Asset management of the bank

Analyst of Halyk Finance BakayMadybaev outlined two polarity of deposit funding of second tier banks. On the one hand, attraction of deposits reduces the concentration of funding sources, but on the other hand, a relatively short period of time of deposits hinders corporate and mortgage lending, and the risks of an early withdrawal of funds make banks hold excess liquidity, thereby reducing the return on assets.

A large percentage of the risks is noted by director of the Center for Macroeconomic Research Olzhas Hudaybergenov, noting that the overall volume of deposits is growing, but among them short-term deposits dominate. In addition, the depositor may withdraw the deposit at any time. As well as deposits are now the main source of funding for banks, but quite unreliable.

An analyst "Uralsib Capital" Natalia Berezina has another opinion, noting that in more or less stable macroeconomic deposits of the population can be considered a reliable source of funding. According to her, the high proportion of retail deposits makes sense in case of the corresponding share of retail lending, or lending to small and medium-sized businesses. For example, Kaspi Bank can afford to keep 60% of liabilities in retail deposits, but if we take the "Halyk", in which retail deposits are about 20% of the loan portfolio, or" Kazkommertsbank " where the share reaches only 10%, it seems reasonable that the share of retail deposits in the liabilities is about 30% that banks have.

The most popular terms for investors are usually the first, deposits in KZT at 6.5-8% with the possibility of partial withdrawals and replacements, and, second, the deposits by more than 8% (up 9.4%), but with a higher minimum deposit amount or without the option of partial withdrawals.

According to statistics of the National Bank of Kazakhstan as of February 1, 68% of the deposits of legal entities and 88.5% of retail deposits were made in KZT. National Bank statistics show a trend of popularity of KZT deposits. According to data as of February 1, 2013, deposits of legal entities in Kazakhstan's commercial banks amounted to more than 1,467 trln. KZT or about 68% of the total amount of deposits of this group of investors. The volume of retail deposits in KZT amounted to nearly 323.7 billion KZT, or 88.5% of total deposits of individuals. These do not include data on deposits of non-residents.

Contributions are often made for a period of 12 to 36 months in the national currency. The banks themselves encourage Kazakhstanis to save in the national currency. Taking into consideration the fact that for the bank the national currency is preferred for maintaining needs of business units, the highest interest rates are set on deposits in KZT. As a result customers usually place deposits in the national currency.

In addition, the Kazakhstan Deposit Insurance Fund (KDIF) recommends a nominal interest rate of 9% per annum for deposits in KZT and 5.5% for deposits in foreign currency. In December 2012 average rates for the system on retail deposits in KZT (6.7%) and foreign currency (4.7%) were below the maximum recommended rate (from 1 January 2013 - 9% and 5.5%, respectively, in the second half of 2012 was 9% and 6%).

It is obvious that the Kazakh banks offering more than 9%, involve the effective rate (which is always above par), or offer award to depositors, which in the case of a bank failure may be unwarranted.

The scheme is built like this: the bank itself determines what he wants to guarantee deposits, and in proportion to the volume of this contributes to the KDIF and the fund, in turn, sets the recommended rates at size of which will be guaranteed reward.

The Bank may establish a higher rate, but there is no guarantee on difference.

Table 5. Volume of deposits in banks

Bank	Volume of deposits, 2013 KZT million	Volume of deposits, 2012 KZT million	Outflow/inflow, %
Tsesnabank	515916	341222	51,2
Kaspibank	412781	318055	29,8
Eurasian Bank	295670	229932	28,6
Sberbank	493770	388912	27,0
AllianceBank	334405	292504	14,3
Halyk bank	1656041	1519278	9,0
Bank CenterCredit	753587	691552	9,0
ATF Bank	473465	522672	-9,4
BTA Bank	541185	736085	-26,5
1 Note - top ten banks were taken in terms of assets on January 1, 2013 2 Note - source website www.kapital.kz

The amount of deposits in Kazkommertsbank on 31 December 2012 was 1,554 trillion KZT, in comparison with 2011, it increased by 6,2%.



Table 6. Volume of deposits of Kazkommertsbank

	31 December 2012 (KZT million)	31 December 2011 (KZT million)	31 December 2010 (KZT million)
Volume of deposits	1553576	1463077	1506800
Note - source financial statement of Kazkommertsbank

If we look at diagram we can see that the volume of deposits decreased in 2011, and increased in 2012. In comparison with 2011, we see positive tendency to the growth.

Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure 7. Dynamics of change in volume of deposits of Kazkommertsbank from 2010- 2012, million KZT

The volume of retail deposits was 656,844 billion KZT on 1 January 2013, 592,688 billion on 1 January 2012.The increase in retail deposits was 10.8% .

