Analysis of the credit system of the Republic of Kazakhstan

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Introduction

Today not everyone can buy high-priced cars, houses, luxuries with cash on hand, such wise, the role of credit is great in the society. So there is a need to borrow money elsewhere. In such situation banks can be the decision.

Main purpose of my thesis is to give detailed definition of credit and show credit programs of the secondary banks of Kazakhstan “Kazkommertsbank” and “BTA Bank”. These two banks were separate until 4 July, 2014. Since above-mentioned time BTA entered to Kazkom group. Nevertheless now they are operating in parallel, within the group Kazkom. And they still maintain their originalities.

Up to this day, the form of state ownership mainly supposed centralized government funding of enterprises. The Soviet system in accordance with which budgeting distributed within the limits of the state planning of economic development, did not take into consideration the necessity for transparent legislative regulation of the credit and financial questions.

Together with market economy in Kazakhstan, appearance of companies with various forms of ownership (social, private and public) the issue of crystal legal regulation of financial and credit for enterprises comes true.

Companies of different forms of ownership feel the need of borrowing funds for their profit and activity. The primarily spread form of fundraising is to get bank loan on the loan agreement.

The word debt comes from the French dette and in the long run Latin debere (to owe), from de habere (to have). The letter b in the word debt was reintroduced in the 17th century, perhaps by Samuel JohnsonSamuel Johnson (18 September 1709 [O.S. 7 September] - 13 December 1784), often referred to as Dr Johnson, was a English author who made lasting contributions to English literature as a poet, essayist, moralist, literary critic, biographer, editor and lexicographer. in his Dictionary of 1755-- several other words that had existed without a b had them reinserted at around that time. Retrieved on 4^th of April, 2015 from <http://en.wikipedia.org/wiki/Debt>, Etymology

Debt permit people and organizations to do things that they would otherwise not be able, or allowed, to do. Generally, people in industrialized nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. Companies also use debt in many ways to leverage the investment made in their assets, "leveraging" the return on their equity. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier. Retrieved on 4^th of April, 2015 from <http://en.wikipedia.org/wiki/Debt>, Effects of debt

A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. Typically, the money is paid back in regular installments, or partial repayments; in an annuity, each installment is the same amount. The loan is generally provided at a cost, referred to as interest on the debt, which provides an incentive for the lender to engage in the loan. Retrieved on 4^th of April, 2015 from <http://en.wikipedia.org/wiki/Loan>

"Today we have turned the page not only in the history of the country's oldest financial institution - BTA Bank - but in the banking sector as a whole. This transaction drew a logical end to the extensive crisis aid package, which the government was forced to provide to rescue and stabilize the banking system of Kazakhstan. Time has proved that this decision was correct. I am glad that the fate of BTA Bank is ultimately in the hands of domestic investors and I am certain that the new shareholders will make every effort to ensure that in the future the bank uses only best banking practices and experience. " Kenes Rakishev declared. Retrieved on 17 ^the of May, 2015 from < http://en.tengrinews.kz/companies/Kazkom-BTA-merger-may-produce-largest-universal-bank-in-254612/>

The topicality of my work is that I had an opportunity to review and then compare credit policies of two mentioned banks. Now this work is doing in the KKB in order to optimize the performance of newly created bank. From this perspective this thesis has become for me a kind of challenge. I had no experience in this area. But working on my research, reading, thinking and comparing I felt like I was involved in the process of creation of new bank.

Nina Zhussupova, CEO of KKB said: The merger combined with KKB's proven ability to collect debts should also enhance the recovery of troubled BTA assets. Generally, we expect that the merger will make the banking system in Kazakhstan healthier and help the bank regain market confidence”.

According to Kazkom, the cost of acquiring 46.5 percent in BTA bank made 72.1 billion tenge ($392.85 million). Retrieved on 17 ^the of May, 2015 from < http://en.tengrinews.kz/companies/Kazkom-BTA-merger-may-produce-largest-universal-bank-in-254612/>

Methodology of the Study

During the whole process of this study I mainly used secondary data which are available in internet. There was no need to make any questionnaire, because credit policy and credit programs of observed companies are already have been analyzed before. I just had to collect all information from web sites.

At the end of my work I made SWOT analysis between observed companies, the strengths, weaknesses, opportunities and threats of BTA and KazKom.

Nowadays almost everyone takes loan from banks, because not everyone can allow themselves to buy expensive goods by their own capital.

In my thesis I took some information from books, because in books there are more detailed explanations rather than in internet. And nowadays not everyone read books, so they may not find this information in the internet.



