147
CONTENT0101
2
1 GLOSSARY
2 GROUP PORTRAIT
Address by the Chairman of the Board of Directors
Address by the Chairman of the Management Board
Investment attraction
Regional presence
3 SUBSIDIARIES
"BCC Invest“ JSC"BCC-ОУСА“ JSC
4 STRATEGIC REPORT
Information about Bank CenterCredit JSCKey events of the year 2019 Macroeconomics and banking sector reviewBank CenterCredit JSC Development Strategy
5 RESULTS REVIEW
Retail businessCard businessCorporate businessOperations on equity and interbank market
6 TECHNOLOGY DEVELOPMENT
IT strategy for 2018-2020 Core Banking Data Engineering Digital Channels IT Architecture APIOperational processes
7 EFFECTIVE TEAM
HR PolicyLearning and development
8 CORPORATE MANAGEMENT AND CORPORATE EVENTS
Corporate managementCorporate events
BRANCH NETWORK12 68
Board of DirectorsManagement BoardShareholders and capital. Dividend policyOrganisational structure of Bank CenterCredit JSCStandard structures of branchesInternal audit service Compliance with legal requirementsAnti-corruption managementInformation on the amount and composition of remuneration to members of the Board of Directors and the Management Board of the Bank for 2019
4951525354555557
57
SOCIAL RESPONSIBILITY9 58Social Responsibility and Environmental ProtectionSponsorship and charity
5859
FINANCIAL RESULTS10 60AssetsObligationsCapitalProfitabilityImproving the financial management systemCredit Activity
616162626363
REPORT ON RISKS11 64Risk management system Identified risks in 2019Improving the risk management system in 2019
Plans for improving the Risk Management System in 2020
65676768
REPORT OF INDEPENDENT AUDITORS13 70Consolidated report on profit and lossesConsolidated report on comprehensive income Consolidated report on financial conditionConsolidated report on changes in equity capitalConsolidated report on movement of monetary meansNotes on consolidated financial statements
707475767780
10
13
1518
2324
35
37
41
4243
444446
474748
3
45
5
7
8
1012
1314
2629
383940
41
GLOSSARY01
1 AQR Asset Quality Review
2 CIR Cost-to-Income Ratio ratio of operating expenses to operating income
3 CRM Customer Relationship Management customer relationship management system - application software for organizations designed to automate customer interaction strategies
4 CSI Сustomer Satisfaction Index
5 FinTech An industry consisting of companies using technology and innovation to compete with traditional financial institutions
6 IFC International Finance Corporation
7 Market Place E-commerce platform, an online e-commerce store that provides information about a product or service of third parties whose operations are processed by the marketplace operator.
8 NIM Net Interest Margin
9 NPL Non-Performing Loan - second-tier bank loans overdue for more than 90 days
10 NPS Net Promoter Score - index of determination of consumer commitment to a product or company (willingness index to recommend)
11 ROAA Return on Average Assets
12 ROAE Return on Average Equity
13 SCF Supply Chain Finance supply chain financing is a working turnover capital optimization tool that connects buyers (corporate clientss), their suppliers and the Bank through the Internet platform to meet the needs of suppliers and buyers in working capital.
14 StarBanking A system of remote banking services for individuals, which allows you to manage your bank accounts in real time (Online) from various technical devices (computer, smartphone, tablet, etc.) connected to the Internet.
15 StarBusiness The mobile version of the Internet Banking system, which provides electronic banking services using dynamic identification tools or an SMS code using a mobile device (smartphone, tablet).
16 ADB Asian Development Bank
17 Damu Entrepreneurship Development Fund JSC / Damu Fund JSC
Damu Entrepreneurship Development Fund JSC
3
21 GDP Gross Domestic Product
22 HO Head Office
23 BCC Group / Bank Group
Bank CenterCredit Companies Group
24 EBRD European Bank for Reconstruction and Development
26 IE Individual Entrepreneur
27 IPT Information Payment Terminals
28 IT Information Technologies
29 Cross-selling Cross-selling is the act or practice of selling an additional product or service to an existing buyer.
30 LMB Large and Medium Business
32 SM Small Business
33 IMF International Monetary Fund
34 SMMB Micro, Small and Mid-size business
35 SME Small and Mid-size Business
36 NBRK / Regulator National Bank of the Republic of Kazakhstan
37 RB Retail business
38 IBS The "Internet Banking" system - is intended for Clients - legal entities for remote management of a bank account in Bank CenterCredit JSC via the Internet, without visiting a bank office.
39 Individual Individual
41 Securities Securities
42 Chat-Bot A program that finds out the needs of users, and then helps to satisfy them
43 Aquiring An opportunity for a merchant to accept non-cash payments for goods and services with plastic cards.
44 LE Legal Entity
18 АТМ Аutomated Тeller Маchine
19 BCC/ Bank “Bank CenterCredit” JSC
20 HEB Household Expenditures Budget
25 CR Change Request
31 ITMC Information Technology Management Committee
40 FCA Functional Cost Analysis
Content Glossary
02
4 Content Glossary
02 ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS
DISTINGUISHED SHAREHOLDERS, CLIENTS AND PARTNERS!
According to the results of 2019, the lending activities of Bank CenterCredit strengthened the bank's market position in terms of the loan portfolio, which grew by
Taking into account the positive results of AQR by Standard & Poor’s and Moody’s rating agencies at the beginning of this year, the Bank affirmed the Bank's long-term foreign and national currency ratings at B(B2) level, the ratings outlook is Stable.
Despite the positive results of AQR and capital adequacy confirmation of Bank CenterCredit within the established regulatory limits, one of the Bank's key objectives in 2019 was to further improve the quality of assets. Last year, BCC increased the amount of expenses aimed at creating reserves, while ending the year with a positive financial result in the amount of 1.98 billion tenge.
Assessing the quality of assets of the largest banks in Kazakhstan, which account for 87% volume of banking assets and 90% loan portfolio of the market, carried out in order to ensure financial stability and improve the banking sector in accordance with international practice of the European Central Bank, as well as the creation of the Agency for Financial Market Regulation and Development, became the main events of 2019, in the financial market of the country. The results of the assessment confirmed the stability of the banking sector - there is no capital deficit at the system level, prudential standards k1 and k2 are met and are sufficient to fully cover risks.
2.7% to 1053,1 billion tenge, rising from 5th to 4th place. The bank reduced the share of non-performing loans (NPL) from 6.4% to 6.2%.
Active participation in the implementation of state programs of Damu Fund, Development Bank of Kazakhstan, the Ministry of Agriculture, as well as joint entrepreneurship support programs with Asian Development Bank and European Bank for Reconstruction and Development increased the SME portfolio by 8.1%.
Today's global changes, such as a slowdown in the global economy, volatility in the commodity and financial markets, the COVID-19 pandemic, and forced self-isolation measures stimulate the bank to develop new initiatives, such as remote service channels and digital customer-oriented and systems and analysis of its needs, the development and implementation of segmented product offers and personalized service, the development of an affiliate network and a banking ecosystem. We intend to move further along the path of introducing best practices, our main goal is to improve the quality of customer service, ensure growth through the technological effectiveness of all existing processes, enter other markets, and further develop with our partners.
Last year, serious work was carried out in other areas, the bank expanded its presence in the regions of the country by opening one branch and a number of branches in major cities of the country, and a new premium area, BCC Elite, was developed.
Rapid development of technology and digitalization of processes are changing the behavior and preferences of customers, transforming existing business models of banks. In this context, the bank is actively implementing various digital initiatives, including pioneering a number of products and services.
In the reporting year, the bank focused on the development of retail lending, expanded the existing product line with new offers.
Bakhytbek Baiseitov Chairman of the Board of Directors
Bank CenterCredit JSC
Bakhytbek Baiseitov Chairman of the Board of Directors
Bank CenterCredit JSC
ADDRESS BY THE CHAIRMAN OF THE MANAGEMENT BOARD
DEAR CLIENTS AND PARTNERS!
In 2019, the growth of the domestic economy continued. Notwithstanding the slowdown in global economic activity associated with the trade conflict between the US and China, the economy of Kazakhstan showed an increase of 4.5%. In addition to the raw materials sector, construction and services, the Kazakhstani economy was supported by high rates of domestic consumption, partly stimulated by the expansion of consumer lending.
In 2019, lending to the population, as a year earlier, became the core of the banking sector growth. The retail loans portfolio grew by 26.8% over the year, which in turn led to an increase in the total loan portfolio of second-tier banks' customers by 6.7%.
Adhering to its strategic priorities, Bank CenterCredit during the year focused on the development of the retail segment, as well as small and medium-sized businesses. By the end of the year, the portfolio of loans provided to customers of the Bank grew by 2.7% to 1,053.1 billion tenge. At the same time, the growth in retail loans, taking into account loans under the Baspana Mortgage Organization programs, amounted to 7.8%, loans to small and medium-sized legal entities increased by 8.1%, while the volume of loans to corporate customers decreased by 3,2%.
Strengthening its position in lending to the popul-ation, the Bank emphasized the implementation of state mortgage programs: 7-20-25 and Baspana Hit. Moreover, social responsibility is a very important
In the process of scaling up car loans and the partner network, the Bank implemented the functionality for remote lending directly from points of sale in 2019, which was reflected in the growth of the car loan portfolio by 14% by the end of the year. This year, BCC will continue to actively develop this area by launching new products, including using advanced digital technologies, and further developing a network of partners.
The focus on customer service and client-oriented approach was also manifested in the introduction of many payment card services and the stimulation of cashless transactions.
aspect for the Bank in the implementation of these projects. In this connection, especially for military personnel, Bank CenterCredit launched a unique program that allows taking into account additional payments received by the military, which certainly increased the percentage of approval for mortgage loans.
By the end of the year, the share of loans issued under the “7-20-25” and “Baspana Hit” programs amounted to 27.9% of the total retail portfolio and 9.8% of loans provided to Bank customers. Bank CenterCredit was awarded the “Baspana - Leader 2019” award with a 41% share of the total portfolio of Baspana Mortgage Organization JSC as of November 2019.
Following the market trends, the Bank actively developed consumer lending throughout the year. As part of the expansion of this segment, Bank CenterCredit has implemented a number of unique projects.
At the beginning of the year, the Bank launched a new advanced offer in the field of trade lending - the “Credit Broker” program. This service is unprece-dented in the Kazakhstani market and is truly revolu-tionary of its kind. “Credit Broker” allows the Bank to make decisions on loan applications without phy-sically placing an employee at the point of sale. This system has successfully established itself throughout the year and the Bank will continue its further improvement in 2020. As a result of the active development of the segment, by the end of the year the volume of consumer loans of Bank CenterCredit increased by 13% to 147.9 billion tenge, making up 40% of the entire retail portfolio.
In December 2019, Bank CenterCredit was the first in Kazakhstan to launch contactless metal cards on the market for #IronCard VIP customers. #IronCard was created on the basis of Visa Infinite which is the most
Galim KhussainovChairman of the Management Board
Bank CenterCredit JSC
5 Content Glossary
ADDRESS BY THE CHAIRMAN OF THE MANAGEMENT BOARD
02
prestigious card in the product line of the i n te rnat iona l payment system. The Bank implemented and launched the issuance of a new product in pilot mode , “Credit Card #kartakarta”. This product is a unique means of payment, combining all the advantages of the card business. The Bank's customers got the opportunity to use both personal and credit funds, as well as interest-free installments and a variety of cashbacks within one card.
For Bank CenterCredit one of the priority tasks is to support small and medium enterprises. Positioning itself as a “Bank for Business”, BCC is actively involved in almost all programs of state support for entrepreneurship, which allows providing customers with opportunities for business development at affordable interest rates. Having gained high trust from customers, the Bank is currently represented in more than 23 entrepreneurs support programs implemented both at the expense of the State and through the participation of international financial institutions. Historically, Bank is one of the most active operators of entrepreneurship support programs; in 2019, on behalf of DAMU Fund, BCC was awarded the first place in the nomination “The most rapidly-moving bank” and the third place in the number of issued guarantees of the Fund.