Table 7. Volume of retail deposits in banks

Bank	Volume of retail deposits, 2013, (KZT million)	Volume of retail deposits, 2012, (KZT million)	Outflow/inflow, %
Sberbank	119053	70567	68,7
Tsesnabank	159219	99338	60,3
Eurasian Bank	97571	63659	53,3
Kaspibank	319162	222724	43,3
AllianceBank	156469	112836	38,7
ATF Bank	211479	155200	36,3
Halyk bank	686426	559209	22,7
Kazkommertsbank	656844	592688	10,8
Bank CenterCredit	391869	376139	4,2
BTA Bank	291933	302214	-3,4
1 Note - top ten banks were taken in terms of assets on January 1, 2013 2 Note - source website www.kapital.kz

The volume of deposits of legal entities was 896,732 billion KZT on 1January 2013, 870,389 billion on 1 January 2012. The growth of deposits of legal entities was 3%.

Table 8. Volume of deposits of legal entities in banks

Bank	Volume of deposits of legal entities, 2013 KZT million	Volume of deposits of legal entities, 2012 KZT million	Outflow/inflow, %
Tsesnabank	356697	241884	47,5
Eurasian Bank	198099	166272	19,1
Sberbank	374717	318346	17,7
Bank CenterCredit	361718	315414	14,7
Kazkommertsbank	896732	870389	3,0
Halyk bank	969614	960069	1,0
AllianceBank	177936	179668	-1,0
Kaspibank	93619	95331	-1,8
ATF Bank	261986	367471	-28,7
BTA Bank	249252	433871	-42,6
1 Note - top ten banks were taken in terms of assets on January 1, 2013 2 Note - source website www.kapital.kz



Note - Compiled by the author according to the data of website www.kapital.kz

Figure 8. Dynamics of change in volume of retail and deposits of legal entities of Kazkommertsbank on 1 January 2012, 2013, mln. KZT

The share of retail deposits is 42,3%, the share of deposits of legal entities is 57,7% in 2012 . Nowadays we can see that retail deposits grow rapidly. Earlier in the structure of deposit portfolio the deposits of corporate clients dominated, in the last couple of years, there is such a tendency that retail deposits pursue deposits of legal entities.

Note - Compiled by the author according to the data of website www.kapital.kz

Figure 9. The share of retail deposits and deposits of legal entities on 1 January 2013

In comparison with other banks, we can see that an increase in retail and legal entities deposits is not high. This is can be explained by the fact that Kazkommertsbak has sufficient liquidity and sufficient funds to provide growth. As a result during 2 years Kazkommertsbank has reduced interest rates on deposits which reduced interest rates on loans to public. Another reason why bank decreases interest rate on deposits is that in July of this year, Kazakhstan Deposit Insurance Fund (KDIF) lowered the recommended interest rate for banks. So, KDIF lowered the recommended rate on KZT deposits from 10 to 9% per annum in foreign currency - from 7 to 6% per annum. According to managing director of bankAndreyTimchenko, the bank has no plans to revise interest rates on deposits. Effective annual rate of KZT deposits for individuals in Kazkom ranges from 7.2-7.7% per annum.

Table 9. Deposits with high interest rates

Bank	Name of deposit	Interest rate
		12 month	24 month	36 month
Eurasian Bank	«Казына Премиум»	8%	9%	-
Kaspibank	«Каспийский»	8,65%	-	-
Halyk bank	«Стандартный»	8%	8%	8%
Kazkommertsbank	«Лучший»	7,5%	8%	-
BTA Bank	«Сберегательный»	7%	7,5%	8%
Bank CenterCredit	«Чемпион»	7%	4%	-
Temirbank	«Урожай»	8% (13 month.)	-	6% (37 month)
Note - source website www.kapital.kz

Let's consider deposit portfolio of Kazkommertsbank. We can see that time deposits exceed demand deposits. Bank encourages people to put money in time deposits by setting high interest rates in comparison with demand deposits. For a bank fixed deposit is advantageous because it can use these funds for a longer time for making loan to the borrower and receiving high interest rates.



Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure 10. The share of time deposits, demand deposits, JSC National Welfare Fund's “Samruk-Kazyna”, JSC Entrepreneurship Development Fund's “Damu” and JSC Stress Assets Fund's deposits, accounts in precious metals in 2012.

There is a tendency to an increase in volume of time deposits and opposite tendency to decrease in volume of demand deposits.