Objectives and Purposes of the Study

The following objectives of this study are to understand the meaning of the term “credit”, to analyze the types of credit programs in order to make easy to understand what to do when you apply for credit:

1. To understand the meaning of the term credit;

2. To understand the advantages and disadvantages of the credit;

3. To analyze company's credit program for Retail Banking sector of Kazakhstan of BTA;

4. To analyze company's credit program for Retail Banking sector of Kazakhstan of KKB;

5. To analyze company's credit program for Small and Medium Enterprises Banking sector of Kazakhstan of BTA;

6. To analyze company's credit program for Small and Medium Enterprises Banking sector of Kazakhstan of KKB;

7. To analyze company's credit program for Corporate Banking sector of Kazakhstan of BTA;

8. To analyze company's credit program for Corporate Banking sector of Kazakhstan of KKB;

9. SWOT analysis of BTA and KKB.

Limitations of the Study

During the study there were not any limitations. This project is about the credit policy, nature of credit, principles and forms of credit and types of credit programs in BTA and KKB, so there was no need to go to the company and make any questionnaire, because all these information are available in the web sites and in books.

Summary

Introduction of this thesis is about the background of the credit. It includes historical appearance of credit, its importance within society and what role plays the credit nowadays.

Further shows the objectives and purposes of this thesis and the methods of gaining information from secondary data. This information helped me to write this thesis.

The other part of the introduction is about the limitations which I faced during whole process of study. But this thesis is about the credit policy of secondary banks, so there were no any limitations during this process, because any information about credit and credit programs of BTA and KKB are available in web sites.



Chapter 1. Theoretical background of the credit

1.1 Introduction

This part of the study will include mostly secondary data information, which are almost prepared for some purposes, already stated information that I will be able to cover and include in this thesis for further detail studying and make some useful results.

This study will be useful, as I hope, for individuals, small and medium entrepreneurs and corporations for taking credit from banks. It will be useful for choosing the program which is suitable for them. I will try to give detailed information about credits, so that there won't be misunderstandings during the process of applying for credit.

I cannot imagine the consequence of this thesis, but I didn't suppose to stop, because the importance and necessity of this project is very huge, importance for present and future generation.

So I want to begin from the meaning of the word credit, then the appearance of this term.

Credit is the provision of money or goods on credit, usually with interest payments; valuation of economic category, an essential element of commodity-money relations. The emergence of credit is directly connected with the sphere of exchange, where the owners of the goods against each other as owners are willing to enter into economic relations. Abramova, M.A., Aleksandrova L.S. Finance, money circulation and credit - Moscow,1995, p 12

The possibility of the emergence and development of credit related to the circuit and turnover of capital. During the movement of fixed and circulating capital comes true the release of resources. Means of labor used in production for a long time, their cost is transferred to the cost of finished goods partly. Gradual recovery of the cost of capital in the form of money leads to the fact that the released funds are deposited in the accounts of enterprises. However, at the other extreme, there is a need to replace depreciated instruments of labor and fairly large one-time cost. A similar character processes taking place in the movement of working capital. Moreover, here the fluctuation in the circuit and back reveal themselves more diverse. In some subjects there is a temporary surplus, while in others - the lack of them. This creates the possibility of credit relations, that is, credit can be solved for the contradiction between the time of subsidence and the need for their use in agriculture. Gamidov G.N. Banking and credit business - Moscow: UNITY, Banks and Stock Exchanges, 1994, p 7

1.2 Definitions of key terms

Debt is that which is owed; usually referencing assets owed, but the term can also cover moral obligations and other interactions not requiring money.

Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately (thereby generating a debt), but instead arranges either to repay or return those resources (or other materials of equal value) at a later date.

Banking resources - collection of funds at the disposal of the bank and use them for credit and other active operations.

Own funds of the bank formed from the capital, funds and retained earnings.

Share capital - formed by contributions from enterprises, associations and organizations consists of the nominal value of shares, and serves as the primary security for obligations of the bank.

Bill is an unconditional obligation to pay the specified sum in favor of a particular person. However, the right to receive funds under the bill can be passed to another person by endorsement (endorsements on the reverse side of bills). Thus, the bill can be repeatedly passed from hand to hand with the help of an endorsement.



1.3 The effective research

In this part of my work I will use mainly secondary data which I found from internet, books, etc.

This part will include the structure of banking resources, forms of credit, etc. As my work is about bank loans, so I decided to write about the types of bank loans.

1.3.1 The structure of the banking resources

Transition to market relations has seriously changed the structure of commercial banks' resources. The structure of the banking resources of individual commercial banks depends on the degree of specialization or, conversely, universalization, the features of its activities, market conditions of loan resources. The structure of the banking resources of commercial banks is as follows:

· own funds;

· deposits;

· interbank attraction;

· other borrowed funds.

