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Oleg Smolyakov: No bank can rely on the help of the National Bank without clear plan of actions

17 Июля 2017 Almaty. July 17. KazTAG - Sergey Zelepuhin. Last week, the National Bank of Kazakhstan presented a program for the financial stability improvement of the banking sector. It is assumed that more than T500 billion will be allocated to support the banks from the budget of the regulator, and the program will involve  15 second tier banks with a capital of at least T45 billion. The National Bank gives banks 5 years to solve their main problems.
We asked  Oleg Smolyakov, deputy chairman of the National Bank of Kazakhstan,  to tell what results the regulator expects from the program.

- Oleg Alexandrovich, what effect do you expect from the implementation of the program?

- The effects can be different. For example, rating agencies constantly conduct a rating assessment of banks, and for them, the sources of replenishment of capital is one of the factors when revising the ratings. That is, if the rated bank is a participant of our program, then, firstly, it shows that it is ready to create provisions in full and secondly, that the state considers this bank financially viable and is ready to provide its resources for a long time. Therefore, we expect that there will be an appropriate assessment of the rating agencies of banks that will participate in our program.
The audit reports is the second effect. Now we have passed the period of annual audit. The next one will be in April-May next year. I know that under the influence of our verbal interventions auditors are more attentive to the evaluation of loan portfolios of second tier banks. Therefore, as soon as banks begin to create more adequate level of provisions, the auditors will have fewer questions to them.
In general, we expect that in the first years of the program's implementation, the plans that we agree with the banks will give them more opportunities to create the reserves. But if in 5 years time the participating banks of the program fail to meet our requirements and will allow violation of prudential norms, all that we consider being uncovered respectively, will be covered at the expense of the banks' fixed capital.
Therefore, despite the fact that we give banks five years to solve their main problems, we can get the first results already in autumn of this year, and in the middle of the next.

- That is, it is not worth waiting for considerable increase of crediting activity by the banks during these 5 years?

-I would not say this. First, the support that we will provide is the money resources. Yes, we will have a restriction that the Government securities will be immediately purchased with this money, but in the program we have written that after a while banks can sell a part of these government securities on the market and  get liquidity. As a result, banks will have  monetary source for a long period, since the program provides for the money repayment for 15 years. They can use these funds to refinance old borrowers and to issue new loans.
If we talk in general, allocating funds for STB, we intend to achieve two goals: first, creation of banks profit and provision of additional liquidity. It is assumed that due to the profits and injections of shareholders, problematic  loans will be written off, and the provided liquidity will contribute into financing of the real sector of the economy.

- But what if the funds allocated by the National Bank will not go on the real sector financing, but on the acquisition of notes of the National Bank?

- It's a good question. If we want to achieve an increase in lending to the economy, it is clear that in case the allocated funds go to deposits and to the notes of the National Bank, we will not achieve the ultimate goal. But on the other hand, there is no sense in crediting of a troubled borrower so that after six months or a year to see a default on it. The level of rates largely depends on the credit risks of the borrower. If there is a borrower, from which they make up 3-4% under a rate of GS yield, for example, equal to 10%, then the loan under 13-14% is the normal level of the lending rate.
But the problem lies in the fact that we are not ready to borrow under the rate of more than 6-7%, like under the subsidized programs of "Damu". We have to work on this. That is, we say that in order to build  the lending mechanism  taking into account the base rate and credit risks of borrowers, it is necessary to reduce the distortions that are created in the market due to the subsidized programs.

- Are you sure that after the launch of the National Bank's program, second tier banks will start actively writing off the problem loans?

- This is one of the basic conditions. That is, the basic condition for allocating funds to the banks will be the plan, where it is clearly specified how its shareholders, first, will participate in the capitalization of the bank, secondly, how they create the necessary level of provisions, and thirdly if the level of provisions or capital is not sufficient, how they intend to change their business model in order to comply with the prudential standards. Without this plan, no bank can count on support of the National Bank.

- Thank you for the answers!