Kazakhstan Institute of management, Economics and Strategic Research FIN5260.

15 Selected Topics in Finance (Contemporary Issues)

JSC Alliance Bank and JSC ATF Bank

Prepared by Assanov Bekzat 20113076 Danara Basbayeva 20111064

Summer I Semester 2013

Table of Contents
Introduction Literature review Comparative Financial analysis of the Companies Impacts of the recent financial crisis Conclusion References

Introduction The banking system is the fastest growing sector of the economy of Kazakhstan. According to the level of penetration on the economy (about 90% of GDP), it is comparable with banking system of the European Union. The external funding is a major factor in the growth of the banking system of Kazakhstan. Banks centers where basically starts and ends business partnership. The health of the economy depends crucially on clear competent activities of banks. Without extensive network of banks that operating it on a commercial basis, the desire to create a real and effective market mechanism is only wishful thinking. Commercial banks universal credit institution, created to raise funds and organize the terms of repayment and payment, as well as for many other banking operations: Commercial banks conduct active and passive operations. Passive operations are not possible without the active operations, and no active operations are meaningless without passive operations. However, all banking operations pursue the same goal increase revenue and reduce costs. Impact of the global crisis on Kazakhstan began in the second half of 2007, when the U.S. was a problem with subprime loans. Causes of the crisis in the banking sector of Kazakhstan: - Integration of the economy of the Republic of Kazakhstan into the world economy; - An excess of available funds; - Aggressive credit policy of banks. In view of the fact that stagflationary trends in the global economy strengthens, access to external commercial borrowings from financial institutions in Kazakhstan will remain limited. In terms of growth, the banking system of Kazakhstan is experiencing now is not the best time. The main problem is the quality of the assets of Kazakh banks. Reason for the decline in asset quality of commercial banks largely lies in the credit boom that took place in Kazakhstan before the global financial crisis. However, despite the growth potential of the crisis in the banking system of Kazakhstan, one can say that the situation in the banking sector is quite manageable and mostly amenable to correction by the regulatory authorities of Kazakhstan. The main goal of this work is to learn about the activities of JSC "Alliance Bank" and JSC ATF Bank, to obtain a small number of the key (most informative) parameters that give

objective and accurate picture of the financial performance of two banks, to describe impacts of the recent financial crisis and remedies applied by banks against crisis. Literature Review JSC Alliance Bank Joint Stock Company "Alliance Bank" is one of the most dynamically developing Kazakhstan's banks and has successful experience in banking sector for over 10 years. In the ranking of banks of 2 Level in the Republic of Kazakhstan, JSC "Alliance Bank is on the 5th place. Its branch network includes 19 branches and 108 cash offices in 51 cities and rural settlements of the Republic of Kazakhstan. The company was founded in 1993 and is headquartered in Almaty, Kazakhstan. Alliance Bank JSC is a subsidiary of Sovereign Wealth Fund Samruk Kazyna JSC. According to the decision of the National Bank of the Republic of Kazakhstan at 245 of June 25, 2001, JSC "Alliance Bank" is recognized as fulfilling the requirements of the Regulations on the procedure for transferring of banks to international standards. Also in accordance with the resolution of 73 of the National Bank of Kazakhstan on May 15, 2004, JSC "Alliance Bank" is included in the list of banks that have fallen to the international financial reporting standards in the automation of the banking information system and its certification. At the beginning of 2004 the market share of JSC "Alliance Bank" slightly exceed 2.5% (by total assets), and the beginning of 2005 amounted to nearly 4.5%. This is the largest growth rate among Kazakh banks in real terms, which allowed JSC "Alliance Bank" on the basis of the given year (2005) to become the 5th Bank of the Republic of Kazakhstan. Alliance Bank has a license for operations with precious metals and occupies a leading position in the interbank market of gold and is one of the participants of currency trading on the Kazakhstan Stock Exchange. Also the bank has good partner relationship with the National Bank of Kazakhstan. Alliance Bank is licensed to conduct brokerage and dealer activities on the stock market with the right to handle client accounts as a nominal holder. Alliance Bank previously had the name "Irtyshbusinessbank" and fully retains all of its property rights and obligations. In general, the client base of JSC "Alliance Bank" is more than 11 thousand legal entities and individuals. To date, the financial assets of JSC "Alliance Bank grew to 1.5 billion. Deposit portfolio of JSC "Alliance Bank" increased almost 2 times by contributions from individuals and legal entities. Credit portfolio of Alliance Bank has grown by almost 71%. The focus of lending to the real sector of the economy was an appeal to the enterprises of small and medium businesses. 4