Table 10. Dynamics of change in time and demand deposits

Types of deposits	31December 2012 (mln. KZT)	31 December 2011 (mln. KZT)	31 December 2010 (mln. KZT)
Time deposits	1064077	894543	893814
Demand deposits	379974	457588	459480
JSC National Welfare Fund “Samruk-Kazyna”, JSC Entrepreneurship Development Fund “Damu” and JSC Stress Assets Fund	105883	107689	152383
Accountsinpreciousmetals	3642	3257	1123
Total	1553576	1463077	1506800
Note - source financial statement of Kazkommertsbank



Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure 11. Dynamics of change in volume of time and demand deposits from 2010-2012, mln. KZT

Statistics shows that customers prefer to keep their money in KZT. KZT is the most popular currency. Dollar takes second place, euro the third place. Deposits in KZT amounted to 55,3% in 2012. For the bank the national currency is preferred for maintaining needs of business units, the highest interest rates are set on deposits in KZT . As a result customers prefer to place deposits in the national currency.

Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure 12. Shares of deposits in KZT, dollar, euro, ruble, another currency in 2012

Why do people prefer to make deposits in Kazkommertsbank?

The main reasons is an advertisement.

Nowadays advertisement plays an important role in attracting new depositors.

Kaskommertsbank is one of the leaders in volume of funds directed at advertisement.

More than 19.4% of the market of advertising budget belongs to Kaspi bank, the second place is taken by Eurasian Bank 15.2%. Kazkommertsbank 14.3% took the third place. So, in 2012, Kaspi bank spent on advertising more than 1.3 billion, "Eurasian Bank" -1.0 billion, Kazkom - 953.6 million in 2012.

In comparison with 2011, Kazkommertsbank reduced its expenses on advertisement by 11.2%, according to website www.kapital.kz.

Table 11. Leaders in volume of funds directed at advertisement

Bank	Expences on advertisment, (KZT million)
Kaspibank	1296
Eurasian Bank	1017
Kazkommertsbank	954
Sberbank	740
Halyk bank	640
Tsesnabank	551
Bank CenterCredit	465
BTA Bank	413
AllianceBank	382
ATF Bank	210
Note - source website www.kapital.kz

As at 31 December 2012, interest on customer accounts was KZT 65,986 billion (2011: KZT 85,490 billion, 2010: KZT 96,997 billion).The volume of deposits was 1,554 KZT trillion in 2012, KZT 1,463 trillion in 2011, KZT 1,507 trillion in 2010.

The cost of deposits is equal to:

65,986 billion / 1,554 trillion *100% =4,2 % in 2012

85,490 billion /1,463 trillion=5,8 % in 2011

96,997 billion / 1,507 trillion=6,4% in 2010

We see the tendency to the decrease in cost of deposits. It is explained by the fact that bank reduces interest rate on deposits.

Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure 13. The cost of deposits in 2010, 2011, 2012

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

As at 31 December 2012, accrued interest expense included in loans and advances from banks and other financial institutions amounted to KZT 213 million (2011: KZT 236 million, 2010: KZT 492 million).

As at 31 December 2012, loans from other banks and financial institutions of KZT 23,546 million (97.35% of total loans from other banks and financial institutions) (2011: KZT 42,890 million or 97% of total loans with other banks and financial institutions, 2010: KZT 116,985 million or 96% of total loans from other banks and financial institutions) consisted of 7 (2011: 6, 2010: 9) banks and financial institutions of such countries as Great Britain, Latvia, Kazakhstan, Russian Federation, United States of America, the Netherlands and China. Maturities of these loans range from 12 months to 97 months (2011: 7 days to 97 months, 2010: 48 days to 52 months). Interest rates on loans with other banks and financial establishments varied from 0.86% to 7.00% (2011: from 0.25% to 9%, 2010: from 1.33% to 9.75%).

In diagram we can see that Kazkommertsbank took out most of loans under repurchase agreements (65%). Loans from other banks and financial institutions take second place (22,1%). The percentage of loan with maturity of June 2014 is 7,6 %.

Note - Compiled by the author according to the data of website www.kkb.kz

Figure 14. Percentage share of loans and advances from banks and other financial institutions

In 2012 the volume of non-deposit resources was 109,974 mln, 2011 - 91,877 mln, 2010-147,138 mln. In comparison with 2011, we can see the tendency to the increase in volume of non-deposit resources, but we want to notice that the volume of non-deposit resources in 2010 was higher than in 2012.



Note - Compiled by the author according to the data of website www.kkb.kz

Figure 15. The volume of non-deposit sources from 2010-2012

As at 31 December 2012, included in loans and advances from banks and other financial institutions are loans under repurchase agreements of KZT 71,486 million (2011: KZT 27,937 million, 2010: KZT 26 million).

