also advantageous because it can use these funds for a longer time for making loan to the borrower and receiving high interest rates. Time deposits are generally not used for current payments./7, p.441/

With reference to our banking system, the most typical form of time deposits is savings deposits of individuals, money that can be withdrawn with certain restrictions (for example, with advance notification).

Bank interest paid on time deposits of depositors should be lower than the interest received by the bank for the use of these deposits as loans. The difference between the interest earned on loans and paid the client for the deposit is bank's profit. Commercial banks carry out deposit transactions in accordance with the Constitution, the Law "On Banks and Banking Activities in the Republic of Kazakhstan" dated August 31, 1995. № 2444, the Tax Code, the Law "On Currency Regulation", the Charter of the Bank and the National Bank of the instruction "On the order of opening, maintaining and closing bank accounts of customers in banks," March 4, 1997, № 6, laws and regulations.

In international banking practice intermediate place between time deposits and demand deposits is occupied by savings deposits. Savings accounts have no fixed term. The most common types of personal savings accounts are regular savings deposits. They are characterized by the following:

- The lack of a fixed term of storage of funds;

- Does not require notification of withdrawal of funds;

- And when you make withdrawals from the account a savings book is presented, in which the movement of funds is reflected.

On fixed savings deposits either a fixed term is set or a period at the end of which, the contribution may be removed. Time depositspay the highest interest in comparison with other types of savings deposits. On savings deposit with additional contributions pre-negotiated amount of money is contributed and cumulative savings are paid that certain date. Current savings deposits allow free entry and withdrawal and are mainly used for transfer of wages, pensions, and regular payments. On these deposits the minimum interest rateis accrued. In Western practice, these accounts can be "linked" to the time deposit for automatic reinforcement balance, in case of lack of funds to make payments on the account.

Savings deposit with the book allows the investor to monitor the growth of the savings and it suits the absence of a fixed period, and penalties for withdrawal of money. For banks savings accounts with a book are connected with additional costs: processing operations are time consuming, it is required to keep double counting - on the account and in the book, there are differences of records, books are exposed to loss.

Deposit or savings certificate is written evidence of the bank - the issuer of the contribution of funds, certifying the right of the depositor or its assignee to receive cash at maturity and interest.

Deposit certificates are issued in amounts and are acquired by entities. Non-negotiable certificates of deposits are kept by the depositor and presented them to the bank at maturity. Transmitted certificates of deposit are issued for a period of 14 days to 18 months. Savings certificates are designed for realization mainly to individuals. Circulation term of fixed savings certificates may not exceed 1 year and 3 years, if the conditions of their issue are coordinated with the National Bank. If the date of receipt of contribution is expired, then the certificate will become demand document. The bank is obliged to pay the amount indicated on document on demand of the owner. Savings certificates may be transferred only to an individual.

Deposit operations are based on the following principles:

- Assistance in receiving of banking profits and creation of the conditions for a profit in the future;

- Implementation of flexible deposit policy in order to maintain operational liquidity balance of the bank;

- Paying attention to time deposits, the most supportive liquidity balance of the bank;

- Providing linkages and synergies between deposit operations and operations on making loans on the terms and amounts;

- Taking measures directed at the development of banking services, attracting deposits.

Bank for its operations use up to 90% of the cash resources through borrowed funds, i.e. they accumulate temporarily free funds of their clients. Traditionally, the largest part of these funds is deposits.

Individuals, companies and organizations put their money in commercial banks for several reasons:

- Banks provide stronger guarantees of deposits;

- Depositors at any time, not only can claim the return of their investments, and obtain loans that exceed them;

- These contributions are profitable.

1.3 Bonds and syndicated loans as the main sources of non-deposit funds

Sources of bank's funds

A bank is a business firm. Its main aim is to earn profit. In order to achieve this objective it provides services to the customers. It offers a variety of interest bearing obligations to the public. These obligations are the sources of funds for the bank and are shown on the liability side of the balance sheet of a commercial bank. The main sources which supply funds to a bank are as follows:Bank's Own Funds and Borrowed Funds.

1. Bank's own funds.

(A) Banks Own Funds. Bank's own paid up capital. The amount with which a banking company is registered is called nominal or authorized capital.

