The head of Financial Institutions' Association of Kazakhstan spoke about the prospects of the banking sector to the deputies of the Senate

Today, the Senate held parliamentary hearings on the role of the banking sector in the development of the economy of Kazakhstan. The hearings were attended by deputies of the Senate, the management of the National Bank and the Ministry of National Economy, NCE RK "Atameken", Association of Financial Institution of Kazakhstan and market participants - heads of banks and infrastructure organizations.

The position of participants in the financial market was expressed by Yuliya Yakupbayeva, deputy chairman of the National Chamber of Entrepreneurs "Atameken", acting Chairman of the AFI Council, giving a talk on the review of the banking sector and its role in the modern economy of the country.

 Economy and lending recovery

All speakers stressed, that the economic situation was significantly worse a few years ago. Adjusting the course of 2015 and other negative factors directly affected the decline in economic activity.

Yulia Yakupbayeva noted that nowadays, lending in the country is being restored. The "old" dossier with accumulated problems is decreasing, but the volume of loans granted in 2017 grew by 10%. Compared to 2015, amounts of loans increased by 15.7%. In January-February 2018 loans were granted for 1.7 trillion tenge. The main growth is demonstrated by loans of state-supported industries, such as manufacturing industry, agriculture, transport.               

"Regardless, we understand that the level of lending remains low. The ratio of the loan dossier to GDP reached the lowest level in the history of independent Kazakhstan, and amounted to 28% in 2017, while in 2007 it reached 69%, - Yulia Yakupbayeva said. - This is facilitated by the overall economic situation, the lack of long-term financial resources in tenge, high interest rates"

In view of the fact that the funding base is mostly short-term, there is a significant increase in consumer lending. Loans for replenishment of current assets of companies are actively submitted.

At the same time, second-tier banks, unfortunately, can not provide the whole line of entrepreneurs financing. And businessmen, especially beginners, do not always meet the requirements of banks. Moreover, the bank requirements for borrowers are tightened due to the strengthening of banking regulation.

Instruments of risk-based supervision are being introduced, together with the principles of the formation of provisions in accordance with international financial reporting standards, and more stringent Basel standarts. The responsibility of banks to depositors increases and, accordingly, the requirements to borrowers, to collateral and risk assessment are toughened. All these measures together can objectively reduce the number of potential borrowers.

Necessity to increase funding availability

As Yulia Yakupbayeva noted, mechanisms for extending the funding base at affordable rates for business are being worked out together with the Government and the National Bank. It is crucially important to accelerate this work.

"Rates for businesses lending without governmental support are still quite high. In this regard, it is critical to clarify the the DKB 2020 program. Regional entrepreneurs complain that the funds are sufficient only for earlier commitments, there is no money for new projects," - Yulia Yakupbaeva highlighted

In addition, at the initiative of Atameken, the Government is discussing a comprehensive Competitiveness Enhancement Program, which proposes to cover 9 priority sectors of the manufacturing industry focused on import substitution with stable demand. Among them: food, light, furniture, chemical, pharmaceutical industries, engineering, building materials.

"Using state support measures, business will have to take obligations on modernization, localization and digitization of production. To implement this program, it is necessary to provide it with affordable financing," - Yakupbaeva noted.

In addition to financing entrepreneurship, the issue of lending to the population is topical, Yulia Yakupbaeva believes. So, the program of affordable mortgages "7/20/25", implemented at the initiative of the Head of State, will use the securitization mechanism.

"Securitization opportunities are much broader than buying out mortgage loans. The housing loan program "7/20/25" can become a pilot for creating a sustainable long-term funding mechanism through the securitization of small and medium-sized business and retail banking portfolios," - Yulia Yakupbaeva believes

Technologies become a new grow point for banks

According to Ms. Yakupbaeva, the volume of non-cash payments on payment cards grew 2.2 times, reaching the amount of 411 billion tenge. More than half of all card payments still belong to the city of Almaty, the regions have a big growth potential.

"The interest of banks in providing new services is growing: loyalty programs, online service and smartphone usage are expanding. Banks motivate customers to use cards providing bonuses and cashback, - the head of the AFI Council noted. - There was absolutely new service for the market - payment using QR-code and mobile applications".

In addition, Yulia Yakupbaeva reported that, on behalf of the Deputy Prime Minister of the Republic of Kazakhstan Askar Zhumagaliyev, the proposals of AFI are being worked out within the framework of the project of the Comprehensive Plan for Digitalization of the Financial Sector of the Republic of Kazakhstan for 2018-2020.

"Remote identification of customers, use of biometrics, security issues and access to government databases - solving these issues will give a powerful impetus to the development of non-cash turnover in the country, increase lending, increase the speed and availability of services, reduce the risks of fraud and costs," - Yulia Yakupbayeva highlighted.

The stock market will help the economy grow

"Financing of the economy should be carried out not only by banks, - the head of the AFI noted. - It is necessary to continue the development of the stock market, which will make is possible to solve questions of securitization, risk management of the financial system and form an investor base".

At the end of the speech, Yakupbaeva noted that in the conditions of increasing cross-border competition, it is time to transit to development stimulation. It is necessary to develop an effective industrial policy algorithm.

For the growth of long-term investment lending it is important to form a stable long-term funding base, including securitization and hedging mechanisms for currency risks.

"There is no need to limit the mechanisms for attracting investments in the economy only by bank lending. The effective work of all funding channels is important for all business categories - from the stock market and private equity funds to microlending," - the speaker concluded..