The fair value of collateral and carrying value of loans under repurchase agreements as at 31 December 2012, 2011 and 2010 are presented as follows:

Table 11. Fair value of collateral and Carrying value of loans

	31 December 2012 (KZT million)	31 December 2011 (KZT million)	31 December 2010 (KZT million)
	Fair value of collateral	Carrying value of loans	Fair value of collateral	Carrying value of loans	Fair value of collateral	Carrying value of loans
Bonds of the Ministry of Finance of the Republic of Kazakhstan	65,186	60,222	-	-	-	-
Bonds of foreign companies	8,964	7,857	-	-	-	-
Municipal bonds of RF	1,993	1,895	-	-	-	-
Bonds of foreign banks	1,793	1,512	-	-	-	-
Notes of the NBRK	-		29,404	27,937	-	-
Shares of Kazakhstan companies	-	-	-	-	37	26
In total	77,936	71,486	29,404	27,937	37	26
Note - source website www.kkb.kz

Note - Compiled by the author according to the data of website www.kkb.kz

Figure 16. Carrying value of loans

As at 31 December 2012, reverse repurchase agreements were concluded through KASE. The Bank believes that counterparties of these agreements are banks and other financial institutions.

Details of transferred financial assets that are not derecognized in their entirety as at 31 December 2012 are disclosed below:

Securities lending and repurchase agreements

The Group has a plan to borrow and lend securities and to sell securities under agreements to repurchase (repos) and to purchase securities under agreements to resell (reverse repos). The securities lent or sold under agreements to repurchase are transferred to a third party and the Group receives cash in exchange, or other financial assets.

The Group has determined that it retains substantially all the risks and rewards of these securities, which include credit risk and market risk, and therefore it has not derecognized them. In addition, it recognizes a financial liability for cash received as collateral.

Similarly, the Group may sell or re-pledge any securities borrowed or purchased under agreements to resell, but has an obligation to return the securities and the counterparty retains substantially all the risks and rewards of ownership. Consequently, the securities are not recognized by the Group, which instead record a separate asset for any possible cash collateral provided.

Table 12. Financial assets at fair value through profit or loss

Total carrying amount of the original assets before the transfer	77,936
As at 31 December 2012:
Carrying amount of assets	77,936
Carrying amount of associated liabilities (loans under repurchase agreements)	71,486
Note - source website www.kkb.kz

In accordance with the contractual terms of the loans from certain OECD based banks and EBRD, the Group is required to maintain certain financial ratios, particularly with regard to its liquidity, capital adequacy and lending exposures. In accordance with the terms of certain of those loans, the Group is also required to obtain the approval of the lender before distributing any dividends to the common shareholders except for dividends to be reinvested for ordinary shares. Furthermore, certain of the Group's outstanding financing agreements include covenants restricting the capability of the Group to create the right of pledge on its assets. The Group's failure to observe obligations on these covenants can lead to cross-accelerations and cross-defaults under the terms of the other financial agreements of the Group.

As at 31 December 2012, 2011 and 2010, the Group was in compliance with the covenants of the various debt agreements the Group has with other banks and financial institutions.

Table 13. Characteristics of the KKGB instrument of JSC Kazkommertsbank

Characteristicsoftheinstrument
Tradingcode	KKGB
Listofsecurities	official, category "first"
Quotationcurrency	KZT
Quotationaccuracy	2 characters
Listingdate	10/16/97
Tradesopeningdate	10/28/97
Market-makers	Kazkommerts Securities JSC (Subsidiary of Kazkommertsbank JSC)
Included in the representative list of KASE index	10.01.2007
Characteristicsofthesecurities
Issuer	Kazkommertsbank JSC
Sharetype	common
NIN	KZ1C00400016
ISIN	KZ000A0JC858
BBGID	BBG000CBRQD0
Issueregistrationdate	03.10.2009
Registrar	JSC "Single registrar of securities" (Almaty)
Numberofsharesoutstanding	778,625,062
Issuecurrency	KZT
Facevalue	absent
Dividendpaymentperiod	annual
Referencestodocuments	Offering of Global Depositary Receipts (submitted on 01/17/07)
Note - source website www.kase.kz

Note - source website www.kase.kz



2.4 Analysis of assets and liabilities management of JSC Kazkommertsbank

By results of the last years Kazcom bank is the leader of the banking sector on the volume of assets: its share in the market makes -- 19,4%, it also is leading bank on crediting and deposits, the share on the volume of a loan portfolio made 20,9%, and on deposits of clients -- 17,7%.