Convenience and efficiency are the key priorities of Bank CenterCredit in customer service. Last year, BCC rethought the approach to financing small business owners, as a result of which the Bank successfully implemented a project for unsecured financing of entrepreneurs using scoring models.
Taking into account the characteristics of customer preferences, transformed by the accelerated pace of technology development, as well as the current conditions of the operating environment, one of the key areas of the Bank’s development is the continuous improvement of remote service channels
At the beginning of 2020, the Bank continued developing this technology and introduced a new product to the market, “Overdraft using a scoring system,” which made it possible to provide even more convenient and reliable access to small and medium enterprises for short-term financing.
Over the past year, the portfolio of loans provided to small and medium-size legal entities grew by 8.1% to 135.6 billion tenge, amounting to 12.9% of the total loan portfolio of the Bank's customers. At the same time, the specific weight of the SME loan portfolio according to internal segmentation criteria (including IE loans) is 20.8%
and the expansion of their functionality.
For the convenience of its customers, BCC was one of the first to introduce a revolutionary open financial platform on the market based on OpenAPI technologies, which allows you to integrate with the Bank and create popular services for customers of the Bank and partner companies.
The active development of customer service, together with the expansion of lending, led to an increase in the Bank's operating income in 2019 by 9.0 billion tenge or 12% compared to 2018. Including due to changes in the structure of the loan portfolio and effective management of liabilities, an increase in net interest income of 29% to 59 billion tenge was achieved.
Due to the development of technology, Bank customers can receive tender guarantees online from any region of Kazakhstan from 20 minutes. In addition, in 2019, BCC was one of the first to implement a unique online service through which the guarantee obligations provided by our Bank can be checked for legitimacy on the bcc.kz website.
In July 2019, Bank CenterCredit and the Astana International Financial Center (AIFC) signed a memorandum of understanding for the joint deve lopment and use o f the app l i ca t ion programming interface (API) and the opening of the BCC API to players of the financial technology market. Currently, this service is expanding functionally, taking into account the needs of the AIFC and its residents. The Bank is confident that cooperation with the AIFC will certainly bear fruit.
Especially for individual entrepreneurs and company executives, the Bank launched the StarBusiness application, which allows business customers to gain full control over the movement of funds of the organization and subsidiaries through a mobile phone. In addition to active account management, the system allows customers to register currency contracts online, issue tender guarantees, issue cards for employees, conduct conversions at a favorable rate and much more.
To date, BCC digital services are able to almost completely replace customers visiting the bank’s offices. According to a study conducted by markswebb agency, which specializes in auditing and consulting in the development of effective Internet products, the StarBanking application for individuals took the third place among banking mobile applications in Kazakhstan.
At the same time, the Bank continued to actively work to further improve the quality of assets. In 2019, the Bank became a member of the Asset Quality Assessment (AQR), an unprecedented in its scope verification of the Regulator, covering 14 domestic banks, which account for 87% of the total assets.
Despite the fact that the AQR results were credit-positive for the Bank, and also confirmed the adequacy of its capital, BCC made a strategic decision to form an additional amount of reserves, which was reflected in an increase of provision expenses by 35.2% compared to 2018. Even taking into account the significant volume of reserves, Bank CenterCredit showed a positive financial result in the amount of 1.98 billion tenge by the end of the year.
2020 posed new challenges for Bank CenterCredit: shocks associated with the oil price, the weakening of the national currency, as well as the coronavirus pandemic and the introduction of the quarantine regime led to a slowdown in economic activity. Taking into account the measures taken by the State to stabilize the economy, as well as an effective business model of the Bank, this year BCC will continue to develop its business lines and will actively work to further improve the quality of assets, maintain a sufficient level of liquidity, profitability and to achieve a positive financial result.
6
Galim KhussainovChairman of the Management Board
Bank CenterCredit JSC
ADDRESS BY THE CHAIRMAN OF THE MANAGEMENT BOARD
Content Glossary
INVESTMENT ATTRACTIVENESSDYNAMICS OF KEY INDICATIORS
2017mln tenge
1 330 498 1 517 760
831 251 968 684
Assets
Loans (net)
Capital
Net interest income
128 883 107 098
47 500 45 848
2018 2019
1 460 439
982 390
113 089
58 977
Formation of reserves
Net profit,mln tenge
43 743 30 814 41 657
02
BANK CENTERCREDIT JSC
BCC Invest JSC BCC-ОУСА» LLPBroker-dealer activity Management
of stressed assets
Center Leasing LLPFinancial leasing
100% 100% 90,75%
AWARDS
BANK GROUP STRUCTURE
Leader in the implementation of housing programs
of Mortgage Organization Baspana JSC
«The most active desk»
Digital Ecosystem Platform of the year –
Open API platform – Kazakhstan, 2019
Third place in the category “Best Mobile Banks for Everyday Tasks”
in Kazakhstan
NIM, %
RATINGS
B2«Stable»B«Stable»
12.03.2020 yr.
30.04.2020 yr.
ROAE, % Profit before provisions,mln tenge
2017 2018 2019
28 871
9 169
1 984
2017 2018 2019
4,6%
4,1%
4,9%
2017 2018 2019
25,3%
7,8%
1,8%
2017 2018 2019
72 841
41 34544 911
CIR, %
2017 2018 2019
26,1%
41,7%
46,1%
7 Content Glossary
INVESTMENT ATTRACTIVENESSREGIONAL PRESENCE
02
Pavlodar
Semei
Ust-Kamenogorsk
Taldykorgan
AlmatyTaraz
Turkestan
Shymkent
Kyzylorda
Zhezkazgan
Karaganda
Nur-Sultan
Kokshetau
Petropavlovsk
Kostanai
Aktobe
Uralsk
Atyrau
Aktau
1BRANCHES
110CASH-SETTLEMENT
CENTRE
642ATMS
9
8 Content Glossary
C L I E N T S
C H A N N E L S
R E S O U R C E S
S TA F F
D ATA
T E C H N O L O G I E S
F I N A N C E S
O N L I N E
D I R E C T S A L E S
P A R T N E R N E T W O R K
R E TA I L
S M E
C O R P O R AT E
C L I E N T S
P R O D U C T S
VA L U E S
C R E D I T
N O N - C R E D I T
I N T E G R I T Y
P R O F E S S I O N A L I S M
E F F I C I E N C Y
B E N E V O L E N C E
02BUSINESS MODEL
9
INVESTMENT ATTRACTIVENESS
Content Glossary
bln tenge
SUBSIDIARIES
«BCC INVEST» JSC
Investment company “BCC Invest” is a subsidiary of Bank CenterCredit JSC, with 20 years of experience in the securities market, one of the top three leading operators of the secondary stock market of corporate securities in the Republic of Kazakhstan.
Broker-dealer activity
Direct investments
Corporate finance
Customer asset management
Over the past seven years, thanks to joint efforts, the team of BCC Invest JSC has been demonstrating consistently high performance indicators, reflected in more than seven-fold growth of the business, as well as over-fulfillment of the company's budget for revenue.
Over the past 4 years alone, the total assets of the Company grew from 11.9 billion tenge (2016) to 31 billion tenge (2019), net profit increased by 85% from 1 billion (2016) to almost 2 billion (2019), while the fee income increased by 2.4 times and amounted to 664 million tenge * in 2019.
664mln tenge
Assets
2016 2017 2018 2019
11,915,8
27,0
30,9
2016 2017 2018 2019
1,05
1,481,46
1,94
2016 2017 2018 2019
8,2 6,9
14,6
16,8
bln tengeCompany profit
+160% +85%
bln tengeCapital
+105%
03
according to the management reporting of BCC INVEST JSC
*according to the management reporting of BCC INVEST JSC
10 Content Glossary
SUBSIDIARIES03 «BCC INVEST» JSCMAIN ACHIEVEMENTS OF «BCC INVEST» JSC IN 2019
According to underwriter services in KASE exchange rating
Problem Loans Fund JSC (614 billion tenge);
Specialized tenders for the placement of bonds have been held:
Baspana Mortgage Organization JSC (100 billion tenge);
VTB Bank JSC (15 billion tenge).
In 2019, the total volume of corporate bonds placement amounted to 732.2 billion tenge, with a market share of 32%.
At the end of 2019, the Company took a leading position in market maker services in the corporate bond sector, with a market share of 21.5%
On market maker servicesin corporate bonds sector in KASE exchange rating
2019 was marked by the successful promotion and management of interval mutual investment funds (IMIF), with a total market share of 46%, the number of shareholders increased by 25%:
The value of net assets managed by IMIF "Currency" amounted to 21.8 billion tenge, an increase over the year - more than 17 billion tenge;The highest yield on the market - IMIF “Currency” - 7.81% per annum (from the beginning of the year);The increase in the value of net assets managed by IMIF "Reasonable Balance" amounted to more than 50 million tenge.
Among trustees in Kazakhstan according to the National Bank of the Republic of Kazakhstan
1№
Launched a new closed-end mutual investment fund “Growth Shares”. As part of the expansion of the product line for its customers, BCC Invest JSC established a Fund aimed at investing in instruments traded on US exchanges.
As part of the Company's development strategy, online services are being actively developed as an improvement of the service for customers, since the number of orders submitted electronically increased by 9%, the transaction time was reduced by 2 times due to the automation of business processes.
The concept of the Fund belongs to the class of “Growth” funds, which distinguishes it from “conservative funds” with a higher predicted return, while with higher volatility of returns in the medium term.
At the corporate bond market and at the stock market in KASE Exchange rating
«BCC INVEST» JSCMAIN ACHIEVEMENTS IN 2019
OPENED BROKER`S ACCOUNTS
THE VOLUME OF ASSETS IN TRUST MANAGEMENT
bln tenge
VOLUME OF TRANSACTIONS ON BROKER`S ACCOUNTS
THE COMPANY HAS BECOME A LAUREATE OF:
1,7
23,8
Cbonds Awards CIS in “The Best institutional broker of Kazakhstan” nomination
Cbonds Awards CIS in “The Best managing
company of Kazakhstan” nomination
I«ЛУЧШИЙ
ИНСТИТУЦИОНАЛЬНЫЙ БРОКЕР КАЗАХСТАНА»
«ЛУЧШИЙ ИНСТИТУЦИОНАЛЬНЫЙ БРОКЕР КАЗАХСТАНА»
I«ЛУЧШАЯ
УПРАВЛЯЮЩАЯ КОМАПНИЯ
КАЗАХСТАНА»
«ЛУЧШАЯУПРАВЛЯЮЩАЯ
КОМАПНИЯКАЗАХСТАНА»
KASE Prize in “Market-maker of the year in the market of corporate obligations”
nomination
«МАРКЕТ-МЕЙКЕР ГОДА НА РЫНКЕ КОРПОРАТИВНЫХ
ОБЛИГАЦИЙ»
«МАРКЕТ-МЕЙКЕР ГОДА НА РЫНКЕ КОРПОРАТИВНЫХ
ОБЛИГАЦИЙ»
3,4
1№
2№
1№
11
K
bln tenge
Content Glossary
03«BCC-ОУСА» LLP
The company was established on 21 August 2013. “ВСС-ОУСА” LLP is 100% subsidiary of JSC “Bank CenterCredit”.
THE MAIN ACTIVITIES OF THE COMPANY:
«BCC-ОУСА» LLP
Acquisition and realization of doubtful and hopeless rights of a parent bank`s claim.
Acquisition and sale of immovable and movable property and (or) property rights to assets under construction that became the property of the parent bank as a result of foreclosure on pledged property for acquired doubtful and hopeless rights of claim.
Implementation of activities aimed at construction, completion of construction and (or) commissioning of real estate on dubious and hopeless assets in the form of land and (or) construction in progress.
Acquisition and sale of shares and (or) participatory interests in the authorized capital of legal entities in cases when they are accepted as collateral (compensation or security) for acquired doubtful and hopeless rights of claim.
Leasing of immovable property that became its property as a result of foreclosure on property acting as collateral, other collateral or received as a compensation for claims received from the parent bank for dubious and hopeless rights, or to use another form of paid temporary use of such property.