1.3.2 Principles of credit Kulikov, A.A., Votes V., Penkov E.E. Credits. Investment. - Moscow, 1995, pp 31-37

Credit relations in the economy are based on certain methodological basis, one of the elements which are the principles, to be observed strictly in the practical organization of any operations on the loan capital. These principles have evolved spontaneously, even at the first stage of the loan, and subsequently found a direct reflection of the national and international credit legislation.

1.3.2.1 Loan repayment

This principle expresses the need for timely refund received from the lender's financial resources after the completion of their use by the borrower. It finds its practical expression in the repayment of loans given by transferring the appropriate amount of funds granted to the account of a credit institution (or other lender), which provides credit resources renewability of the bank as a necessary condition for the continuation of its statutory activities. In the domestic lending practices under a centrally planned economy there was an informal notion of “non-repayable loan”. This form of lending was fairly widespread, especially in the agricultural sector, and expressed in the provision of public lending institutions loans, repayment of which was not originally planned because of the crisis of the financial condition of the borrower. According to its economic essence of capital grants is rather an additional form of budgetary subsidies, implemented through the intermediary of state-owned bank that has traditionally complicated credit planning and led to a constant falsification of the expenditure budget. In a market economy, the concept of non-repayable loans are as unacceptable as, for example, the notion of "campaign unprofitable private enterprise."

1.3.2.2 Urgency of loan

It reflects the need to return it is not at all reasonable times to the borrower, and in a specified period of time fixed in the loan agreement or equivalent document. Violation of this condition is sufficient grounds for the lender to the borrower for the use of economic sanctions in the form of increased charge interest, and if further delay (in our country - more than three months) - the presentation of financial claims in court. Partial exception to this rule are the so-called call loan, maturity of the loan agreement did not initially defined. These loans are very common in the XIX-early XX centuries. (For example, in the agrarian sector dollars), in modern conditions practically are not applied, primarily because they create difficulties in the credit plan. In addition, the contract for on-call credit, without specifying a fixed term of repayment, clearly sets the time available to the borrower of the receipt of the notice of the bank on the return of funds previously received that in some degree ensures compliance of the principle.



1.3.2.3 Payment of the loan. Lending rate

This principle expresses the need for not only the direct return of the borrower received from bank credit, but pay for rights to use them. The economic essence of fees for the loan is reflected in the actual distribution of additional received by his use of profits between the borrower and lender. Practical expression of the principle under consideration is in the process of establishing the value of bank interest, performs three major functions:

· redistribution of income and corporate income individuals;

· regulation of production and circulation by distributing loan capital at the sectoral, intersectoral and international levels;

· the crisis stages of economic development - the protection of anti-inflationary monetary savings bank customers.

Rate (or rate) lending rate, defined as the ratio of total annual income earned on the loan capital to the amount of the loan serves as the price of credit resources.

Reaffirming the role of credit as one of the proposed in the specialized market of goods, payment of credit encourages borrowers to its most productive use. It is this enabling function is not fully used in the planned economy, where much of the credit provided by state banking institutions for a minimal fee (1,5 - 5% per annum) or interest-free basis.

Fundamentally different from the traditional pricing mechanism for other types of goods, which are the defining element of socially necessary labor costs for their production, the price of the loan reflects the overall supply and demand in the market of loan capital and depends on several factors, including a purely opportunistic nature:

· cyclicality of the market economy (a recession interest loan, usually increases at the stage of rapid recovery, reduced);

· the rate of inflation process (which in practice is even somewhat behind the pace of raising interest on loans);

· the effectiveness of state credit regulation, implemented by the accounting policies of the central bank in the lending process of commercial banks;

· the situation on the international credit markets (for example, to the U.S. in the 80's. Policies led to increased cost of credit to attract foreign capital into U.S. banks, which reflected on the state of the national markets);

· the dynamics of monetary accumulation of physical and legal persons (with their tendency to reduce loan interest, as a rule, increases);

· dynamics of production and circulation, which determines the need for credit resources of the respective categories of potential borrowers;

· seasonality of production (such as Russia lending rate traditionally rises in August and September, due to the need to provide agricultural loans and loans for the importation of goods to the Far North);

· Ratio between the size of loans granted by the state and its debt (lending rate steadily increases with the domestic public debt).

1.3.2.4 Availability of credit

This principle expresses the need to protect the property interests of the lender in a possible violation of the borrower assumed obligations and finds practical expression in such forms of lending, as loans secured by, or under financial guarantees. It is particularly relevant in a period of general economic uncertainty, e.g. in domestic terms.

1.3.2.5 Task nature of credit

Extends to most types of credit transactions, expressing the need for proper use of funds received from the lender. It finds practical expression in the relevant section of the credit agreement that sets a specific goal to lend, but also in the process of banking supervision over the observance of the conditions of the borrower. Violation of this obligation may constitute grounds for early withdrawal of credit or the introduction of penalty (higher) rate of interest.