Table 14. Assets of JSC Kazkommertsbank

Assets	2012 (mln.KZT)	2011 (mln.KZT)	2010 (mln.KZT)	2009 (mln.KZT)	Changes for 2009-2012 in (%)
Money and accounts in national (central) banks	106,497	105,067	61.216	90,533	17,63%
Precious metals	3,823	3,280	1,345	1,209	216,21%
The financial assets estimated at fair value through profit or a loss	118,822	188,313	223,231	114,203	4,04%
Loans and the means provided to banks and other financial institutions	146,703	53,968	146,331	148,375	-1,13%
The loans provided to clients	1,917,692	2,079,661	2,174,760	2,160,767	-11,25%
Investments available for sale	15,682	15,419	16,822	16,696	-6,07%
The investments withheld before repayment	6,937	4,026	1,996	943	635,63%
Business reputation	2,405	2,405	2,405	2,405	0,00%
Fixed assets and intangible assets	32,520	33,028	31,857	33,971	-4,27%
Other assets	89,511	80,522	28,145	18,771	376,86%
Total assets	2,444,812	2,565,689	2,688,108	2,587,873	-5,52%
Note - source website www.kkb.kz

Analyzed period since 2009 to 2012 showed increase in investments withheld before repayment increased by 6 bln KZT or in 634%, assets in precious metals were increased by 2,6bln KZT of in 216%, money and accounts in national bank were increased by 16 bln KZT or in 17%, financial assets estimated at fair value through profit or loss were increased by 4,6 bln KZT or in 4%, while other assets show decrease in volume. So loans provided to clients were decreased by 243 bln KZT or in 11%, investments available for sale were decreased by 1,5bln KZT or in 4%, loans and the means provided to banks and other financial institutions were decreased by 1,6 bln KZT or in 1%. Other assets were increased by 70 bln KZT or in 376%. In total analyzed period show decrease - total assets were decreased by 143 bln KZT or in 5,5%.

Volume of "reliable" and "potentially reliable" credits, as of December 31, 2011 made 682,4 billion KZT (4599 million dollars), in comparison with 800,9 billion KZT (5429 million dollars) for the end of 2010. Their share in the considered period made 24,9%. For comparison year before their share I made 29,2%. The share of the problem credits in a loan portfolio grows since 2007, and it first of all is connected with deterioration of a financial condition of the borrowers interfaced to the crisis phenomena, taking place in the country more than four years. The share of the "doubtful" and "unprofitable" credits remained invariable in comparison with December 31, 2010, their share for the end of 2011 made 30,7%.



Note - source websitewww.kkb.kz)

Figure 17. Comparative structure of assets as of December 31, 2011, 2010 and 2009

The loans issued to clients continue to remain the largest article in structure of assets of Group. As of December 31, 2011 their share made 81,1% against 80,9% as of December 31, 2010. Decrease in the actual volumes of liquid assets, in comparison with last year, generally resulted from reduction of volumes of percentage obligations. Optimization of obligations, didn't affect execution by Bank of standards for liquidity. As of December 31, 2011 the assets relating to most liquid (money and accounts in the national banks, securities, loans and the means provided to other banks with a maturity date till 1 year) not burdened with pledge or the right of the requirement made 290,6 billion KZT (11,3% from total assets), having shown decrease in comparison with 386,7 billion KZT of 14,4% from total assets) as of December 31, 2010. Reduction made 96,1 billion KZT or 24,8%. There was a redistribution of part of liquid means between the articles "Money and Accounts in National (Central) Banks" and "Loans and the Means Provided to Banks and Other Financial Institutions". The share of money and accounts in national central) banks increased for the end of 2011 to 4,2%, in comparison with 2,3% for the beginning of the reporting period. Loans and the means presented to banks and other financial institutions, decreased and made 2,1% from assets as of December 31, 2011, in comparison with 5,4% as of December 31, 2010. The share of a portfolio of securities in structure of assets decreased from 8,2% to 7,6%. The share of other assets as of December 31, 2011 made 3,1%, against 1% for the period beginning. Considerable changes didn't occur in structure of assets of bank from 2009 to 2010. The increase in volume of assets occurred generally at the expense of growth of a portfolio of securities (126,1 billion KZT or 859 million dollars). temporarily free money was placed in the most liquid assets, such as short-term notes of national bank of the Republic of Kazakhstan and the state treasury obligations. Decrease in a share of the loans provided to clients on 2,6 points became possible generally at the expense of increase in a share of liquid assets in structure of assets of bank to 15,9% in 2010 in comparison with 13,0% in 2009. Owing to increase bank of investments in liquid financial instruments, the share of a portfolio of securities in structure of assets grew from 3,7% to 8,2%./28/

According to the analysisof deposit andnon-depositorysources, we can see that the volumeof depositsourcesis equal to 1.5trilliontengeor 74% fromall sources,while the volume ofnon-depositorysources isequal to 548 billiontengeor 26%. On the basis of analyzes, we identified that thedepositis the main sourceof funding. In comparison with 2010 (69%) and 2011 (72%) KazCom attracts more depository sources of funding. The cost of deposits - 4,2% for 2012, average cost of non-depository sources - 7,041.On the basis of this statistic we can say that deposits are cheaper sources than non-depository sources.