Revenues from the company core activities amounted to 1,375,154 thousand tenge (01 January 2020), against the result of the previous year 761,113 thousand tenge.
The composition of income from core business includes: income from the rental of real estate in the amount of 552 772 thousand tenge, interest income on remuneration in the amount of 343 581 thousand tenge, as well as income from growth in value in the sale of assets in the amount of 426 933 thousand tenge accrued coupon on bonds is 51,868 thousand tenge.
FINANCIAL PERFORMANCE OF BCC-ОУСА LLP (UNAUDITED REPORTING)
Indicators As at 1 January 2020 As at 1 January 2019
Company Assets
Company Equity
Long-term loans
Operating income
Company net loss (877 362)
114 082 024
8 762 443
101 141 149
1 375 154
(965 564)
88 831 045
8 674 241
76 186 151
761 113
The volume of real estate sales of BCC- ОУСА LLP acquired (received) as a result of measures to improve the quality of doubtful and hopeless assets amounted to: 8,787,316 thousand tenge (2019).
Earlier, in the comparable period of 2018, real estate sales amounted to 2 589 560 thousand tenge. The gain from the cost of the sale of assets for the reporting year amounted to 426 933 thousand tenge.
Indicators As at 1 January 2020 As at 1 January 2019
Carrying amount of immovable property
Cost increase during the sale of objects
Real estate sales volume 8 787 316
8 360 383
426 933
2 589 560
2 403 213
286 347
VOLUME OF OWN PROPERTY SALES BY BCC-ОУСА LLP (UNAUDITED REPORTING)
TOTAL ASSETS OF A SUBSIDIARY AMOUNT TO APPROXIMATELY
114 млрд тенге
12
SUBSIDIARIES
Content Glossary
04 INFORMATION ABOUT THE BANK
Bank CenterCredit Joint-Stock Company was established on 19 September 1988 and it is one of the first commercial banks in Kazakhstan.
19.09.1988Bank CenterCredit is a universal Kazakhstani financial institution with a universal develop-ment model.
THE SHAREHOLDERS OF THE BANK
Baiseitov Bakhytbek
Rymbekovich
Lee Vladislav
Sedinovich
Chairman of the Management Board:
Khussainov Galim
Abilzhanovich
The Bank's long-term credit ratings are affirmed by the leading rating agencies S&P Global Ratings and Moody’s at levels B and B2, respectively.
B B2The Bank is represented in all regions of Kazakhstan by 19 branches and over 110 outlets, which provide quality service for all categories of clients.
13 Content Glossary
2019
STRATEGIC REPORT04INFORMATION ABOUT THE BANK
MAIN EVENTS OF 2019
Bank CenterCredit launched transfers via the Su�qar Instant Payment System. Now BCC customers will be able to transfer funds by phone number, which is tied to a bank account. The first ones connected to the STB system were Bank CenterCredit, Altyn Bank and Eurasian Bank.
Bank CenterCredit opens an outlet in Ayagoz at the address: East Kazakhstan Region, Ayagoz District, Ayagoz city, Abay boulevard, building 24 “A”.
JANUARY
FEBRUARY
Bank CenterCredit is the first Kazakhstani second-tier bank to implement an affordable lending mechanism. Affordable lending to entrepreneurs began with the modernization of a line for the production of a wide range of dairy products in Zhambyl region.
MARCH
- Bank CenterCredit and Kassa24 agreed to make payments without commissions. Now BCC customers can make payments on loans through the information and payment terminals Kassa24.
APRIL
Bank CenterCredit and DBK-Leasing signed a memorandum of cooperation. The organizations agreed to work together to finance small and medium-sized enterprises. DBK-Leasing products will be included in the list of financial instruments that the Bank offers its customers to meet their financing needs as efficiently as possible.
Bank CenterCredit is one of the first STBs to launch the OpenAPI platform. This platform allows potential partners to integrate with the Bank without long preparatory procedures and create innovative services for common clients of the partner company and the Bank.
MAY
Bank CenterCredit opened a new branch in Kokshetau city at the following address: 1 Osipenko str., first floor of the Shopping and Entertainment Center RIO.
JUNE
Bank CenterCredit opened a new branch in the Turkestan region at the address: 160900, Kazakhstan, Turkestan region, Saryagash district, Saryagash city, Ismailov str., N/A build.Bank CenterCredit opened a new branch in Taraz at the address: md. Samal, 31 build., 54 apt..
Bank CenterCredit and Astana International Financial Center signed a Memorandum of Understanding for the development of the API. The memorandum also contains provisions on the interaction of structures regarding the use by the AIFC participants of the Platform, the development of innovative laboratories, rendering mentor support for fintech startups participating in acceleration and incubation programs, holding joint master-classes and workshops.
JULY
- Bank CenterCredit opened three new branches in Shymkent at the following addresses:- Cash Settlement Unit (CSU) No. 1 at the address: 160009, Shymkent, Enbekshi district, 15 Ryskulov str.;- CSU No. 3 at the address: 160008, Shymkent, Enbekshi district, 143 Zh. Aymautov str.; CSU No. 4 at the address: 160004, Shymkent, Abai district, 92 Zhideli Baysyn str.
AUGUST
Bank CenterCredit has been supporting the development of domestic entrepreneurship for over 30 years and is a leader in lending to the real sector of the country's economy.
In March 2019, the Bank was the first to issue a loan as part of an affordable credit facility implementation (600 billion program). This program is carried out jointly with Damu Fund.
BCC is the best bank in the implementation of housing programs of Baspana Mortgage Organization JSC. More than 60 percent of mortgage loans under the 7-20-25 and Baspana Hit programs were issued by BCC.
Clients of the Bank are more than 90,000 legal entities and over 1,300,000 individuals.
The mobile application for individuals - StarBanking took 4th place among the banking applications of Kazakhstan according to Forbes.kz.
Also, BCC Internet banking became the third in the category “Best Mobile Banks for Everyday Tasks” of Kazakhstan in a study by Markswebb agency.
The Bank makes large-scale investments in the digitalization of its own products.
Bank CenterCredit was the first of the Kazakh second-tier banks to launch the revolutionary Open API system, which greatly simplifies the receipt of banking services for customers of the Bank’s wide partners network and the creation of joint open ecosystems with AIFC and E-gov.
14 Content Glossary
2019
04MAIN EVENTS OF 2019
OVERVIEW OF MACROECONOMICS AND THE BANKING SECTOR
Deutsche Bank (Frankfurt, Germany) presented Bank CenterCredit an honorary award following the results of 2018. The commemorative badge “2018 EUR Operational Excellence Award” was assigned to Bank CenterCredit for processing payments in EUR based on the results of operations for 2018.
SEPTEMBER
Bank CenterCredit won the main Refinitiv award in the “Most Active Desk” nomination. The badge of honor was received for outstanding activity in the interbank market of Kazakhstan according to the results of 2018. Activity was calculated by the volume and number of transactions in the field of foreign exchange trading.
NOVEMBER
Citibank (New York, USA) awarded Bank CenterCredit with an honorary award based on the results of 2018. The memorial sign “US Dollar Payments Straight-Through Processing Excellence Award” was awarded to Bank CenterCredit for processing payments in US dollars based on the results of 2018. The Bank was also assigned a high STP-Rate * 95% + rating.
Moody’s Agency confirmed the ratings of Bank CenterCredit JSCon an international scale at the B2 level and improved its outlook from “Stable” to “Positive”.
Bank CenterCredit will receive an EBRD loan of up to $ 40 million in tenge. The loan agreement was signed on 12 December in Almaty. The general financing package includes a 3-year loan of up to $ 30 million in tenge for financing micro, small and medium-sized businesses (MSMEs), as well as a 3-year loan of up to $ 10 million in tenge for the development of women's entrepreneurship in the framework of the EBRD's Women in Business program.
DECEMBER
Bank CenterCredit begins issuing unsecured loans for individual entrepreneurs.
Bank CenterCredit was the first Kazakhstani second-tier bank to issue premium class contactless cards. The new card of the highest premium level of BCC is called #IronCard and combines the customised design, status, exclusive advantages from Bank CenterCredit and the international payment system Visa.
WORLD ECONOMY
During 2019, we observed how central banks of almost all major countries actively relaxed monetary-credit policies, lowering interest rates and renewing buyback programs. Governments announced future expansions of budget spending.
According to the IMF, the global economic growth rate in 2019 slowed more than expected, showing growth in 2.9%, commodity market prices continued to show weakness, however, certain types of goods such as gold, palladium and nickel demonstrated growth.
The trade wars continued, but they no longer had a decisive influence on the markets, nor did the British Brexit. By the end of the year, an agreement was reached on a “phase 1” trade agreement between China and the United States; on January 31, Great Britain withdrew from the European Union.
0
1
2
3
4
5
ECONOMY GROWTH RATES
World in general Developed countries Developing countries
Events after the reporting period, caused by a combination of the shocks of coronavirus pandemic spread and volatility in the global commodity and financial markets, as well as uncertainty about the duration of the epidemic, led the IMF to revise the world economy's growth rates downward in 2020, to -3%. As the isolation regime is weakened, as well as measures taken by the states to stimulate economies through the introduction of fiscal, monetary and loan easing and financial injections to support business and the population, it will help to restore economic activity in the world economy in 2021.
6
201920182017
3,8
2,4
4,8
3,6
2,2
4,5
2,9
1,7
3,7
Bank CenterCredit is the first Kazakhstani second-tier banks to launch the "Mortgage for the military." The project was launched within the framework of existing mortgage programs of MO Baspana JSC - 7-20-25 and Baspana Hit, in the implementation of which BCC is a leader among Kazakhstani second-tier banks.
OCTOBER
Bank CenterCredit opened a new VIP premium service center - BCC Elite in Almaty. The new VIP center is located in the business part of the city - on 38 Al-Farabi Avenue, in the Head Office building of Bank CenterCredit.
Bank CenterCredit and European Bank for Reconstruction and Development signed a framework agreement on risk participation. The signed document was developed as part of EBRD's global risk sharing program, according to which the EBRD takes part in corporate projects by providing guarantees to commercial banks that cover up to 50% of the risk to borrowers.
Bank CenterCredit launches a unique program - “Salary Project”, which differs significantly from similar programs and, in addition to crediting salaries, includes a wide range of advantages.
15
STRATEGIC REPORT
Content Glossary
04KAZAKHSTANI ECONOMICS
KAZAKHSTANI ECONOMICS
Fiscal and administrative incentives aimed at increasing household incomes increased real incomes of the population in 2019 by 5.5%. During the year, the inflation rate was in the target range of 4-6%, amounting to 5.4% in 2019.
Budget incentives for the state, growth in consumption and investment activity contributed to the growth of the country's economy by 4.5% in 2019. Oil prices despite the fact that they dipped by 10% to $64 per barrel last year, were quite comfortable for the economy. Growth in the real sector of the economy was provided by the commodity sector, construction and services. Domestic consumption has maintained high growth rates due to growth of investments by 8.5% and retail trade by 5.8%.
4.5%
3
5
7
9
11
13
INFLATION AND BASIC RATE, %
Inflation Basic rate
01.17
02.17
03.17
04.17
05.17
06.17
07.17
08.17
09.17
10.17
11.17
12.17
01.18
02.18
03.18
04.18
05.18
06.18
07.18
08.18
09.18
10.18
11.18
12.18
01.19
02.19
03.19
04.19
05.19
06.19
07.19
08.19
09.19
10.19
11.19
12.19
Over the past year, the national currency rate was in a fairly narrow range of 4.5% width within the range of 373-390 KZT / USD compared to the 21% corridor in 2018. The volatility of the exchange rate decreased, in 2019 the tenge strengthened by 0.4%.
373- 390tenge
1,2% 1,1%
4,1% 4,1%4,5%
ECONOMY GROWTH RATES OF RK, %
2015 20192016 2017 2018Monetary conditions, despite the absence of changes in the base rate, were neutral. Consolidated international reserves for 2019 increased by 2.2% mainly due to an increase in the volume of assets of the National Fund by 6.8%.