1.3.2.6 The differentiated nature of the loan

This principle defines a differentiated approach by the credit institution to different categories of potential borrowers. Practical implementation of it can depend on the individual interests of a particular bank, and from the state's centralized policy of supporting individual industries or areas of activity (for example, small businesses, etc.) The place and role of credit in the economic system of society are defined as primarily its function as general and selective nature.

1.3.2.7 Redistributive function

In a market economy, capital lending market serves as a kind of pump was evacuated temporarily free financial resources from some spheres of economic activities and sends them to the other, providing, inter alia, higher profits. Focusing on differentiated its level in various sectors or regions, the credit acts as a natural regulator of the economy, ensuring the needs of dynamic objects for the application of capital in additional financial resources.

1.3.2.8 Cost of distribution costs

Practical implementation of this function follows directly from the economic nature of the loan, the source of that act, including financial resources, temporarily released during the cycle of industrial and commercial capital. Time lag between receipt and disbursement of funds of economic entities can determine not only the surplus, but the lack of financial resources. That is why it is so widespread loan to fill a temporary shortage of working capital used by virtually all categories of borrowers, and providing a significant acceleration of capital turnover, and hence the overall cost savings of treatment.

1.3.2.9 Accelerate the concentration of capital

The concentration of capital is a prerequisite for stable economic development and the priority goal of any business entity. Real help in solving this problem have borrowed funds to significantly expand the scale of production (or other business operations) and thus provide additional weight gains. Even taking into account the need to allocate part of its calculation with a lender to attract credit resources more justified than focus solely on their own funds. It should be noted, however, that at the stage of economic recession (and even more so in the transition to a market economy), the high cost of these resources can not actively use them to solve the problem of accelerating the concentration of capital in most areas of economic activity. Nevertheless, the function in question, even in domestic conditions has provided some positive effect, will significantly accelerate the process of securing financial resources absent or very poor in the period of planned economy spheres.

1.3.2.10 Service turnover

In implementing this feature credit is actively working on the acceleration of not only commercial but also monetary, displacing it, in particular, cash. Introducing the scope of monetary instruments such as bills, checks, credit cards, etc., it provides a change of cash bank transactions, which simplifies and speeds up the mechanism of economic relations in the domestic and international markets. The most active, role in solving this problem are commercial loans as a necessary element of contemporary relations of trade.

1.3.2.11 Accelerating Scientific and Technological Progress

In the postwar years of scientific and technological progress was a determining factor in the economic development of any state and a separate business entity. Most clearly the role of credit in its acceleration can be traced on the example of funding for scientific and technical organizations, the specifics of which are always higher than in other industries, the time gap between the initial capital investment and sales of finished products. That is why the normal functioning of most research centers (except those on the budget financing) is unthinkable without the use of credit resources. Equally necessary credit and to implement innovative processes in the form of direct introduction into the production of science and technology, the costs were originally funded enterprises, including through targeted medium - and long-term loans of the bank.

Thus, the credit - is the economic relations that arise between the lender and the borrower about the cost, are brought for temporary use.

In a market economy, credit has the following functions:

a) accumulation of temporary surplus funds;

b) the reallocation of funds under the terms of their subsequent return;

c) establishment of credit tools circulation (notes and treasury bills) and credit operations;

d) manipulating the amount of aggregate cash flow.

The basic principles of credit are onerousness, maturity, and repayment.

1.3.3 Forms of credit The general theory of money and credit. Edited by Zhukova E.F. - Moscow: Banks and stock exchanges, UNITY, 1995, pp 28-33

Making a credit transaction is made by contract. Loan classification is traditionally accepted to carry out on a few basic characteristics, the most important of which include categories of lender and borrower, as well as the form in which it is given a specific loan. Hence, we can distinguish the following six quite distinct forms of credit, each of which is in turn divided into several varieties on more detailed classification parameters.

1.3.3.1 Bank loan

One of the most common forms of credit relations in the economy, the object of which appears in the transfer of loan funds directly. It is provided by the specialized credit and financial institutions licensed to carry out such operations from the central bank. As the borrower may be only legal entities, the tool of lending relationships is a credit agreement. Income on this form of the loan comes in the form of interest on loans or bank interest rate, the rate is determined by agreement between the parties with regard to its average rate for a given period and specific credit terms.

1.3.3.2 Commercial Loans

One of the earliest forms of credit relations in the economy spawned a bill circulation and thus actively contributing to the development of non-cash turnover, finding practical expression in the financial and economic relations between entities in the form of sales of products or services with deferred payment. The main purpose of this form of the loan is accelerating the sale of goods and consequently, retrieving embedded in them a profit.