Table 15. Liabilities sector efforts of KazCom bank in 2012

Liabilities	2012 (mln. KZT)	2011 (mln. KZT)	2010 (mln. KZT)	2009 (mln. KZT)	Changes for 2009-2012 in (%)
Loans and means to banks and other financial institutions	110,477	92,215	147,139	209,122	-47,17%
Means of clients	1,553,576	1,463,077	1,506,800	1,276,464	21,71%
The financial liabilities estimated at fair value through profit or a loss	8,877	37,771	36,047	35,991	-75,34%
The issued debt securities	297,247	324,087	375,199	463,656	-35,89%
The other raised funds	18,631	26,359	23,943	31,172	-40,23%
Reserves	15,549	10,724	10,190	11,945	30,17%
Liabilities for a deferred income tax	-	29,131	30,035	24,519	-100,00%
Dividends to payment	40	6	4	15	166,67%
Other liabilities	10,296	7,647	7,868	8,990	14,53%
The subordinated loan	122,150	138,040	137,137	136,411	-10,45%
Total liabilities	2,136,843	2,129,057	2,274,362	2,198,285	-2,79%
Note - source website www.kkb.kz

During the analyzed period since 2009 on 2012 means of clients grew by 277 billion KZT or in 21,71%, reserves grew by 3,6 billion KZT and dividends to payment grew by 30 mln KZT or in 166,6% while other articles showed decrease in volumes, so according to loans and means of banks and other financial institutions decrease made 98 billion KZT or in 47,7%, financial liabilities estimated at fair value through profit or loss were decreased by 27 bln KZT or in 75%, the issued debt securities were deceased by 166 bln KZT or in 35%, other raised funds were decreased by 12,5 bln KZT or in 40%, subordinated loan was decreased by 14 bln KZT or in 10%, liabilities for a deferred income tax were closed. Other liabilities were increased by 1,3bln KZT or in 10%. However in total there are almost no changes for analyzed period - total liabilities were decreased by 61 bln KZT or in 2,7%.

Optimization of obligations of the bank, directed on decrease in percentage expenses has the main impact on decrease in volumes of corporate sector./28/

In liabilities sector efforts of KazCom bank in 2012 were directed on decrease in percentage expenses by optimization of percentage obligations.

At the same time KazCom bank traced a situation in foreign markets, for definition of acceptable opportunity for attraction of financing, and finished placement of Eurobonds on 300 million US dollars that showed degree of confidence and interest of the international investors in bank. In the reporting period the bank continued service of the obligations under the established schedules.



Figure 18. Comparative structure of liabilities as of December 31, 2011, 2010 and 2009

Analyzing data on the banking sector of Kazakhstan it is possible to tell that as of December 31, 2011, Bank is one of conducting in the banking sector on the volume of means of clients, the share makes 17,7%. Despite decrease in an interest rate for deposits, deposits of clients from the population increased that also testifies to unconditional trust to KazCom bank from clients. Volumes of the issued debt securities, and also loans and means from banks and other financial institutions showed decrease, explainable, generally routine maintenance of the obligations, according to available schedules of repayments and arrangements. Volumes of the credits and means of banks and financial institutions decreased by 76,8 billion KZT (523 million dollars) and made for December 31, 2011 of 44,9 billion KZT (303 million dollars). Decrease first of all is connected with planned repayments of external loans from Standard bank London for total amount of 175 million dollars and Deutsche bank London branch for the sum of 90 million dollars. As of December 31, 2011 the volume of the loans received on agreements of a repo, increased with 26 million KZTs as of the beginning of year to 27 937 million KZTs. It is connected with service of currency obligations of KazCom bank.

The bank pays much attention to effective management of assets and obligations which allows Bank to offer competitive products in the market and, at the same time, to support a risk and profitability ratio at the level creating additional cost for shareholders. The body responsible for risk management, assets arising in management process and obligations is the Committee on management of assets and liabilities of Group. Information considered by this committee includes data on a portfolio of securities, currency positions, liquidity gaps, cash flows, stress tests and others. It is very important to define bank liquidity coefficient correctly.

By data from a site AFN.kz the coefficient of the current bank liquidity in 2012 made 0,5, having decreased by 20,9% as a result of decrease in money for 26,3%. The average value of the current liquidity over the last 5 years made around 1,15.