In 2020, amid the realized risks associated with the spread of the COVID-19 coronavirus, as well as an unstable foreign economic situation, a global recession and a slowdown in business activity against the background of quarantine measures by the state, a slowdown in the economy of Kazakhstan is expected. According to updated forecasts of socio-economic development of the Government of the Republic of Kazakhstan, the decline in real GDP in 2020 will be 0.9%.
The measures taken by the Government to stimulate the economy, such as expanding the amount of expenditures aimed at supporting the economy and the population, tax incentives, SME support and concessional lending will smooth out the unfavorable external background and restore economic activity in the country in 2021.
16
STRATEGIC REPORT
Content Glossary
BANKING SECTOR
Retail lending has shown a steady upward trend over the past three years. In the structure of loans to individuals, the main increase is in consumer lending and mortgage loans, stimulated by the State.
The growth of banking sector assets during 2019 was accompanied by an increase in liabilities, which at the end of the year increased by 4.2%, amounting to 23.2 trillion tenge. The bulk of the liabilities structure (77.6%) is occupied by customer deposits of 18.0 trillion tenge as of 01.01.2020
04BANKING SECTOR
At the beginning of 2020, the banking sector of Kazakhstan was represented by 27 second-tier banks, the number of which decreased from 28 during 2019 due to the merger of First Heartland Jýsan Bank JSC (formerly Tsesnabank JSC) and First Heartland Bank JSC in a single bank under the brand name Jýsan.
The growth of the total assets of the second-tier banks for the year amounted to 6.2% (up to 26.8 trillion tenge), while the banking sector continues to show insignificant participation in the economy as a year earlier: the ratio of assets to GDP remains at 40%.
In the asset structure, 55% or 14.7 trillion. tenge falls on the loan portfolio (main debt), which grew by 7.1% over the year (by 6.7% excluding interbank loans and reverse repos).
THE VOLUME OF STBS` ASSETS AS AT
01 JANUARY 2020
26,8TRILLION TENGE
As a year earlier, the portfolio growth base was secured by retail loans (+ 26.8%), while corporate segment loans increased by 4.5%, and SME loans decreased by 13.3%.
RETAIL LOANS
%
SME LOANS
%
CORPORATE SEGMENT
% +26,8 -13,3 +4,5
THE CONTRIBUTION OF SEGMENTS TO THE DYNAMICS OF THE LOAN PORTFOLIO,%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
01.01.18
01.03.18
01.05.18
01.07.18
01.09.18
01.09.18
01.11.18
01.01.19
01.03.19
01.05.19
01.07.19
01.09.19
01.11.19
01.01.20
7,1%
Other (intrabank, repo)
Retail SME
Corporate business
Total loan portfolio
17,0 17,0 17,0
16,7
16,616,5
16,6
16,816,7
17,0
17,9
17,4
18,0THE DYNAMICS OF CUSTOMER DEPOSITS, TRILLION TENGE
01.01.19
01.02.19
01.03.19
01.04.19
01.05.19
01.06.19
01.07.19
01.08.19
01.09.19
01.10.19
01.11.19
01.12.19
01.01.20
The dynamics of the deposit base during the year was determined by the combined impact of political and economic factors. By the end of 2019, the growth of deposits amounted to 5.5%, while slightly more than half of all deposits (51.8%) were held by individuals.
INCREASE IN DEPOSITS AT YEAR-END
% +5,5Dollarization of deposits, despite a decline over the year from 48.4% to 43.1%, still remains at a fairly high level amid fluctuations in the national currency.According to the data
of the NBRK
Source: according to the NBRK
17
STRATEGIC REPORT
Content Glossary
BANK`S DEVELOPMENT STRATEGY04BANKING SECTOR
It should be noted that changes in the structure of the loan portfolio, in favor of more profitable retail loans, as well as a decrease in the cost of funding, contributed to an increase in the profitability of the banking sector. So at the end of 2019, the net interest income related to the receipt of interest in the system amounted to 1,151 billion tenge (against 981 billion tenge a year earlier), which in turn led to an increase in net interest margin.
DYNAMICS OF BANKING SECTOR PROFITABILITY
Net Interest margin (%)
2017 2018 2019
Net profit related to the gain of interest (bln KZT)
1 042
981
1 150
5,09%
4,98%
5,20%
The actual problem of the banking sector remains the quality of assets. Against the backdrop of continued recognition by banks of bad debts, the share of non-performing loans (NPL) in the loan portfolio according to the methodology of the NBK increased over the year from 7.38% to 8.13%.
In order to identify the real quality of assets, as well as assess the effectiveness of the Program launched in 2017 to improve the financial stability of the banking sector, the National Bank initiated a large-scale audit “Asset Quality Assessment (AQR)”, covering the 14 largest second-tier banks. According to the results of the audit, there is no capital deficit at the system level; and capital adequacy ratios are met with reserve. At the same time, taking into account the results of the OKA and the recommendations of the NBK presented on their basis, banks will develop detailed action plans that will be sent to the Regulator for approval.
Source: according to the NBRK
According to international rating agencies, maintaining the current unfavorable economic background may have a negative impact on asset quality and bank profitability.
By the end of the first quarter of 2020, the banking sector in Kazakhstan is deteriorating due to the COVID-19 pandemic, the introduction of an emergency and quarantine regime, as well as oil price shocks and the devaluation of the national currency.
In order to minimize the negative impact on the stability of the banking sector, the Regulator for the period from 30 March 2020 to 30 September 2020 introduced a number of regulatory exemptions in the calculation of prudential standards. Additional stimulation of economic activity is carried out by the State through the provision of restructuring of loans to economic entities whose activities were affected by the COVID-19 pandemic, as well as expanding programs to finance small and medium-sized businesses.
A factor in maintaining the positive dynamics of lending is also the attraction of second-tier banks by funds of international financial institutions as part of the implementation of targeted financing programs.
MISSION: PROVIDE EASY ACCESS TO BANKING PRODUCTS FOR EVERYONE
Provide easy access to banking services for every citizen of the country
The second card in every wallet
BCC is a recognizable brand with an umbrella of financial services for customers who are looking for stability, security, comfort, material well-being to fulfill their needs
STRATEGY
SIMPLE PRODUCTS
The proportion of new customers who completed the operation on the first try;
The number of products per customer;
FLEXIBLE PROCESSES
Stable processes;
Full permeability of any process step in all available channels (safety of input information in any channel)
Omnichannel;
PRO TEAMThe turnover of the top 20% of employees is below 2% / of the bottom 20% is above 50%;Annual growth of profitability per 1 employee is at least 15%
BRAND AS VALUE
Bank customers - 4 million economically active population;
NPS - Benchmark for other second-tier banks of the Republic of Kazakhstan
EFFECTIVE BANK
Profit per customer;
ROE;
CIR;
NIM
18
STRATEGIC REPORT
Mass customer acquisition (anchor products)
Content Glossary
BANK DEVELOPMENT STRATEGY: SIMPLE PRODUCTS04
BANK DEVELOPMENT STRATEGY: SIMPLE PRODUCTS
RETAIL BUSINESS
RETAIL CUSTOMER DEPOSITS BY THE END OF 2020
% +11
Affiliate network development, the Bank's presence in car dealerships of major players in the car market. Market share growth by 2021 from 2% to 20%.
CREDITS
Car loans
Affiliate network development, launch of joint mortgage programs with developers.
Mortgage
Reengineering both product and process.
Security loans
Affiliate network development, installment offer on the network.
Consumer loans (POS)
Portfolio diversification.
DEPOSITS
Ensuring stable portfolio growth: retaining existing and attracting new investors.
New products.
Active customer training.
Updating the printing complex: adding information for the client about the safety of storing money on deposits, an emphasis on guaranteeing by the state, creating sections for guaranteeing deposits.
Improvements to Remote Maintenance.
4 mlnCUSTOMERS
actively make payments and transfers
CARD BUSINESS
2025 г.
market share in money transfer systems
Bank - a platform and partner for MPS and fintech companies
30 %
ANCHOR PRODUCTS: SALARY PROJECT, PENSION PROGRAM AND JUNIOR BANK
DEVELOPMENT OF CROSS-SELLING
NEW PRODUCTS, CONSIDERING CONSUMER BEHAVIOR OF CLIENTS
DEVELOPMENT AND DISTRIBUTION OF DIGITAL SERVICES THAT ALLOW CUSTOMERS TO EASILY, CONVENIENTLY AND QUICKLY PAY FOR SERVICES AND MAKE TRANSFERS
Currently, the market share is 3.4%. The goal of 2025 is a market share of 25% on the whole in cards and separately in each of the segments: salary clients / projects, premium cards, pensioners. The target for credit cards is 5,000,000 cards until 2025.
PAYMENTS AND TRANSFERS
Market share 2019
3,4% 25%
Market share 2025
5 000 000CARDS BEFORE 2025
19
STRATEGIC REPORT
Content Glossary
04BANK DEVELOPMENT STRATEGY: SIMPLE PRODUCTS (SMALL BUSINESS)
Market share (by active clients)
7%
2020
18%
2025
80 000 205 500clients
Products
Share of sales through online channels
2020 2025
Credit Non-credit
Products
0%Operations with cash (ATMs)/terminals/collection) 70%
Loans 0% 70%
0%Opening of accounts 90%
Payments and transfers 98% 99%
Opening of deposits 13% 90%
Guarantees 13% 90%
collateral
unsecured
Current accounts
Settlement-cash service
Deposits of LE
New products Non-credit
products:Scoring loans:
Сredit limit on the account
Urgent
Credit line
Opening an IE account online
Card to account
Self-collection and online collection
All mass products online
Non-banking services for Small Businesses
BANK DEVELOPMENT STRATEGY: SIMPLE PRODUCTSLARGE AND MID-SIZE BUSINESS
4 348CLIENTS
Number of active clients to 2025
Credit portfolio 360
BLN TENGE355
BLN TENGE
2020 yr. 2025 yr.
Deposit portfolio 156
BLN TENGE
2020 yr.
232BLN TENGE
2025 yr.
Growth in the share of active customers and the number of investors
Coverage of an active customer base in IBS and StarBusiness more than 90%
Increase in the share of transactions in Internet banking more than 98%
Development and implementation of new products for financing the sales chain:
distributor financing;discounting of accounts;pre-shipment financing;reverse factoring
Bid and payment guarantees
20
STRATEGIC REPORT
clients
Content Glossary
BANK DEVELOPMENT STRATEGY: A TEAM OF PROFESSIONALS04
BANK DEVELOPMENT STRATEGY: FLEXIBLE PROCESSES
Automating the process of making changes to IT business channels (DevOps)
Rate of change - 1 update per day “On the fly” without the loss of performance
Microservices instead of monolithic software
Reorientation of up to 50% of escort personnel to development and sales
IT FOR BUSINESS
Bank-as-a-Service - Empowering partners with bank capabilities without obtaining a license and integration costs:
ECOSYSTEM OF BANK CENTERCREDIT
User identification;Opening and maintaining Nominal and settlement accounts;
Integration of the Banking service in the sales channels of the partner.
Bank-as-a-Partner
Online Cross-Selling and Market Place;Assistance in finding a partner and expanding sales markets;
Bank referral program;Providing additional service: legal advice, appraiser.
The ability to attract sales agents;
IT PLATFORM TO BE
Seamless integration
Processing for partners
Open API
Control
Event management
Communication calendar
Rules
Integration
Banking ecosystem
Mentoring and functional
coaching system
Reducing inefficient employees
The optimal ratio of front office
to back office due to centralization,
automation and changes in the organizational
structure of the branch network
The optimal ratio of the number of employees per 1 leader
Master classes from the best employees /
managers and success stories
TEAM OF BANK PROFESSIONALS
The use of digital technology
in the selection
Creating a culture of recognition of professional
achievements through the right communication and a system of objective
assessment and promotion of the best
Motivation / recognition programs and their PR within the Bank
Business rules instead of Code
21
STRATEGIC REPORT
Content Glossary
04
Merging a financial group into one brand
Project Financing Sales Chain
Alternative offerBRAND
AS VALUE
BCC brand introduction to banking products
for recognition
Customer segmentation
Each employee spreads the advertisement
ROEreturn on equity
NIMNet interest margin
CIRThe ratio of operating expenses
to operating income
2025 yr.