Tool for a commercial loan is traditionally the bill, expressing the financial obligations of the borrower towards the lender. The most widely used two forms of bill - a promissory note containing a direct obligation of the borrower to pay a specified amount directly to the lender, and transferable, representing the written order to the borrower by the lender to pay a fixed amount.

Commercial credit is fundamentally different from a bank loan: in the role of lender is not specialized financial intermediaries, but any legal person associated with the manufacture or sale of goods or services is provided in the form of commodities, loan capital is integrated with the industrial or commercial, that under current conditions found practical expression in the creation of financial companies, holding companies and other similar structures, which includes companies with various specializations and activities, with an average value of commercial loans is always lower than the average of the banking interest rate at a given time period, with the legal registration of the transaction between the lender and the borrower pays for this credit included in the price of the goods and not specifically defined, for example, through a fixed percentage of the base amount.

In foreign practice, commercial credit was extremely widespread. For example, in Italy up to 85% of the total transactions in the wholesale trade is carried out under conditions of commercial credit, and the average time on it is about 60 days, significantly longer than the actual sale of goods directly to consumers.

Under modern conditions in practice are applied basically three types of commercial loans: a loan with a fixed maturity, credit returning only after the actual implementation of the borrower delivered in installments of goods; open account credit when the supply of the next batch of goods on a commercial loan made until the maturity of the previous delivery.

1.3.3.3 Consumer credit

The main distinguishing feature is the target form of lending to individuals. As a lender may act specialized credit institutions, and any legal entities engaged in the sale of goods or services. In monetary terms is provided as a bank loan to an individual to purchase real estate, pay for expensive treatment, etc., in the commodity - in the retail sale of goods with deferred payment.

1.3.3.4 State loan

The main feature of this form of the loan is an indispensable part of the state, represented by executive authorities at different levels. Exercising the functions of creditor, the state through the central bank makes loans: specific industries or regions, who have a great need for financial resources, if possible budget funding has been exhausted, and loans to commercial banks can not be brought into force of the factors of opportunistic character; commercial banks in the auction process or direct sales credit in the interbank market.

In the role of the borrower the state acts in the placement of government debt or in the performance of transactions in the market of short-term securities.

The main form of credit relations with the state loan is such a relationship in which the state acts as the borrower of funds.

It should be noted that during the transition period it should be used not only as a source of fund raising, but also an effective tool for centralized management of credit economy.

1.3.3.5 International loan

Considered as a collection of credit relations, which operate at international level, the direct participants who can be transnational financial and credit institutions, the governments of the states and separate legal entities, including lending institutions. In relations with the states in general and international institutions always comes out in the form of money in foreign trade - and the commodity (as a form of commercial loans to the importer). Classified according to several basic criteria:

· by the nature of loans - interstate, private;

· by form - the state, banking, commercial;

· by the place in the system of foreign trade - crediting of exports and imports.

A characteristic feature of international credit is its further legal or economic security in the form of private insurance and government guarantees.

1.3.3.6 Usurious loan

Specific form of the loan. As a combination of the credit relationship for most countries at present has unequivocally illegal nature, i.e. expressly prohibited by applicable law. In practice, the usurious loan is realized by issuing loans to individuals and business entities that do not have the appropriate license from the central bank. Characterized by ultra-high lending rates (up to 120-180% for loans issued in hard currency), and often criminal penalty methods with a defaulter. As the infrastructure of the national credit system and ensure the availability of credit resources for all types of potential borrowers usurious loan disappears from the market of loan capital.

1.3.4 Types of bank credit “Fundamentals of the business case”, edited by M. Osipova, E. Smirnova. - Moscow:Bek, 1996, pp 23-25

Countercurrent credit is the credit for special current account. Current account is a combination of current and loan accounts, and is opened with special customer's behalf. On the current account records all transactions of the bank with the client.

In the form of countercurrent credit may be granted a certain (specified in the loan agreement) limit of the funds, which is determined by means of the borrower, the size of its activities, strength of ties with the bank, the main characteristics of creditworthiness. Countercurrent credit can be provided with security or without (blank credit is available only to prime borrowers).

Once a quarter or semiannually the bank performs the calculations, thus calculated the whole parish and the entire expense of the customer and determined the actual amount of credit on countercurrent account.

A similar situation can also occur on the current account of the client of the bank, it is called an overdraft. Overdraft is a form of short-term bank lending. The bank provides its customer the right to pay by check over the remainder of the current account. Such a right is granted to the most reliable customers. And is made an additional contract, in which fixed the deadline for covering the resulting debt, and interest payments to bank for overdraft facilities.