While the absolute liquidity index in 2012 made 5,6 that is 32,1% lower than an indicator of 2011 equal to 8,3 at the expense of decrease in money for 26,3%. The average value over the last 5 years makes about 5,9. The minimum limit of the standard is 0,2.

The analysis of liquidity of balance consists in comparison of means on an asset, grouped in degree of decreasing liquidity, with sources of formation of assets on a passive which are grouped in degree of urgency of repayment.

The following tables submit the analysis of financial assets and liabilities grouped in terms before repayment from reporting date as of Dec. 31, 2011:

Table 16. Structure of assets by liquidity

	A1 (The most liquid assets)	A2 (Quickly realized assets)	A3 (Slowly realized assets)	A4 (Difficult realized assets)
	(mln. KZT)	(mln. KZT)	(mln. KZT)	(mln. KZT)
Financialassets:	290,843	728,385	1,353,979	321,459
Note - source website www.kkb.kz

Table 17. Structure of liabilities by liquidity

	L1 (The most urgent liabilities)	L2 (Current liabilities)	L3 (Long-term liabilities)	L4 (Constant liabilities)
	(mln. KZTs)	(mln. KZTs)	(mln. KZTs)	(mln. KZTs)
Financialobligations:	595,898	449,176	830,638	413,743
Note - source website www.kkb.kz

Now we can compare assets and liabilities with standards:

Table 18. Comparison of assets and liability with standards

Standards	Data for Dec. 31, 2011
A1? L1;	359,843<595,898	A1<L1
A2?L2	728,385>449,176	A2>L2
A3?P3	1,353,979>830,638	A3>A3
A4?L4	321,459<413,743	A4<L4

Table 19. Execution of prudential and standards of liquidity

	Liquidity
	k4	k4-1	k4-2
Standards	?0,30	?0,9	?0,8
Coefficients as of 01.01.2012	0,64	8,32	2,892
Coefficients as of 01.01.2011	0,68	10,54	4,15
1 Note - source website www.AFN.kz 2 Note - Table 3. Execution of prudential and other standards of JSC Kazkommertsbank



Thus, JSC Kazkommertsbank isn't absolutely liquid. Bank liquidity is broken in the short-term period, i.e. the most urgent obligations exceed the most liquid assets. It can cause difficulty in performance by Bank of the obligations under deposits before clients. As for long-term liquidity and performance of standards of sufficiency of the capital, it is possible to draw a conclusion that the bank in long-term prospect is solvent. The bank stabilizes liquidity in comparison with 2009 when liquidity in the short-term and medium-term period was broken. However it should be noted that management of bank considers that depositors won't lose confidence of bank at once, and on the contrary the bank will attract all new and new deposits. In this case this deviation of liquidity is part of policy of the bank. In general liquidity conforms to standards./16/



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

3.1 The implementation of Basel III

This document presents the liquidity portion of the Basel Committee's1 reforms to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The objective of the reforms is to improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the rules text and timelines to implement the liquidity portion of the Basel III framework.

During the early “liquidity phase” of the financial crisis that began in 2007, many banks - despite adequate capital levels - still experienced difficulties because they did not manage their liquidity in a prudent manner. The crisis again drove home the importance of liquidity to the proper functioning of financial markets and the banking sector. Prior to the crisis, asset markets were buoyant and funding was readily available at low cost. The rapid reversal in market conditions illustrated how quickly liquidity can evaporate and that illiquidity can last for an extended period of time. The banking system came under severe stress, which necessitated central bank action to support both the functioning of money markets and, in some cases, individual institutions.

The difficulties experienced by some banks were due to lapses in basic principles of liquidity risk management. In response, as the foundation of its liquidity framework, the Committee in 2008 published Principles for Sound Liquidity Risk Management and Supervision (“Sound Principles”).The Sound Principles provide detailed guidance on the risk management and supervision of funding liquidity risk and should help promote better risk management in this critical area, but only if there is full implementation by banks and supervisors. As such, the Committee will coordinate rigorous follow up by supervisors to ensure that banks adhere to these fundamental principles.

To complement these principles, the Committee has further strengthened its liquidity framework by developing two minimum standards for funding liquidity. These standards have been developed to achieve two separate but complementary objectives. The first objective is to promote short-term resilience of a bank's liquidity risk profile by ensuring that it has sufficient high-quality liquid assets to survive a significant stress scenario lasting for one month. The Committee developed the Liquidity Coverage Ratio to achieve this objective. The second objective is to promote resilience over a longer time horizon by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis. The Net Stable Funding Ratio (NSFR) has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities.