ROE20%
NIM5%
CIR30%
NIM CIR
Effective cash flow management
Change in asset structure
Funding cost management
Increase Cache Return
Target Product / Customer Profitability
To instill a culture that values effectiveness
Efficient use of resources
BANK DEVELOPMENT STRATEGY: BRAND AS VALUE
BANK DEVELOPMENT STRATEGY: EFFECTIVE BANK
22
STRATEGIC REPORT
Content Glossary
04
REVIEW OF
RESULTS
05BANK DEVELOPMENT STRATEGY: EFFECTIVE BANK
Business performance growth and scaling
Customer-oriented product with a targeted return
Active customer with targeted return;
digital Channel Development;
cross sales growth
Reducing the cost of 1 operation / transaction through
standardization, centralization and automation
Improving employee performance through:
standardization, centralization and automation of processes;
improving the competence of employees;
adaptive Motivation Systems
SEGMENTS
PRODUCTS
CLIENTS
PROCESSES
PEOPLE
23
STRATEGIC REPORT
Content Glossary
RETAIL BUSINESS05RETAIL BUSINESS
In 2019, the commission income of the retail business is growing due to an effective tariff policy, tariff automation, expanding the functionality of existing products, increasing the intensity of branches in the cross-selling of products and services.
KEY ACHIEVEMENTS AND SUCCESS IN BUSINESS
+14%
1 375 263 CLIENTS
The growth in the customer base of employees participating in salary projects amounted to 63,614 people, the growth in customer products was 170,383, the cross-selling coefficient for payroll project participants increased from 1.29 to 1.46.
2018 2019
1 206 412
1 375 263
GROWTH OF CLIENTS NUMBER
The share of the portfolio of mortgage products “7-20-25” and “Baspana Hit” Mortgage amounted to 28% of the retail portfolio and 10% of the total loan portfolio of the Bank.
In total, over the period under the program more than 7,800 loans worth over 78 billion tenge were issued
The Bank was awarded the title of Leader of 2019 by Baspana.
In 2019, 1 Branch and 6 Outlets were opened, 1 Branch and 4 Outlets were redeployed.
MORTGAGE PORTFOLIO
+1BRANCH
+6OUTLETS
According to the internal classification criteria the loan portfolio of retail clients as of January 1, 2020 amounted to 369,6 billion tenge (including loans granted under the 7-20-25 and Baspana Hit programs) and contains 128,273 loans. The portfolio growth rate amounted to 14%.
RETAIL PRODUCTS (UNSECURED LOANS, CONSUMER LOANS, MORTGAGE LOANS, CAR LOANS)
79 928 loans were granted in the total amount of 164 966 million tenge in 2019, of which:
8,341 in the amount of 82,283 million tenge
1,577 in the amount of 11,284 million tenge
(including Baspana program)
Mortgage loans
(secured) Consumer loans
69,429 in the amount of 67,661 million tenge(unsecured)
Consumer loans
581 in the amount of 3,737 million tengeCar loans
Over the past year, the volume of consumer loans increased by 13%, amounting to 40% of the Retail Business loan portfolio as of 01/01/2020. The proportion of mortgage loans (including loans granted under 7-20-25 and Baspana Hit programs) at the year end increased by 27 billion tenge, maintaining the largest share in the structure of the loan portfolio.
REVIEW OF RESULTS
146 468
113 905
5 070
186 578
130 884
6 764
213 997
147 881
7 714
Mortgage loans (including loans granted under 7-20-25 and Baspana Hit programs)
Consumer loans
Car loans
DYNAMICS OF THE RETAIL LOAN PORTFOLIO (GROSS), MILLION TENGE
31.12.2017 31.12.2018 31.12.2019
78 BLN TENGE
LOANS WERE ISSUED FOR MORE THAN
34,9 43,2
12,9% 13,0%
Interest income* (billion tenge)
Portfolio yield*
*According to internal management reporting, taking into account loans granted under the Baspana programs
+24%
+1%
24 Content Glossary
05VIP BANKING
MAIN ACHIEVEMENTS AND SUCCESS IN BUSINESS
Service in comfortable offices
A set of banking services with special conditions
Service and individual approach customized for the needs of clients
Privileges from international payment systems
Consulting on legal, tax and other matters
The Bank opened two offices of the BCC Elite network in the cities of Nur-Sultan and Almaty in 2019. It also opened VIP points at 18 regional branches of the Bank.
ВСС Elite is a new premium line of Bank CenterCredit that provides banking and non-banking financial services (in partnership with BCC Invest) to affluent clients.
The product line is represented by a full range of banking services with special conditions, investment banking products, brokerage services, consulting, etc.
The service and an individual approach to client needs are the main criteria for the BCC Elite service format. Each client is assigned a personal manager who provides 24/7 support and a team of BCC Invest experts to manage private capital.
Convenient and functional mobile application
Confidentiality
24/7 Personal Support Manager
Investment banking, brokerage service
Family customer service
PAYMENTS AND TRANSFERS
THE NUMBER OF VIP CLIENTS
236501.01.2019 01/01/2020 GROWTH
+25804945
In 2018, the Bank received the status of an exclusive partner among Central Asian banks in the implementation of the Western Union online money transfer service. Since 2019, holders of payment cards, issued in Kazakhstan, with 3D-Secure support, can make transfers to more than 200 countries and territories of the world 24/7. The client and the satisfaction of their needs remain the main priority in the development of the retail business, so we are constantly improving our products and processes.
In 2019, the market share in Western Union money transfer system made 15% (the schedule).
The market share in the Zolotaya Korona money transfer system made 10% (the schedule).
15%
Market
BCC 85%
Market
BCC 10%90%
The ability to make instant payments and money transfers in Kazakhstan between clients of different banks participating in the Sunqar system was another innovation of 2019. A simple and convenient identifier is used to transfer money between individuals: a mobile phone number that must be linked to any source of payment, i.e. payment card, current bank account, e-wallet. In December 2019, the Bank's market share in the Sunqar transfer system amounted to 77%.
77%
23%
Sunqar
Market
BCC
The Bank continues to develop and distribute services that allow clients to make transfers easily, conveniently and quickly. In 2019, more than 3,200 thousand transfers were made through P2P transfers.
295 394
1Q 2019 2Q 2019 3Q 2019 4Q 2019
500 594 528 048
1 889 783
The average number of payments in 2019 increased by 35%, while the growth is observed for all major types of payments. Strong growth was achieved thanks to the active development of non-cash payments through the Starbanking system, the share of non-cash payments increased by 15% and makes up 90% of the total payments. In 2019, the Bank continued to actively develop the acceptance of payments from the population and reconsidered client experience in one of the most widespread types of payments - payment of fines. The Bank was one of the first to integrate with the E-fines system, now the Bank's clients can receive a notification of a fine and pay it online.
Adhering to the concept of creating new opportunities for our partners, i.e. building new business models and expanding sources of income, in 2019 the Bank launched a new Payment Gateway service. This service allows receiving and processing online payments by FinTech companies.
130
150
Number of payments,mln tenge
Amount of payments,bln tenge
3,34,5
25
REVIEW OF RESULTS
Content Glossary
05OBJECTIVES FOR 2020
REVIEW OF RESULTS
It is planned to open the BCC Elite divisions in the cities of Shymkent, Aktau, Atyrau in 2020.
In 2020, BCC Elite will continue providing personalized products and services to privileged customers, high-quality service in order to become the best in the market of Kazakhstan.
In 2020, the Bank plans to provide the option of making Western Union transfers in the Starbanking mobile application.
QR Payments Regular payments Billing options
THE BANK HAS PLANNED THE FOLLOWING INNOVATIVE PROJECTS TO BE IMPLEMENTED IN 2020:
CARD BUSINESS#IRONCARD, #KARTAKARTA,#VIOLET CARD
The Bank became the first on Kazakhstan market in December 2019 to launch contactless metal cards for VIP clients.
The card emphasizes the status and prestige of the owner. With the excellent metal quality, the card implies not only style, but also the level of care, security and privacy.
#IronCard was created on the basis of Visa Infinite, the most prestigious card in the product line of the international payment system.
#IRONCARD
In January and February, the clients were offered to issue a card with a 50% discount. The metal card was ordered and bought by over 250 clients in two months. The card issuance fee amounted to over 4 million tenge over two months.
THE CARD ISSUANCE FEE AMOUNTED TO
4 mln
OVER
tenge
The fee for using the card is 10,000 tenge per month. If the client makes non-cash payments per month in excess of 1 million tenge or makes Rakhmet / Rakhmet + deposit for an amount of 15 million tenge, there is no fee for the use of the card.
The clients may also receive cash back up to 4% of purchases. 4 %
up to Cash back
26
OVER TWO MONTHS
Content Glossary
05CARD BUSINESS #IRONCARD, #KARTAKARTA,#VIOLET CARD
#KARTAKARTA
In November last year, the Bank implemen-ted and launched a new #Kartakarta credit card in pilot mode.
This product is a universal card: you can use both personal and credit funds, interest-free installments and a variety of cash backs.
The #kartakarta holders can manage the installment plan themselves in the StarBanking application and choose favorite categories with increased cash back, which are offered by the Bank every month.
It is important to note that cards are issued to all clients, even if initially the credit limit was not approved as a result of scoring. In the future, if clients actively use such cards at the expense of personal funds and thus change their solvency status, the Bank will review and set/increase limits remotely, so clients would not need to come to the Bank. This will allow the Bank to increase its client base, i.e. individuals, and the portfolio without special operating costs.
As part of the pilot project, credit cards were issued to employees of the Bank from November to December. The product was launched on the market in January 2020.
REVIEW OF RESULTS CARD BUSINESS#IRONCARD, #KARTAKARTA,#VIOLET CARD
In October 2019, the Bank started issuing salary cards through the registry. The functionality is available to all Bank clients (legal entities), including those without a bank account.
#VIOLET CARD
The possibilities provided to the Bank clients by the new functionality:
instant transfer of salaries through the Internet Banking System
secure exchange of registries electronically
issue of premium cards for top managers
free connection and service in the Internet Banking system, 24/7
issue of debit cards to employees without visiting the branch
To the debit card holders:
cash withdrawals at any ATM in the world up to 1 mln tg
free SMS notification
accrual of 1% cash back for any purchases
free transfers to cards of other banks of the Republic of Kazakhstan (maximum amount – 200 thousand tenge per month)
The number of cards connected to ApplePay increased from 4 as of 01/01/2019 to 16 365 as of 01/01/2020
4 452
16 365
2018 2019
27 Content Glossary
05DEVELOPMENT OF REMOTE SERVICE CHANNELS AND CARD TECHNOLOGIES
STARBANKING
The interfaces on all platforms Android, iOS, Web are completely redesigned.
ACQUIRING
The navigation and the transfers and payments processing are improved, the export of account/card statements is implemented, the form of transfers is improved, the cards of other clients are saved for repeated transfers, and much more.
The “In app provisioning” service was also added: linking the card to Apple Wallet directly from an application on the iOS platform.
The services were implemented for investment management in conjunction with BCC Invest: displaying a portfolio of securities and mutual funds, filing orders to buy / sell securities, withdrawing funds from a trading account (Web version on m.bcc.kz).
+34 545 199
729 621
2018 2019
NUMBER OF CLIENTS CONNECTED TO STARBANKING
ACQUIRING
In 2019, 200 NCR Recycler model ATMs with a money recycling function were purchased. ATMs were branded for the first time in the history of the bank. +200
ATMS
The costs were minimized due to:
Transition to the bank’s own service for the maintenance of card equipment;
Refusal of insurance;
The process of the decommissioned equipment disposal has been canceled. ATMs were scrapped;
Single format of cheques.