At present the situation of overdraft often arises in checking payment, using the credit card.

On-call credit is a kind of countercurrent credit and is usually issued on the security of material assets or securities. Within the secured loan the bank pays the customer's account, getting the right of loan repayment on the first of its claim for the funds received on account of the client, and in their failure - through the implementation of the pledge. The interest rate on demand deposit loan is lower than on conventional bank loans.

Bill is a written promissory note issued upon special rules of legislation, issued by the borrower to the lender. Bill is the universal payment, settlement and credit document, useful for payment of goods and services, providing short-term loans, receiving earlier loans.

Simple bill is a certificate that contains a written unconditional obligation of the bill issuer to pay a certain sum of money to the bearer of a bill or the person specified in the bill, after a set period of time or on demand.

A transfer bill is a document containing an unconditional written instruction of the bill issuer to the payer, to pay a certain sum of money to the holder of notes or the person who is named in the bill, after a set period of time or on demand. Payer on a simple bill is the bill issuer, in transfer bill- another person, who accept the obligation to pay the bill on time and is the debtor of the bill.

Issuer of the bill becomes liable to the bill holder. On a transfer bill Payer is obliged, therefore, a transfer bill first presented to the payer for acceptance, agreement for payment. Through the acceptance the Payer undertakes to pay the transfer bill. Acceptance is shown by the inscription on the instrument (“Accepted”, “Shall pay” or other equivalent word or phrase) and signed by the payer. Thus he becomes the acceptor - main bill debtor. On a simple bill the bill holder is obliged as well as the acceptor of the transfer bill.

After the deadline bill holder may submit a bill for payment or, without waiting the deadline could pass it to another person by means of special endorsements - on the back of a bill or on a special sheet attached - allongeAllonge (French) - Extension, but for the payment of his debt or, he can sell the bill. Sale of the bill prior to maturity is called the light bill, intended to receive the money immediately.

Payment of a bill (within the entire bill amount, or only parts of it) may be guaranteed by a third party or one of the persons who signed the bill. This type of the bill is called avalAval (French) - Surety on the bill; issued by the guarantee inscription and signature of the guarantor - a person who commits aval. Aval can be made by issuing a special document. For surety guarantors charge a fee.

Loan secured on a bill. This operation has already been mentioned when considering the nature of the collateral - the bill was referred to as a way to secure the loan.

On the collateral of the loan bank may provide a one-time credit. Loan size is 60 - 90% of the nominal amount of the bill.

The loan term is determined by the maturity of the bill. In carrying out such an operation the bank analyzes the bill: the correction of legal registration, the economic reliability of bill holder, and the content of the transaction underlying the statement notes. On the instrument bank puts the word “Currency as collateral”, “Currency in security”, keeps the bill before the expiration of the established order.

Loan secured by bill may be permanent. Such a loan made under a special loan account within the credit limit, determined separately for each client. Repayment of the loan is made either by transfer of funds from the customer's current account on the loan, either through payments on pledged bills. Special loan account is opened for only respectable clients, who have a large number of reliable bills, the maturity of which has not yet arrived.

Discount credit. Banks are often willing to consider the bill. This is one of the oldest and most traditional banking operations made through endorsement. Bill holder at the time of registration receives a bill amount minus the discount rate, or discount. Because the holder of a bill gets money, not waiting for maturity, then it actually receives loan from the bank.

Acceptance credit. The bank is often the acceptor, i.e. payer on a transferable bill. Acceptance credit, as opposed to a discount credit, does not accept the nature of the loan, it is just the warranty provided by the bank. By accepting bill, bank guarantees the implementation of the payment on time. The drawer makes a promissory note amount to the bank before the date of maturity (usually 1-2 days), and pays a fee for acceptance (usually 0,5%).

Guarantee credit. Banks and other lending institutions often act as guarantor. For issuing bill guarantee bank charges, the so-called inscribe percent. In the case of guarantee credit, as well as for acceptance credit, it is not a proper credit, but only with the safeguards provided by the bank to pay the bill amount or part thereof.

Note that three of the last forms of credit (particularly acceptance and guarantee credit) are in the nature of indirect lending, do not deal directly with the provision of additional funds on loan to the borrower.

Forfeiting Forfeiting (French) - all is the purchase of the bank from the manufacturer (creditor) of commercial bills, accepted by the buyer (the debtor or payer), which the deadline has not yet arrived, eliminating the possibility of recourse (the treatment requirements for recovery of debt) on the previous debt. Bill is passed to the bank (forfeitor). Owner of the bill (producer) gets right amount of debt, net of discount rate forfeiting, which is usually higher than for other forms of credit. Size of the rate depends on the category of the debtor, the loan term, the currency (of course, preference is given to bills written out in hard-currency). At maturity the bill is presented to the debtor on behalf of forfeitor.