2. Reserve fund. Reserve is another source of fund which is maintained by all commercial banks.

3. Profit. Profit is another source to a bank for the purpose of business. Profits signify the credit balance of the profit and loss account which has not been distributed.

(B) Borrowed Funds. The borrowed capital is a major and an important source of fund for any banking business. It mainly comes from deposits which are accepted on varying terms in different accounts.

1. Borrowing from central bank. The commercial banks in times of emergency borrow loans from the central bank of the country. The central bank extends help as and when financial help is required by the commercial banks.
2. Other sources. Bank also raise funds by issuing bonds, debentures, cash certificates etc. etc. Though it is not common but is a dependable source of borrowing.

3. Deposits. Public deposits are a powerful source of funds to a bank. There are' three types of bank deposits (i) current deposits (ii) saving deposits and (iii) time deposits. Due to the spread of literacy, banking habits and growth in the volume of business operations, there is a marked increase in deposit money with banks./1, p.154/

BORROWED FUNDS

The borrowed capital is a major and an important source of fund for any banking business. It mainly comes from deposits which are accepted on varying terms in different accounts.

FED FUNDS

In the United States, federal funds are overnight borrowings by banks to maintain their bank reserves at the Federal Reserve. Banks keep reserves at Federal Reserve Banks to meet their reserve requirements and to clear financial transactions.

FEDERAL RESERVE BORROWING

When countries issue currency, especially fiat currency that is not specifically backed by any commodity, it is necessary to have a central bank whose job it is to monitor and regulate the supply, distribution, and transacting of currency.

REPOS

A repurchase agreement, also known as a repo, RP, or sale and repurchase agreement, is the sale of securities together with an agreement for the seller to buy back the securities at a later date. The repurchase price should be greater than the original sale price, the difference effectively representing interest, sometimes called the repo rate. The party that originally buys the securities effectively acts as a lender. The original seller is effectively acting as a borrower, using their security as collateral for a secured cash loan at a fixed rate of interest. A repo is equivalent to a spot sale combined with a forward contract. The spot sale results in transfer of money to the borrower in exchange for legal transfer of the security to the lender, while the forward contract ensures repayment of the loan to the lender and return of the collateral of the borrower. The difference between the forward price and the spot price is effectively the interest on the loan, while the settlement date of the forward contract is the maturity date of the loan.

There are three types of repo maturities: overnight, term, and open repo. Overnight refers to a one-day maturity transaction. Term refers to a repo with a specified end date. Open simply has no end date. Although repos are typically short-term, it is not unusual to see repos with a maturity as long as two years. [App.3]

EURODOLLAR BORROWING

Many foreign banks as well as foreign branches of U.S. banks accept deposits of U.S. dollars and grant the depositor an account denominated in dollars. Those dollars are called Eurodollars. As we will see, they exist under quite different constraints from domestic dollars. While Eurodollar banking got its start in Europe, such banking is now active in major financial centers around the world./2, p.144/

Bonds and syndicated loans as the main sources of non-deposit funds

Bond - a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.

The indebted entity (issuer) issues a bond that states the interest rate (coupon) that will be paid and when the loaned funds (bond principal) are to be returned (maturity date). Interest on bonds is usually paid every six months (semi-annually). The main categories of bonds are corporate bonds, municipal bonds, and U.S. Treasury bonds, notes and bills, which are collectively referred to as simply "Treasuries." Two features of a bond - credit quality and duration - are the principal determinants of a bond's interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.

Issuance

Bonds are issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process for issuing bonds is through underwriting. When a bond issue is underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue of bonds from the issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. Primary issuance is arranged by book runners who arrange the bond issue, have direct contact with investors and act as advisers to the bond issuer in terms of timing and price of the bond issue. The book runners' willingness to underwrite must be discussed prior to any decision on the terms of the bond issue as there may be limited demand for the bonds.

In contrast, government bonds are usually issued in an auction. In some cases both members of the public and banks may bid for bonds. In other cases only market makers may bid for bonds. The overall rate of return on the bond depends on both the terms of the bond and the price paid. The terms of the bond, such as the coupon, are fixed in advance and the price is determined by the market.

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