Contactless service has been provided for in the new ATMs for Visa and MasterCard cards of our bank and other banks: replenishment / withdrawal. It is no longer needed to press ‘Enter’ button when entering the PIN code.
An Internet acquiring service has been introduced as a separate product and an integration process with online stores of trading and service enterprises based on Way4 processing has been implemented;
Fraud monitoring functionalities for online payments and 3DES authentication were implemented and configured via SMS one-time passwords as part of the Internet acquiring service;
A payment gateway service based on merchant acquiring with the ability to connect payment organizations included in the register of the National Bank and having their own client network of retail and service enterprises was developed and introduced;
REVIEW OF RESULTS
28
THE NUMBER OF CLIENTS CONNECTED TO STARBANKING INCREASED BY
%
Content Glossary
05OBJECTIVES FOR 2020
CORPORATE BUSINESS
CARD BUSINESS
Sell over 3,000 IronCards in 2020;
Teach customers how to use the right products;
Introduce a subscription fee for premium cards;
Encourage debit card holders to cashless payments
To increase the activity and quality of the payroll program portfolio;
Increasing the efficiency of the acquiring network;
Reducing the list of ATM services;
Introducing contactless payments in IPT;
Developing a personal account in IPT and ATM;
§ Single interface;
Increasing the share of ATMs within branches from 40% to 70%;
Reducing the loss-making network by relocating from small points and from points in the framework of payroll programs;
Increasing the payback outside the Bank's branches by 1 ATM, 45,000 tenge in average;
Implementing the Bank's acquiring as a single platform for the provision of transactional and settlement services in favor of payment aggregators, including support for Marketplace, Money Transfer, Installment, and Lending services;
Implementing additional ‘cashless tips’, ‘account split’, ‘cash withdrawal through the Merchant’s cash desk’, ‘Chat-Bot’ services.
Implementing QR and SoftPos Products
ACQUIRING
The world is rapidly developing, and if we want to remain a leader tomorrow, we must think about the future today. The Bank CenterCredit JSC corporate business group consists of the Corporate Finance Department and the Small Business Department. It strives to improve banking products and services every day to meet customer needs. In accordance with the economic changes in the region and new global trends in the banking sector, last year the Bank’s Development Strategy was updated to 2022 taking into account the Bank’s market position, which allows focusing on the development of
We want to ensure that clients see us as a reliable business partner and pay great attention to the development of an entrepreneurial culture in Kazakhstan. In an effort to facilitate the conduct of business for its clients, Bank CenterCredit JSC focused on improving banking products and services, and on introducing distance services in 2019.
remote service channels, the growth of the client base, digitalization of products and services, and strengthening positions in the financial market.
MAIN ACHIEVEMENTS OF BANK CENTERCREDIT JSC IN 2019
LOAN PORTFOLIO
683,5billion тенге
CORPORATE LOANS
402
TENDER GUARANTEES
SHARE OF INTERNET BANKING TRANSACTIONS
CLIENTS
41CORPORATE DEPOSITS
414
96% 99,5thousand
(according to the internal criteria classification)
29
REVIEW OF RESULTS
billion тенге
billion тенге billion тенге
Content Glossary
05CORPORATE BUSINESS
As of 01.01.2020, the Bank had 99,494 unique clients, including active legal entities and individual entrepreneurs - 71,589, of which 912 were large business clients, 1,665 were medium-sized enterprises and 69,012 were small enterprises. There were 2,412 borrowers, and 8,015 loans granted.
LOANS TO SME
Considering the needs of clients and the exponential development of technologies, the Bank improved banking products and remote services, such as the Internet Banking System (hereinafter referred to as IBS) and in February 2019 introduced the StarBusiness mobile application for IOS and Android, which contributed to a significant client base growth in the SME segment.
Customer focus, transparency, analysis and evaluation of the effectiveness of business processes, as well as economic efficiency, are key guidelines in the Bank's operations in 2019.
Clients note positive changes in the reliability and quality of processes, the speed of operations, the quality of remote support for payments and technical support for Internet banking, which positively affected the CSI results for 2019, which is 87.65%.
THE GROWTH IN THE NUMBER OF TRANSACTIONS IN INTERNETBANKING PER 2109 YEAR
+45%
85,72%
88,61%
1Q 2109 2Q 2109
88,71%
86,88%
3Q 2109 4Q 2109
9 958LOANS:
BORROWERS:
5 404
SE
1 503LOANS:
202
1 268LOANS:
144
Loan portfolio of corporate clients as at 01 Jan 2020 amounted ro 683,5 billion KZT reducing in a year to 17,9 bln KZT or 2,5%. In portfolio structure the main reduction accounts for the loans of large corporate clients, which for 2019 lowered to 3,2%
DYNAMICS OF THE CORPORATE LOAN PORTFOLIO (GROSS), MILLION TENGE
Small and Medium Enterprises Corporate loans
The dynamics of the legal entities loan portfolio is consistent with the Bank’s Strategy regarding diversification by increasing the share of SMEs in the loan portfolio.The largest share in the Bank's loan portfolio in terms of small and medium-sized enterprises is held by branches in the following cities: Kyzylorda - 32.8%, Shymkent - 25.2%, Uralsk - 24.8%, Kostanai - 22.5%, Taraz - 15.9% .
average number87,65%
467 605
480 027
464 524
193 452
221 333
218 952
31.12.2017
31.12.2018
31.12.2019
NUMBER OF ACTIVE CORPORATE CLIENTS AS OF 01.01.2020
69 012 1665 912
SE ME CB
71 589
30
In 2019, the growth of IBS and StarBusiness active amounted to 15%. Moreover, the growth in the number of transactions in Internet banking per month increased by 45%, which contributed to an increase in the share of transactions by 10% and amounted to 96%.
Furthermore, thanks to the introduction of an online platform for currency conversion at the exchange rate, it increased the number of client transactions with foreign currency by 37%.
REVIEW OF RESULTS
ME CB
BORROWERS: BORROWERS:
Content Glossary
05LOANS TO MEDIUM ENTERPRISES
Working with reliable borrowers, the Bank is ready not only to issue large amounts comparable with the capabilities of the largest state financial institutions, but also to make decisions promptly. Since these factors are one of the key in conducting business, in 2019 we introduced an electronic credit committee, which contributed to an increase in the number and volume of loans.
Bank CenterCredit JSC strongly supports small business entrepreneurs by offering various products and services, which contributed to an increase in the loan portfolio in 2019.
NET INTEREST INCOME OF ME, BILLION TENGE
9,9 11,3
YIELD ON ME PERFORMING ASSETS
DYNAMICS OF ME LOAN PORTFOLIO, BILLION TENGE
2018 2019
+12%
9,6% 12,2%
2018 2019
+21%
36,7 44,1
2018 2019
+17%
Bank CenterCredit JSC actively participates in almost all state programs supporting entrepreneurship, positioning itself as a ‘bank for business’. One of the most important messages of state programs is to provide entrepreneurs with the opportunity for long-term financing at low rates. Stimulating the development of small and medium enterprises is the national strategy of any state, and Kazakhstan is no exception.
ENTREPRENEURSHIP SUPPORT PROGRAMS
Having won high trust from state and international development institutions, the Bank is engaged in 23 28 entrepreneurs support programs, including such strategic state programs as the ‘Program for Securing Financing of Entrepreneurship in the Manufacturing Industry’ (DAMU Entrepreneurship Development Fund JSC and Kazakhstan Development Bank JSC), ‘Nurly Zher Housing and Communal Development Program’, ‘Business Roadmap 2025’ Program, financing of Ken-Dala agricultural producers (Ministry of Agriculture and Kazagro Holding).
33,2
TOTAL AMOUNT OF LOANS ISSUEDIN 2019, AS PART
OF THE PROGRAM SSUPPORT OF BUSINESS
In 2019-2020, the Bank fully implemented the ten-year ‘Priority Project State Lending Program’ in the amount of 41.7 billion tenge. The Bank became the first to raise funds and sign a subsidy agreement with Damu Entrepreneurship Development Fund JSC.
Loans worth more than 334 billion tenge were granted over the entire period of cooperation of the Bank with national development institutions.
In general, according to the results of the year, the Bank's SME portfolio under various state prog-rams amounts to about 62.5 billion tenge (1,189 borrowers or 2,451 loans). In 2019 alone, 1844 loans were granted in the total amount of 33.2 billion tenge.
The indicators were calculated basing on the management data of the Bank.
The Bank also offers a number of programs to support entrepreneurs, including programs for the development of women entrepreneurship, in close cooperation with international development institutions such as ADB, EBRD, IFC Bank.
41,7bln tenge
31
REVIEW OF RESULTS
bln tenge
Content Glossary
05LOANS TO CORPORATE BUSINESS
ACHIEVEMENTS
According to the Bank's Strategy, an organizational structure was introduced in 2018 to focus on attracting, selling and servicing clients in small and medium-sized enterprises segments. Given this fact, there is a decrease in the share of CB in the loan portfolio, while priority is given to highly profitable clients with a high cross-selling ratio.
As of 01.01.2020, the number of borrowers in the large business segment amounted to 144 clients and decreased by 29 borrowers or 17%, the number of loans decreased by 456 and amounted to 1,268, including 631 granted in 2019. Moreover, for the same period in 2018, 905 loans were granted, which is 43% more than the number of loans granted in the CB segment in 2019.
The Large Business loan portfolio of legal entities as of 01.01.2020 amounted to 464.5 billion tenge, having decreased by 15.5 billion tenge or 3.2% over the year.
The amount of loans granted in 2019 amounted to 128.3 billion tenge, which is 68.5 billion tenge, or 35% less than the loans granted in 2018.
DYNAMICS OF THE CORPORATE BUSINESS LOAN PORTFOLIO (BILLION TENGE)
467,6
480,0
464,5
01.01.2018 01.01.2019 01.01.2020
SHARE OF BRANCHES IN THE TOTAL CB PORTFOLIO AS OF 01.01.2020 YR.
Almaty City Branch 51%
Nur-Sultan 15%
Shymkent 9%
Uralsk 6%
Karaganda 6%
Kostanai 6%
Other branches 7%
51%
7%
6%
6%6%
9%
15% Uralsk – 6% (decrease by 4%),
The following branches had the largest share in the Large Business loan portfolio as of January 1, 2020 by regions:
Karaganda – 6% (decrease by 2%),
Almaty – 51% (decrease by 5%), Shymkent– 9% (decrease by 5%),
Nur-Sultan – 15% (increase by 11%).
2019Bank CenterCredit launched StarBusiness, a mobile application for legal entities.
Bank CenterCredit and DBK-Leasing signed a memorandum of cooperation. The organizations agreed to work together to finance small and medium-sized enterprises.
Bank CenterCredit received the ‘Fastest Bank’ and the ‘Best of the Best’ awards from the Damu Fund.
The European Bank for Reconstruction and Development recognized Bank CenterCredit as the ‘Most Active Issuing Bank in Kazakhstan’ based on its performance for 2018.
Bank CenterCredit and Astana International Financial Center signed a Memorandum of Understanding for the development of the API. The memorandum also contains provisions on the interaction of structures regarding the use by the AIFC participants of the Platform, the development of innovative laboratories, mentoring support for Fintech startups participating in acceleration and incubation programs, and joint workshops and seminars.
Bank CenterCredit launches the unique ‘Payroll program’, which differs significantly from similar programs and includes a wide range of advantages in addition to crediting salaries.
Bank CenterCredit and the European Bank for Reconstruction and Development signed a framework agreement on risk participation. The signed document was developed as part of the EBRD's Global Risk Sharing Facility , under which the EBRD takes part in corporate projects by providing guarantees to commercial banks that cover up to 50% of the risk to borrowers.
Bank CenterCredit won the main Refinitiv award in the Most Active Desk nomination. The badge of honor was received for outstanding performance in the interbank market of Kazakhstan according to the results of 2018. The performance was evaluated by the volume and number of transactions in the field of foreign currency trading.