Externally, the operation is similar to the operation of forfeiting accounting bills, but differs in scope of rights and responsibilities of forfeitor and customer of the bills. Forfeitor has no right of recourse to the seller of bills, while the owner of the bill has the right to demand payment of a bill for all the persons designated in the bill.

Most often forfeiting is used in foreign trade. Bills purchased in large amounts and for longer period (from 6 months to 5 years). Forfeiting usually applied as a single transaction involving the purchase and sale of a separate bill.

1.4 Advantages and disadvantages of the loan Retrieved on 16^th of May, 2015 from <http://calcuttatube.com/bank-loan-advantages-and-disadvantages/45827/>

Taking a loan is nothing new. There are countless businesses that have been set up on bank loans. Whether people take a loan for themselves or for their businesses, a bank loan is the most sought-after source of availing finance. However, there are both advantages and disadvantages to taking a bank loan, depending on the borrower's financial health. This is why it's necessary to understand the pros and cons of bank loans before turning to them.

Advantages:

· Interest rates: Banks that offer loans do so at competitive rates of interest and on mutually understood and accepted repayment terms, as compared to unconventional lenders.

· Easy availability: Considering that lending institutions like banks must always keep their depositors' money working for them and earning more money and interest than it pays out to depositors, bank loans should, in theory, always be available to anyone seeking one.

· Good lending terms and relations with the bank: If a borrower meets the bank's lending criteria to the letter, he could benefit with a lower rate of interest and relaxed and easy repayment terms. Add to this the bonus of having a good working relationship with the bank.

· Speed: If the borrower has all the appropriate documentation, any bank can process his application within an hour.

· Uses: A borrower can use a bank loan for a number of reasons--either for setting up a business, or to buy home improvement goods or to go on a holiday. In fact, a bank loan is a financial package which helps you tide over a difficult time or set up business or invest in stocks. Considering it is a loan, it means that eventually you will have to pay the bank back within a stipulated time at a predetermined rate of interest.

· No need for collateral: For a personal loan, a borrower needn't produce any security or collateral. Besides, even the documentation is very little, as compared to other kinds of loans, thereby expediting the processing time.

· No need to specify use of the money: In case of a personal loan, one need not spell out what the money is going towards. All a borrower should do is to repay the money in equated monthly installments on or before the stipulated date.



Disadvantages:

· Borrowers over-borrow: People sometimes over borrow money and get caught in their own debt. Often, this can lead to a shortfall in cash flow and payments can take precedence over income. To prevent this, loan repayments are restricted to a set percentage of a borrower's income.

· Prepayment penalty: Often, loans come with a prepayment penalty which prevents the borrower from paying the loan earlier than the stipulated date without incurring any extra costs.

· Restrictions: Banks levy a number of restrictions on the transaction. This includes having a good credit history before applying for a loan, and there are often restrictions about how the money should be used.

Finally, the pros of taking a bank loan far outweigh the cons. It's best for an investment since it offers a hedge against any financial problem as a result of which you find you cannot pay back the bank. But if you have a solid investment, you can easily pay back your loan.

1.5 Summary

In introduction part I wrote about the nature of the credit, the definition of this term. Then there are definitions of key terms, meanings of some words that may not be clear for everyone.

The effective research part is about the structure of banking resources, principles and forms of credit and types of bank loan. From this part you can learn these types of principles of credit: a) loan repayment; b) urgency of the loan; c) payment of the loan. Lending rate; d) availability of the credit; e) task nature of credit; f) the differentiated nature of the loan; g) redistributive function; h) cost of distribution costs; i) accelerate the concentration of capital; j) service turnover; k) accelerating scientific and technological progress.

There are several forms of the credit that you can learn from this part: a) bank loan; b) commercial loan; c) consumer credit; d) state loan; e) international loan; f) usurious loan.

Next chapter is about data analysis of observed companies. In this chapter I will shortly tell about history and nature of BTA and KKB, but mostly this part is about types of credit programs of that banks.



Chapter 2. Data analysis

2.1 Introduction

This part of the chapter will start from information about companies which were selected for study and will include the credit programs of both BTA and Kazkommertsbank. There are several programs which are dedicated to taking a loan for buying houses, apartments, etc.

First of all I want to write about credit programs of Bank TuranAlem. It is divided according to the size of the business: retail banking, small and medium size entrepreneurships and corporate banking.