JSC "Alliance Bank" provides a wide range of banking services to individuals and legal entities: - Cash management services; - Loans; - Transactions with securities; - Operations with precious metals; - Currency exchange; - Safe-deposit; - Pawnshop; - Collection; - Money transfer system Western Union, etc. In January 2005, around the world authoritative financial magazine The Banker recognized Alliance Bank as the fastest growing bank in the countries with transition economy. Overall, the research covered 377 banks in the CIS countries, the Baltic States, Central Asia and Europe on the basis of their activities in 2002-2003. On April 8, 2005 the international rating agency Fitch Ratings has assigned ratings to Alliance Bank: Long-term "B +", short-term "B", Individual "D" and support rating "4". The outlook on the long-term rating is "Stable". Long-term and short-term ratings, as well as the support rating reflects Fitch's view regarding the likelihood that bank would receive support from the Kazakh authorities in case of need. On May 20, 2005, the international rating agency "Moody's Investors Service upgraded the Alliance Banks the long-term rating on liabilities in foreign currency from Ba3 to Ba2, thus changing the outlook of the rating from" positive "to" stable. " Thus, Alliance Bank is rated by Moody's: long-term rating on liabilities in foreign currency Ba2 "stable", Short-term rating on liabilities in foreign currency NP and financial stability rating E + "positive outlook". Impact of recent financial crisis Financial crisis in Kazakhstan, which began in the second half of the 2007 due to problems in the mortgage market in the U.S., first, hit the construction companies. At the beginning of 2008, some of them already ceased their existence, leaving hundreds of unfinished housing estates and business centers across the country. Real Estate in Kazakhstan actually became illiquid. As a result, more and more people who took loans for real estate, refused to pay the high interest rates for non-existent objects.

Now the problems began to grow with the banks, which in turn had to pay for foreign loans. According to unofficial data, by the end of 2008 the debt of Kazakh banks to foreign creditors reached an astronomical sum more than $ 35 billion. Moreover, in the most difficult position in this situation was exactly "Alliance Bank", which not only took considerable funds abroad, but also invested in risky projects abroad, and actively made loans of purchasing real estate in the country. On October 2008, the anti-crisis plan was developed under which the government has allocated funds for the purchase from leading banks (Halyk Bank, Kazkommertsbank, BTA Bank and Alliance Bank) 25% of the voting shares. On February 2, 2009, The Government of the Republic of Kazakhstan reported on redemption of 76% of the shares of Alliance Bank. Unfortunately really buybacks did not take place until the end of 2009. On April 13, 2009, JSC "Alliance Bank" applied to creditors with a proposal to restructure the debt. Experts regarded this statement as a technical default. On December 15, 2009 the head of the Alliance Bank reported that lenders have approved the restructuring plan of its obligations. As a result the bank's debt reduced by $ 1 billion from $ 4.5 billion The restructuring of the external debt was a condition of nationalization of the bank following the example of other survivors at the expense of the treasury financial institutions in Kazakhstan. After the restructuring of debts of JSC Alliance Bank was completed on April 2010, Sovereign Wealth Fund Samruk-Kazyna" acquired a controlling packet of shares of "Alliance Bank" and spend $ 856 million on its capitalization.

Conclusion The banking system of Kazakhstan in recent times is developing very dynamically. Moreover, each bank has to choose its own path, to rely on a particular resource that allows to outstrip competitors. In an effort to increase economic efficiency and improve resource allocation mechanism, the government is taking steps towards creating in economy an atmosphere of openness, competition and market discipline. In order to survive and prosper, the bankers will have to drop their bureaucratic tradition and become entrepreneurs, reacting and adapting to a market economy. Judging by the growth rate, both JSC "Alliance Bank" and JSC "ATFBank" have found its own special path to the heart of the customer, whether it an individual or a large industrial corporation. Impact of the global economic crisis on Kazakhstan began in the second half of 2007, when the U.S. had problems with mortgage loans. The consequences of global financial crisis for banks in Kazakhstan: - A sharp reduction in the rate of growth of the banking system; - Significant deterioration in asset quality; - Decline in profitability of Kazakh banks. The main reason for the decline of profitability of banks is formed in the provision due to the deterioration in asset quality. Due to resource mobilization in a number of significant amounts, major banks were in trouble in paying foreign debts. Kazakh banks have developed measures to mitigate the impact of the crisis: - Tightening of monetary policy; - Increase interest rates for the loans; - Refusal of further borrowing; - Restructuring of the internal and external obligations. Both banks JSC "ATFBank" and JSC "Alliance Bank" now have problems with credits. Currently, in any commercial bank there is the problem of bad loans issued to both individuals and legal entities. This problem is unsolvable within the same bank, it is more global and encompasses many economic processes in the country. Therefore, issues of reducing the credit risk of banks have always been and remain relevant. Maintaining a balance between return and risk is one of the most important and the most difficult problems of the Bank. Currently, commercial banks are actively working to resolve the problems of bank risk management, uncertain source of their occurrence, in order to survive in a constantly changing economy. 7

References Zemtsov, A.V. (2003). Overview of the modern banking system, Banking, Vol. 1, 2003 Balabanov, I.T. (2011). Banks and Banking, pp. 304 Arynov, E.M. (2002). Kazakh banks in the domestic financial market, Almaty, pp. 140 Ayesheva, G.A. (2010). The financial crisis in Kazakhstan: experience and prospects. http://news.nur.kz, Alliance Bank is preparing to sign an agreement with creditors, 2009 http://ru.wikipedia.org, The financial crisis of 2007-2009 in Kazakhstan". http://slon.ru/news/215458/ "Alliance Bank" was approved the debt restructuring http://www.dw.de/ Kazakhstan "Alliance Bank" announced the partial default http://www.kase.kz/