Bank CenterCredit and the European Bank for Reconstruction and Development signed a loan agreement in the amount of up to 40 million US dollars.
The Steppe recognized Bank CenterCredit the ‘Partner 2019’.
FEBRUARY
APRIL
JUNE
JUNE
OCTOBER
OCTOBER
NOVEMBER
DECEMBER
DECEMBER
APRIL
32
REVIEW OF RESULTS
Content Glossary
05 TRANSACTIONAL BUSINESS
Bank CenterCredit considers the development of digital technologies to be its strategic objective.
The bank has actually created a series of online business processes covering 90% of the bank's most popular services for legal entities and individual entrepreneurs:
Clients can remotely open new accounts online, saving their time;
The Bank's payment system operates 24/7 and is available to the user regardless of their location;
Clients can get a tender guarantee online within a short period of time (from 20 minutes and on);
The bank offers an online platform for converting currencies at the exchange rate without fees;
Clients can remotely open an unlimited number of deposits online at the best rates;
The Bank offers its clients to register currency contracts online;
Clients can issue payroll cards online;
The Bank offers clients high-tech ways to manage cash flows through online banking;
Clients can make cashless payments with trading and service enterprises for card transactions through online stores;
Online Warranty Authentication at bcc.kz;
UNSECURED LOANS TO INDIVIDUAL ENTREPRENEURS.
OVERDRAFT USING SCORING MODELS
UNSECURED LOANS TO INDIVIDUAL ENTREPRENEURS
1bank employee
questionnaire instead of four
loan and current account agreement
transaction for account opening and loan granting
in
minutes30
OVERDRAFT USING SCORING MODELS
Turnaround time:
Bank employees:
200 million tenge limit for all clients
Number of documents
provided by client
30 days from 30 minutes
5 employees 1 employee
NO YES
29 2
WAS IS
33
REVIEW OF RESULTS
Content Glossary
In 2019, Bank CenterCredit JSC began implementing the Supply Chain Finance program (SCF - supply chain finance) using the IFC methodology. In 2019, the Bank, together with IFC representatives, developed a product and business process structure and the risk model; approved strategies for launching and piloting the SCF program, prepared business requirements for the online platform supplier search.
FACTORING AND SUPPLY CHAIN FINANCE
PLANS FOR 2020
DEVELOPMENT AND IMPLEMENTATION OF SCF PRODUCTS AND BUSINESS PROCESSES
Distributor financing pilot - March 2020
Invoice discounting pliot- July 2020
Pre-shipment finance pilot - July 2020
Reverse factoring pilot - September 2020
IT platform implementation pilot - October 2020
OBJECTIVES FOR 2020
PORTFOLIO BILLION TENGE2,85
05TENDER GUARANTEES
Automated calculation of amount
Guarantee issue time reducedfrom 2 hours to 20 minutes.
Online guarantee without visitingthe Bank branch
The process of issuing guarantees online through the Internet Banking System has been launched, which will increase the growth of the client base
Advantages of BCC tender guarantees
Issue of tender guarantees - from 20 minutes
Minimum package of documents
Possibility of guarantee execution and issue in other regions of Kazakhstan
No need to pledge turnovers in any bank
Flexible provisioning
Free current account opening
For the convenience of the Beneficiary and the Principal, the guarantees provided by our Bank can be checked for legitimacy online on the Bank's website. No need to submit a written request to the bank.
Online-check of guarantees
34
REVIEW OF RESULTS
Content Glossary
05OBJECTIVES FOR 2020
In 2020, the Bank will focus on flagship mass products
INSTANT LOANS,
ACCOUNT OPENING AND INTERNET BANKING,
WHICH SHOULD BECOME THE BEST IN THE MARKET!
OUTREACH OF AN ACTIVE CLIENT BASE IN IBS AND STARBUSINESS
SHARE OF INTERNET BANKING TRANSACTIONS
+48,9% SHAREOF ACTIVE CLIENTS
AMOUNT OF TENDER GUARANTEES
thousand 23
DEPOSITORS
+6300billion tenge +19
SMALL BUSINESS DEPOSITS
90% 98%
STOCK AND INTERBANK MARKET TRANSACTIONS
CORRESPONDENT RELATIONS AND WORK WITH FINANCIAL INSTITUTIONS
Bank CenterCredit JSC maintains a wide correspondent network that includes leading banks of far abroad countries, the CIS countries and Kazakhstan, which allows for efficient routing of payments and transfers in various currencies. As of the end of 2019, the Bank had over 50 nostro and loro accounts with counterparties in the United States, Europe, Russia, China and other countries.
In accordance with the business strategy, the Bank actively interacts with international development institutions, in particular, with the European Bank for Reconstruction and Development (EBRD).
In June 2019, BCC raised about 8.6-8.7 billion tenge from the EBRD, against the guarantee of Damu Entrepreneurship Development Fund JSC, as part of the second tranche under the Loan Agreement of August 7, 2018 to support micro-small-medium enterprises (MSME-3) and women's entrepreneurship (‘Women in Business’ -2).
The Bank fully repaid the second tranche under the MSME-1 and Women in Business-1 programs in 2019.
BCC became the first in Kazakhstan in 2019 to join the EBRD's global Risk-sharing Facility, which offers unfunded risk-participation of an international development institution in projects of Bank clients.
In December 2019, the Bank signed the next Agreement with the EBRD under the MSME-4 and Women in Business-3 program, without any guarantees from the state, for a total of $ 40 million (in tenge equivalent) to be drawn during the next three years.
Given the excess liquidity, the Bank not only raised borrowed funds in 2019, but also took part in syndicated loans arranged for financial institutions of the near abroad.
35
REVIEW OF RESULTS
Content Glossary
STOCK AND INTERBANK MARKET TRANSACTIONS05
STOCK AND INTERBANK MARKET TRANSACTIONS
STOCK AND INTERBANK MARKET TRANSACTIONS
In 2019, the Bank issued bonds totaling $100 million with a maturity of 2 years at the Astana International Financial Center.
During 2019, the Bank placed previously registered bond issues for a total of 29.7 billion tenge and a new issue for a total of 13.1 million US dollars.
According to the prospectuses, the Bank made a planned redemption of bonds in the amount of 33.4 billion tenge in 2019. The redemption was made at the nominal value of bonds in circulation; the payment of the last coupon interest was made at the same time.
The Bank is the primary dealer for the purchase of short-term notes of the National Bank of the Republic of Kazakhstan and treasury bonds of the Ministry of Finance of the Republic of Kazakhstan; it provides the brokerage services related to the purchase and sale of government securities on Kazakhstan Stock Exchange JSC.
At the end of 2019, the Bank is one of the active participants in the repo transactions market. The Bank concludes transactions in the domestic and foreign markets with government and corporate securities.
million US dollars
100
29,7billion tenge
CUSTODY, MILLION TENGE
Clients 2017 2018 2019
Investment funds
Legal entities
Overall
578 876
228 533
807 409
32 504
215 078
247 582
10 222
263 224
273 466
13,1
33,4
36
REVIEW OF RESULTS
million US dollars
billion tenge
Content Glossary
06 DEVELOPMENT OF TECHNOLOGY
THREE MAIN VECTORS OF IT DEVELOPMENT 2018-2020
DIGITAL CHANNELS
DIGITAL PRODUCTS AND PROCESSES
ANALYTICS AND REPORTING
BANKAS A
SERVICE
37 Content Glossary
DEVELOPMENT OF TECHNOLOGY 06IT STRATEGY FOR 2018-2020
DIGITAL WAYIS NOT JUST AN IMPLEMENTATION OF TECHNOLOGY ADOPTION, BUT RATHER A TRANSFORMATION OF BUSINESS
IT STRATEGY FOR 2018-2020
PRODUCT AND PROCESS DIGITALIZATION CONCEPT
To reduce the risks associated with transformation we should consider the phases of evolutionary changes of companies as consistent with organizational readiness and ability to change.
Digital transformation is not a sprint. It is a marathon!
Vision
STRATEGY
Strategy Leadership
Organizational structure
ORGANIZATIONAL STRUCTURE AND MANAGEMENT
Management modeland reporting
ЛидерствоCulture and managementof changes
Borrowing
CLIENTS’ EXPERIENCE
Strategy Multichannel system Consumer needs
TRANSACTIONS
Provision of resourcesInnovative products
and services Automation
and robototechnics
Data (Single client View and MDM
DATA AND ANALYTICS
Interaction ЛидерствоSegmentation and analysis
Integration
Technology and architectural plan
TECHNOLOGIES
Platform and infrastructure
Work place technologies
The customer chooses the method of interaction with the bank. There is no need to come to the bank office. The distance no longer matters.
Decompiling of business processes and services for basic actions: identifying the vulnerabilities in digitalization process.
03 ‘Bank as a Service’ - review of business processes aimed at minimizing the participation of staff in the process; eliminating redundant and duplicate processes.
‘Zero fields in the questionnaire’ – a principle of obtaining customer information from reliable open databases.
‘Remote identification’ - implementation of alternative identification methods (Customer. Bank)
‘Digital Kazakhstan; - active participation in implementation and discussion of governmental program.
‘Create your own product’ – unifying of products/services. Products and services constructor.
‘Smart tariffs’ – simple and flexible tariffs. Tariffs that are transparent for a customer.
‘Single contract’ – Review/optimization of contracts; alignment with the full service contract.
‘Paperless’ – Digitalization of customer relations (internal/external)
THE 10 STEP APPROACH TO DIGITAL
01
02
03
04
05
06
07
08
09
10
38 Content Glossary
OVERVIEW OF CORE BANKING BUSINESS PROJECTS OVER 2019 (LOANS)06
OVERVIEW OF CORE BANKING SETTLEMENT AND CASH SERVICES PROJECTS OVER 2019
DEVELOPMENT OF NEW PRODUCTS AND SERVICES
Account for Astana-Plat and QIWI for online replenishment of funds by the Company agents;
Escrow accounts for individuals;
Reconciliation account for VAT;Current account for alimony / Account for crediting investment payments;
Rakhmet / Rakhmet + / Accumulative plus for Credit partnerships;Cumulative plus for placing money on a daily basis by individuals /individual entrepreneurs / subsoil user deposits;API online conversion service for AIFC AIX “FX for AIX” / client Forward (conclusion of currency purchase/sale contracts for the term required) / Automatic setting of rates for exchange offices in the northern regions (North group) taking into account the regional approach.
Special current account for housing payments;
Current account for government programs;
CLIENTS AND CRM
Rejection of PINPAD;Automatic detection and closure of idle client cards
Online booking and opening of account for legal entities/self-employed entrepreneurs through the Starbusiness application
Development of technical overdrafts in CRM;client feedback via Starbanking, email, CallCenter, IBS, SPF as part of the SAS project;
New “Card-reader BCC” banking application (rejection of third-party software);Transfer of authentication process to OTP;
INTEGRATION AUTOMATION
Application of a QR code in indorsement upon client cash collection collecting of clients for the automatic creation and posting of documents in ABIS ”(a joint project with Kazinkas JSC);Automation of provisions accrual according to IFRS 9 of the foreign exchange market transactions. Functionality and a new type of transactions for sending bank notes accepted for collection to another bank;Integration with KASE through the FIX protocol, rejection of the "Exchange module" (intermediary "Etrade") / Integration with AST + MOEX trading platform. Automatic integration of stock market transactions between COLVIR and KASE ABSs via the FIX 5.0 international protocol / Downloading Bloomberg market quotes for revaluation of currency securities
Cash withdrawal request, automatic calculation of amounts for SPF support taking into account orders / Application of QR code in BCC payments;
Implementation of the functionality for payment order (PO) execution in terms of payment restrictions (Duly fulfillment of the requirements of Article 36 of the Law "On Banks and Banking Activities");
EKK / Unsecured lending to self-employed entrepreneurs using automatic decision-making without underwriting / Issuance of unsecured tender securities for turnover through Cash and Settlement Units/ Tender and payment guarantees against a limit through IBS
Products with a new, lightweight front, aimed at the ability to issue loans remotely, directly from points of sale (Commodity loan and Car loans).
