CHAPTER 2. ANALYSIS OF FOREIGN BANK IN THE FINANCIAL MARKET OF KAZAKHSTAN ( on example of ATF bank)

Foreign banks expansion on Kazakhstan market was one of the most discussed themes in period before August 2008 which regards the development of domestic financial sector.

Banks that are partly or wholly owned by foreign capital. Activities of foreign banks in the country are regulated by national legislation, which establishes a special regime for foreign banks to limit or enhance them, depending on the state of the economy and the direction of government policy.

One may separate out three stages in the history of foreign direct investment to Kazakhstan banking sector for the last five-six years:

· before the middle of year 2006 – weak increase stimulated by general positive estimate of Kazakhstan economy and financial sector’s prospects;

· from the end of year 2006 to the middle of year 2007 – rapid growth acceleration, abrupt change to brand new level. This stage was stimulated by Kazakhstan stock market expansion which had lead to substantial reevaluation of Kazakhstan banks’ assets;

· from the middle of the year 2007 to the end of the year 2008 – foreign direct investment increase deceleration, conditioned by influence of the world financial crisis.

Though in the end of the third quarter of 2008 an increase of foreign direct investment to Kazakhstan banking sector had been continuing, however, it was undoubtedly under its own inertia and was caused by conclusion of previous deals.

Influence  of the world financial crisis one may expect that new forth stage in the history of foreign investment to the Kazakhstan banking sector started from the beginning of the year 2009. It is characterized  by multiple contraction of amount of investments, active re-allocation and consolidation of Kazakhstan banks’ shares between narrow group of global banking groups, growing role of profit capitalization in the own capital building sources of non-residents’ subsidiary companies.

Banks that controlled by foreign owned banks were among the first to develop such sectors of our financial market, as the issuance of housing loans, automobiles, consumer durables, other consumer loans. Foreign banks have successfully lend to small and medium businesses, not to mention their active role in the financial services to corporate clients.[5]

 ATF bank is one of the banks with foreign participation in the financial market of Kazakhstan. It appears in 1995 as CJSC “Almaty trade-financing bank” and conduct operations in tenge and foreign exchange. In 1996 starts servicing of payment Visa, EuroCard or MasterCard, Diners Club, JCB, American Express payment cards. National bank of Kazakhstan included “Almaty trade-financing bank” into first group of banks acting accordingly to international standards in 1997. In September 1999 started to express money transfers by order of individuals without opening of bank accounts in 170 countries of the world in cooperation with Western Union. In October 2000 issued first coupon bonds in amount 5,000,000. Change in the name of “Almaty trade-financing bank” to “ATF bank” was done in 2002. Also in this year was signed memorandum of cooperation with Atyrau, Aktubinsk, Mangistau and western Kazakhstan regions. 2002 was successful year for bank, because they increased their capital by 31%, also they became shareholders of “ National saving bank of Kazakhstan” and started to issue VISA Virtuon cards. In 2003 the ATF bank enter in cooperation with the Kazakhstan Franchising Association, that  was the first in Kazakhstan that started to realize the financing program for acquisition of wide-known world companies’ brands by local entrepreneurs. Since December 11, 2003 “ATF Bank” has implemented a new service for Visa Gold, Visa Business, Visa Classic, Visa Electron card holders. The new service allows receiving information on card account balance via ATM during staying abroad. In 2004 “ATF Bank” declares about implementation of a new service – “Partner” program conducted in cooperation with “ATF – POLIS” insurance company and “OTAN” Pension Fund. “Partner” program is dedicated for service quality increase of clients. In few month later they  became one of the main shareholders of “Otan” “Open Pension Savings Fund”. In accordance with the law “On credit bureaus and preparation of credit histories” the first credit bureau was created in Kazakhstan. ”ATF Bank” JSC was one of the founders of “First Credit Bureau” LLP. Management of ”ATF Bank” JSC presented new approach to business conduction and introduced new brand style of the leading financial institute of the country: “ATF Bank” is the Bank for steady growth!”. 2005-2006 years were years of getting awards:             

1.  Leading world financial edition “EUROMONEY” admitted “ATF Bank” a leading financial institute of the Republic of Kazakhstan in corporate management and the best bank for SME in Kazakhstan.                     

2. The National League of consumers in Kazakhstan by results of its activities in 2005 awarded “ATF Bank” – a member of the Association of Perfect Business in Kazakhstan, with "Immaculate" People’s Quality Mark and Certificate "For assistance in SME development in Kazakhstan".

3. “Euromoney” leading world financial edition conferred “ATF Bank” on the award “The best bank in corporate management among developing countries of Europe".

On June 2007 bank Austria-Creditanstalt AG , who was sub-division of UniCreditGroup for commercial and bank operations in Central and Eastern Europe and private shareholders of ”ATF Bank” JSC signed the agreement on acquisition of majority stake of ”ATF Bank” JSC. It was the beginning of the new way of development of ATF bank on the territory of Kazakhstan and on the territory of other countries. [6]

Analysis of financial situation of ATF bank shows steps of development and change in it’s assets, liabilities and capital. It is the most important part for any commercial bank, so here we will see changes in horizontal and vertical analysis of balance sheet for 2007, 2008 and 2009 years. Analysis of structure of assets shows increase or decrease in the development or regress in it’s activity.