These two standards are comprised mainly of specific parameters which are internationally “harmonized” with prescribed values. Certain parameters, however, contain elements of national discretion to reflect jurisdiction-specific conditions. In these cases, the parameters should be transparent and clearly outlined in the regulations of each jurisdiction to provide clarity both within the jurisdiction and internationally.

It should be stressed that the standards establish minimum levels of liquidity for internationally active banks. Banks are expected to meet these standards as well as adhere to the Sound Principles. Consistent with the Committee's capital adequacy standards, national authorities are free to require higher minimum levels of liquidity.

To further strengthen and promote global consistency in liquidity risk supervision, the Committee has also developed a set of monitoring tools to be used in the ongoing monitoring of the liquidity risk exposures of banks, and in communicating these exposures among home and host supervisors.

To promote more medium and long-term funding of the assets and activities of banking organizations, the Committee has developed the Net Stable Funding Ratio (NSFR). This metric establishes a minimum acceptable amount of stable funding based on the liquidity characteristics of an institution's assets and activities over a one year horizon. This standard is designed to act as a minimum enforcement mechanism to complement the LCR and reinforce other supervisory efforts by promoting structural changes in the liquidity risk profiles of institutions away from short-term funding mismatches and toward more stable, longer-term funding of assets and business activities.

In particular, the NSFR standard is structured to ensure that long term assets are funded with at least a minimum amount of stable liabilities in relation to their liquidity risk profiles. The NSFR aims to limit over-reliance on short-term wholesale funding during times of buoyant market liquidity and encourage better assessment of liquidity risk across all on- and off-balance sheet items. In addition, the NSFR approach offsets incentives for institutions to fund their stock of liquid assets with short-term funds that mature just outside the 30-day horizon for that standard.

NSFR can be calculated by the formula:

The NSFR builds on traditional “net liquid asset” and “cash capital” methodologies used widely by internationally active banking organizations, bank analysts and rating agencies. In computing the amount of assets that should be backed by stable funding, the methodology includes required amounts of stable funding for all illiquid assets and securities held, regardless of accounting treatment (eg trading versus available-for-sale or held-to-maturity designations). Additional funding stable sources are also required to support at least a small portion of the potential calls on liquidity arising from off-balance sheet (OBS) commitments and contingencies.

The NSFR is defined as the amount of available amount of stable funding to the amount of required stable funding. This ratio must be greater than 100%.28 “Stable funding” is defined as the portion of those types and amounts of equity and liability financing expected to be reliable sources of funds over a one-year time horizon under conditions of extended stress. The amount of such funding required of a specific institution is a function of the liquidity characteristics of various types of assets held, OBS contingent exposures incurred and/or the activities pursued by the institution.

The Committee will continue to consider whether to apply some amount of recognition to matched funding within the one-year time frame and will gather data to allow analysis as well as some other structural changes to the proposal.

Available stable funding (ASF) is defined as the total amount of a bank's:

capital;

preferred stock with maturity of equal to or greater than one year;

liabilities with effective maturities of one year or greater;

that portion of non-maturity deposits and/or term deposits with maturities of less than one year that would be expected to stay with the institution for an extended period in an idiosyncratic stress event;

and the portion of wholesale funding with maturities of less than a year that is expected to stay with the institution for an extended period in an idiosyncratic stress event.

The objective of the standard is to ensure stable funding on an ongoing, viable entity basis, over one year in an extended firm-specific stress scenario where a bank encounters, and investors and customers become aware of:

A significant decline in profitability or solvency arising from heightened credit risk, market risk or operational risk and/or other risk exposures;

A potential downgrade in a debt, counterparty credit or deposit rating by any nationally recognized credit rating organization; and/or

A material event that calls into question the reputation or credit quality of the institution.

For the purposes of this standard, extended borrowing from central bank lending facilities outside regular open market operations are not considered in this ratio, in order not to create a reliance on the central bank as a source of funding.

The available amount of stable funding is calculated by first assigning the carrying value of an institution's equity and liabilities to one of five categories as presented in Table 20 below. The amount assigned to each category is to be multiplied by an ASF factor and the total ASF is the sum of the weighted amounts.

Table 20 below summarizes the components of each of the ASF categories and the associated maximum ASF factor to be applied in calculating an institution's total amount of available stable funding under the standard.

Table 20. Components of Available Stable Funding and Associated ASF Factors

ASF Factor	Componentsof ASF Category
100%	-The total amount of capital, including both Tier 1 and Tier 2 as defined in existing global capital standards issued by the Committee. -The total amount of any preferred stock not included in Tier 2 that has an effective remaining maturity of one year or greater taking into account any explicit or e...

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