Recently they united in one group, but maintain their uniqueness. Here's the official information from BTA's website:

“July 4, 2014, Kazkom and private investor - Kenes Rakishev, both purchased from Samruk-Kazyna Fund by 46.5% of the shares of BTA Bank. Simultaneously, the Samruk-Kazyna placed into trust to Kazkom remaining interest in 4.26% of the capital of BTA Bank. This means that Kazkom gain operational control over BTA Bank which entered to Kazkom group”. Retrieved on 13^th of May, 2015 from <http://bta.kz/en/about/faq/>

It is really crucial moment for both banks, especially for BTA. Cause it takes time and some experience to rearrange the work of two banks. These are two different separate structures with their own styles of work, different methods of calculation and other various details which distinguish one from another.

It is also a historical moment, because we can observe the sunset of legendary bank of Kazakhstan. But we believe that enlargement of Kazkom will benefit our economy and society. In the light of reported events it is extremely important to



2.1.1 Information about observed companies

The companies selected for observation: “Bank TuranAlem” and “Kazkommertsbank”. Both of them operate in same industry and both of them are secondary banks of the Republic of Kazakhstan.

2.1.1.1 Bank TuranAlem Retrieved on 4^th of April, 2015 from<http://bta.kz/en/about/>

On January 15, 1997 the Government of Kazakhstan issued decree # 73 to reorganize Kazakh Joint-Stock Bank Turanbank and Joint-Stock Bank AlemBank Kazakhstan. In the end, Bank TuranAlem Closed Joint-Stock Company was set up. In the same decree, the Finance Ministry of Kazakhstan was delegated authorities to own and dispose of Bank TuranAlem stock. The Finance Ministry was also vested rights to approve the Articles of Association and shape management bodies of the Bank. A general meeting of shareholders named Tatishev Yerzhan Nureldayemovich a Chairman of the Management Board of Bank TuranAlem CJSC.

On October 1, 1998 Bank TuranAlem CJSC changed its name to Bank TuranAlem OJSC.

On September 26, 2003 Bank TuranAlem OJSC was renamed to Bank TuranAlem JSC following its re-registration.

Shareholders of BTA Bank JSC owning 5 or more percent of the number of placed shares as follows: Kazkommertsbank JSC - 94,8368 % (as of 01.04.2015).

BTA refocused its business into the domestic market instead of lending to overseas projects, having focused on quality services for corporate and retail customers and secure profitable investment projects in Kazakhstan. Moreover, BTA Bank is an active member of state programs of supporting the economy. In 2009 Bank participated in the financing of small and medium businesses, financing agribusiness entities, refinancing mortgage loans and financing for the completion of housing construction.



Products and services of bank: Retrieved on 4^th of April, 2015 from <http://bta.kz/en/personal/>

· Credits

· Deposits

· Money transfers

· Payment cards

· Payments of Population

· Opening of bank account

· Safe depositary

· Investment products

· Tariffs

· Internet banking

· SMS-banking

· Custody

· Payments of citizens

· Payroll card program

· Account operations

· Insurance

· Currency exchange operations

2.1.1.2 Kazkommertsbank Retrieved on 5^th of April, 2015 from <http://en.kkb.kz/page/WhoWeAre>

Kazkommertsbank is one of the largest private banks in CIS and the market leader by total assets in Kazakhstan. The Bank provides a wide range of banking and other financial services to corporate and retail clients across the region.

Headquartered in Almaty, the Bank serves its retail clients through a network of branches in 45 cities across Kazakhstan. Kazkommertsbank also has international banking subsidiaries in Kyrgyzstan, Tajikistan and the Russian Federation.

Incorporated in 1991, Kazkommertsbank is now the leading provider of banking and financial services to both large and medium-sized corporations across every sector of Kazakhstan's economy.

Employees across Kazkommertsbank's vast network of branches contribute to maintaining the Bank's leading position through their superior understanding of each client's financial needs and ability to deliver the highest quality of service.

In view of the slowdown of Kazakh economy, significant turbulence and uncertainty in the global financial system and worsening economic conditions in key markets, Kazkommertsbank is focusing on asset quality and liquidity management, whilst continuing to maintain operating efficiency.

Kazkommertsbank is focused on working with its existing clientele and on asset quality of its loan portfolio. The Bank concentrates its efforts on problem loans on case-by-case basis in line with cooperation with clients to help them improve their operations and increase the recovery rate.

The Bank is going to concentrate on the domestic sources of funding: the main objective is to maintain corporate client base and retail deposits market share. One of the Bank's major objectives is to keep its expenses low. As at the end of the 3rd quarter 2010, Kazkommertsbank was the most efficient Bank among its peers.

Products & Services:

Kazkommertsbank has been servicing corporate clients in Kazakhstan for almost 20 years and is a domestic market leader in corporate lending.

The needs of corporate clients are met through a wide range to services including trade and structured finance products, project finance, e-banking and asset management services, as well as short-term credit facilities and other general banking services.

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