Table 1- Assets of ATF bank, million tenge, [7]

Source: Financial report of ATF bank 2007,2008, 2009

We can see increasing in the amount of total assets by 3,4% in 2008 and increase by 6,26% in 2009. It means that crediting, investments and other operations with money increased. Increase in cash and cash equivalents in 2008 was by 65%, past only 1 year after enter to UniCreditGroup, and we can see high results. In 2009 this number increased by 96%, so we can conclude, that economic policy of ATF bank in period of financial crisis is right and will bring better results in 2010. Loans to customer in 2009 decreased by 2,52% despite to decrease in interest rate for bank’s loans. But there was increase in property and equipment that bank purchased by 0,92% in 2008, and by 0,96% in 2009. Decrease in amounts due from credit institutions decreased by 77%, that means that amount of money in credit portfolio of ATF bank is enough to their operational work. Also we can see changes in other assets of ATF bank. If in 2008 there was increase in this point by 128%, in 2009 we see decrease in this item by 16%.

In structure of assets the biggest relative density is in loans to customers. It means that availability of credits was very high and interest for this loans were payable for Kazakhstan’s citizens. The second place in relative density takes cash and cash equivalents. It was a favorable result for ATF bank, because profit increased, so the main goal of any bank was achieved.

Table 2 – Liabilities of ATF bank, million tenge, [7]

Source: Source: Financial report of ATF bank 2007,2008, 2009

According to the table we can conclude that in 2008 were decrease in amount of liabilities by 15%. It means that there was decrease in number of deposits opened by ATF to physical faces, deposits from correspondent accounts of other banks. There were decrease in deposits and balances from banks by 43%, in current accounts and deposits from customers by 10%. Other liabilities also were in minus by 12%. Only amount of issued securities increased in 2008 by 17%. The biggest amount in operations of foreign bank belongs to current accounts and deposits from customers, second place take debt securities issued and at the third place deposits and balances from other banks.

In 2009 were changes in all items to the better side. There were decrease in deposits and balances from banks for 79%. It means that ATF bank didn’t use money from other commercial banks and rested for it’s own capital. Current accounts and deposits from customers increased by 46% and 10% increase in other borrowed funds , we can conclude, that work of deposit and credit departments was very high. There also was increase in other liabilities of bank by 46%. Also we can see increase of all items of liabilities: deposits and balances from banks by 3,4%; current accounts and deposits by 50%; other borrowed funds by 45%. Liabilities of ATF bank in 2009 increased by 7%, so we can conclude that trust to ATF bank, their credits and deposits increased.

Table 3 – Equity of ATF bank, million tenge, [7]

Source: Financial report of ATF bank 2007,2008, 2009

When ATF signed a contract with UniCreditGroup amount of their share capital was 57 897 607 tenge. But in 2008 we can see a shell increase by 54%. So, we can say that enter to this agreement was favorable for bank. Increase in share capital influenced to relative density in 2008, because of it there was increase the total equity of commercial bank by 31%. Also were decrease in returning earnings of bank by 56% and decrease in minority interest by 28%. 

In 2009 the amount of share capital increased by 19,86%. It means that the inputs to this bank increased. It is connect with increase of credits, that bank gives, increase in amount of deposits and return of loans by physical and legal entities. There were no changes in additional-in paid capital and general reserve in 2009. Relative density in additional-in paid capital increased by 0,2266%, and general reserve increased by 14,20% in 2009. But we can see that there are also decrease in revaluation reserve and returning earning by 0,85% and 57,7%. According to R/E we can conclude, that the profit of bank increased according to the 2008, because of increase of operations of bank. We can see decrease in important for bank stages for it’s development and it brings the growth of capital of ATF bank. So we can conclude, that in 2009 ATF bank had better financial year than it was in 2008 and perspectives of development of this bank increase.[7]

Rating is the face for every commercial bank with foreign participation. Rating is assigned to an independent credit agency and is an expression of willingness of the banking institutions to fulfill their financial obligations. Ratings of banks have become a major information resource in the banking sector. The importance ratings, suggests not only that customers of banks and bankers are listening to these indicators. Rating agency is still the most important criterion for the reliability of the financial institution or financial and credit system of the whole state. Rating agencies tend to define the degree of riskiness of financial transactions in various markets, and banks are grouped in the rankings on the riskiness of deposits in them. Various rating agencies have different factors that determine the position of a bank in the ranking, as well as different calculate these or other economic indicators for assigning to the bank places in the ranking. Therefore, an experienced investor, lender or investor will never rely on only one rating, using just a few. First rating of ATF bank done by “Fitch Ratings” :

· Long-term issuer default rating in foreign currency: confirmed at level' BBB'; the prognosis is changed from negative to stable.

· Short-term issuer default rating in foreign currency: confirmed at level 'F3'

·  Long-term issuer default rating in national currency: confirmed at level 'BBB'; the prognosis is changed from negative to stable.

·  National long-term rating: confirmed at level‘ AAA’, The prognosis is stable

· Support rating: confirmed at level'2'

·  Individual rating: confirmed at level 'D / E'

·  Priority unsecured rating of debt obligations: confirmed at level       ‘ BBB’

· National priority unsecured rating of debt obligations: confirmed at level "AAA".

 Moody ' s rating :

· Rating of financial stability: ”E+”

· Deposit rating in local currency: ”Ba1”

· Rating of priority unsecured debt in foreign currency: ”Bа1”

· Rating of subordinated debt in foreign currency: was changed from Ba3 to B1.

“Negative” prognosis was changed to “stable”.

We can conclude that the presence of foreign subsidiary banks in Kazakhstan is a positive factor in creating the necessary Kazakhstan banks to compete in the market. National Bank of Kazakhstan created equal conditions of work for Kazakhstan banks and foreign subsidiaries on the territory of country. Kazakhstan banks, adopting the experience of foreign banks, must gradually become a transnational, first gaining the trust of its main customers, and then, with their growth beyond the borders of Kazakhstan.[8]