Unsecured loans under Payroll scheme / implementation of OpenAPI (Cred Broker, Sulpak, etc.)
IT / IB risk management system - IT risk accounting and processing system
39
DEVELOPMENT OF TECHNOLOGY
Content Glossary
OVERVIEW OF DATA ENGINEERING BUSINESS PROJECTS OVER 2019 (SCDS)06
Automation of the processing of the application for cash collection orders and payment orders
Automation of the admi-nistrative and economic acti-vities (Agreement, billing documents + Household Expenditures Budget)
Calculation of Retail and Corporate block staff incen-tives
Performance audit Elma ITMC/CR
Automation of client applications handling process
BPM
Remittance to Amazon through western Union
Antifraud/ОСМС/ Shifting the front office and IT group to a new organizational
structure
Automation of the taxation procedure and collection of court-awarded amounts from
the income of individuals under GPC agreements
Automation of year-end closing
OVERVIEW OF CORE BANKING BUSINESS PROJECTS OVER 2019(BPM, BACK OFFICE)
Developmenttowards BigData
DATA ENGINEERING
01 02
03
0405
06
Audit the current data landscape
Building data marts for the AML project
Development of analytical solutions
Delta M – ensuring daily download for
Soft Collection
Provision of data as requested by AQR
40
DEVELOPMENT OF TECHNOLOGY
Content Glossary
OVERVIEW OF IT ARCHITECTURE PROJECTS OVER 2019 (ARCHITECTURE, INTEGRATION)
FrootSIOPSO/INAPP-Provi-sioning
Pilot: PaaS platform Open-shift Origin(OKD)
Integration with SMIF /DAMUZolotaya korona/
KazAvtoZhol/HEB/KaspiBankBCC Invest/GBDYUL/Kartel/
Chat bot services/ creation of HD/ELMA applications for contracts/ internet acquiring/ incoming SMS processing
OPENAPI SERVICES
Getting a list of client accounts;
Obtaining account information (balance, status, etc.);
Receiving an account statement;
Receiving the data on payments or payments using filter;
Transfer in tenge;
Transfer in currency;
Currency conversion.
Acceptance of payment to bank accounts through agent terminals;
Accepting payment in favor of QES service providers;
Obtaining detailed information on registries of payments made for service providers.
Creating a client;
Scoring request;
Providing data on a loan;
Loan approval.
Currency rates;
Location of ATM and Self-service terminals;
Information on tender guarantees;
Location of branches.
PAYMENT API
CREDIT API
INFORMATION API
06
CARDS
STARBANKING
STARBUSINESS
#kartakarta/Virtual card
ApplePay In-app
P2P on the bank site/transition to Oracle12 in Way4
PIN setting via Starbanking and SMS
UI/UX StarBanking
Payment of SAP/ОПВ/ДПВ
Integration with BCC Invest/RPS Paynet
Early repayment of loan/ApplePay In-App provisioning
Online guarantee issue/Debit cards
Е-com
On-line: deposit via IBS / StarBusiness/logging in/opening of account for new clients
Automatic assignment of EECs and attachment of contracts through IBS
БИЗНЕС-ПРОЕКТЫCORE BANKING
e-com
FINANCIALAPI
41
DEVELOPMENT OF TECHNOLOGY OVERVIEW OF DIGITAL CHANNELS PROJECTS OVER 2019 (REMOTE SERVICE, CARDS)
Content Glossary
PRIMARY TARGETS FOR 202006
CONVERSION UNDER OPEN API
Unique visits to the portal start page (from 01/01/2019 to 01/01/2020), user
Visiting the "Registration" page on the portal, user
Registered on the portal (organization)
Subscription to API services (test)
In the testing process:
Connected to a Production Environment
Making live transactions
24 586
2 711 (or 10,0% of visits)
268 (or 9,9% of visits)
36 (13,4% of registered)
30 (11,2% of registered)
24 (8,9% of registered)
13 (4,8% of registered)
NUMBER OF TRANSACTIONS FROM MARCH 2019 TO DECEMBER 2019
NUMBER OF TRANSACTIONS BY SERVICES OVER 2019
18 525
Mar.
50 000
Apr. May June July Aug. Sep. Oct. Nov. Dec.
100 000
150 000
200 000
022 554 1 472 2 245 3 087 3 853 4 312
170 497 169 514
Penalty for late transfer of compulsory payments
Contributions to compulsory health insurance
Social contributions
Compulsory pension contributions
Administrative fine payment
Payment of taxes, state duties and fees
Administrative fine payment
Replenishment of current account tied to loan
1
3
4
5
8 476
0 50 тыс.
100тыс.
320 337
150тыс.
200тыс.
250тыс.
10 476
34 761300тыс.
350тыс.
ATM Multi-VendorMPS MIR (acquiring)
Junior bank"Unauthorized zone"Universal Information
Gateway
QR Payments, Deposit My Goal,
Green Front
PS2.0, Oracle 18, Swift GPI,
CEA, FTsP, SEO
Centralization of LD, Automation of Board meetings,
BHR, Profitability Calculator
Kartakarta, Car loans, Remote lending,
Collateral lending
Loyalty system refactoring
Building the dashboards on all motivation programs for the employees
of the Branch Structural Unit
FSA mart implementation
Implementation of BigData on GreenPlum Technology
Implementation of Self Service Analytics
MicroservicesJira confluence
DATA ON PAYMENT API OVER 2019
42
DEVELOPMENT OF TECHNOLOGY API
Content Glossary
OPERATIONAL PROCESSES.INITIATIVES FOR BUSINESS 06
OPERATIONAL PROCESSES.PROCESSES. SECOND LINE OF SUPPORT
2020
+ QR MT102
+ Integration with 1С Open
API
OUTCOME
Process optimizationProcessing speedError minimization
Currency support
Electronic document flow for clients:
IBS, StarBanking
OUTCOME
Client supportRemote service
Minimum requirements
Automation of checks
on a client card
Client Database Improvement
ACCOUNT ADMINISTRATION
Audit of deposits
Client Card Support in ABIS
CURRENCY CONTROL
Completion of centralization
New legislation of the Republic of Kazakhstan
(56 adjustments)
QR PAYMENT
ААBBY Paper 100%
Re-verification 50%
QR МТ100269 PAYMENTS 100%
verification
2019
Strengthening of KFGD,
QGD controls Tariffs in ABIS:
closing idle ones; canceling erroneous postings
20202019
Export of documents from the Bank
Ease of use with electronic document flow
Audit trail at all stages
Save time and money
100% order in paper / electronic documents
Storage of OSG Records
IT Group Module
STARTInventory and Digitization
Completion of inventory
and digitalization
Decision of project launch
Creation of work places in a new
module
ICM
Implementation of the new SWIFT GPI system (online tracking client payments of in foreign currency).
Provision of a new service to clients
Stabilization of ICM functioning (launch at the end of 2018, except the structural subdivision of Almaty branch);
Unloading of SST by the cashiers of the structural subdivision of branch;
The fleet of cash register equipment was renewed by 9%, 282 units were purchased for a total of 99 million tenge;
Pilot launch of QR coding of client bags with revenue collected to automate the process of crediting to client accounts.
Launch of ICM in Almaty City Branch;
Automating the display of cash movement from the structural subdivision of branch -ATM-Recount office in the system;
Development and launch of a training course for cashiers working at cash offices and recount offices;
Renewal of cash register equipment fleet by 10%
Reducing the ATM downtime
Revenues from placement (153 million tenge as of 01.01.2020 )
Decrease in balances (2019) by 1.5 billion tenge
GPI
Opportunity analysis
43
DEVELOPMENT OF TECHNOLOGY
OUTCOME
Content Glossary
HIGH PERFORMING TEAM
07 PERSONNEL POLICY
Personnel Policy is based on the principles of mutual respect, confidence and orientation on long-term cooperation. Any discrimination is forbidden in the Bank. Each employee of the Bank has equal opportunities for achievement irrespective of race, nationality, origin, property status, gender, and religious beliefs, as well as other circumstances not related to business qualities of an employee.
EMPLOYMENT
Headcount
Bank
Head Office
Branches
2015
3 911
891
3 020
Increase, staff member
Increase, %
2016
3 679
891
2 788
-232
0
-232
-6%
0%
-8%
2017
3 753
1 024
2 729
74
133
-59
2%
15%
-2%
2018
3 866
1 141
2 725
113
117
-4
3%
11%
0%
2019
4 157
1 455
2 702
291
314
-23
8%
28%
-1%
Staff turnover in 2019 amounted to 34.0% for the Bank as a whole. A total of 1,368 people were laid off for the following reasons (extract from the order).
STAFF TURNOVER
Reasons for leaving
Resignation
кол-во доля
Retirement
Relocation
Expiry of individual employment agreement
Low salary and incentives
Not comfortable with working hours
Absence of career growth
According to the administration decision
Owing to the death
Negotiated resignation
Other reasons
TOTAL
90,2%
0,9%
1,0%
0,4%
0,4%
0,1%
0,1%
0,1%
0,1%
6,0%
0,8%
100,0%
1 234
12
14
6
5
1
1
1
1
82
11
1 368
44
Bank
Head Office
Branches
Bank
Head Office
Branches
Content Glossary
07DIVERSITY AND EQUAL OPPORTUNITY
HIGH PERFORMING TEAM
GEOGRAPHICAL REGION AND PERCENTAGE OF EMPLOYMENT
RegionAmount
Employed in 2019Headcount
Share
34,6%
53,3%
66,3%
29,8%
28,5%
33,3%
30,0%
44,8%
45,7%
31,4%
37,3%
26,9%
52,7%
57,6%
49,3%
50,6%
43,9%
23,6%
66,4%
20,0%
40,6%
Almaty (Head Office)
Almaty (Almaty city branch)
Aktau
Aktobe
Nur-Sultan
Atyrau
Zhezkazgan
Karaganda
Kokshetau
Kostanai
Kyzylorda
Pavlodar
Petropavlovsk
Semei
Taldykorgan
Taraz
Uralsk
Ust-Kamenogorsk
Shymkent
Turkestan
TOTAL BANK
1 455 504
610 325
104 69
114 34
253 72
108 36
70 21
154 69
81 37
121 38
110 41
108 29
74 39
92 53
150 74
89 45
139 61
161 38
149 99
15 3
4 157 1 687
DIVERSITY AND EQUAL OPPORTUNITY
GENDER
MALE
1 399
33,7% 66,3%
FEMALE
2 758
100%
TOTAL
4 157
AGE GROUPS
AMOUNT
1 592
38,3% 53%
2 202 363
BELOW
30 FROM 30 TO 50
AMOUNT AMOUNT
OVER
508,7%
YEARS OF SERVICE AT BANK
Amount Share Years of service at Bank
up to 1 month
1 - 6 months
6- 12 months
1-3 years
3-5 years
over 5 years
130 3,1%
613 14,7%
569 13,7%
856 20,6%
306 7,4%
1 683 40,5%
TOTAL 4 157 100,0%
During 2019, the ratio of Front and Back office staff increased in favor of the Front Office:
Front office staff increased:
31.12.2018 г. Growth
Front Office
Back Office
48,00% 49,60% 1,60%
52,00% 50,40% -1,60%
Amount
Staff in outlets 31.12.2018
Staff in outlets 31.12.2019
Growth in 2019
in new outlets
number of new outlets
1 115
1 465
350
78
13
45
31.12.2019 г.
Content Glossary
07DIVERSITY AND EQUAL OPPORTUNITY
TRAINING AND DEVELOPMENT
The Bank employee benefits are comprised of medical insurance, includingimpatient care, outpatient care and dentistry. The bank also supports the employees in difficult straits.
Medical insurance
Payment for car rental
Payment for cellular rental
Financial aid in the following cases:
Marriage
Birth of children
50 year anniversary Retirement Death
EMPLOYEE BENEFITS
There were no cases of discrimination against employees, accidents and injuries received by the Bank's employees in the reporting year.
An average of 715 employees or 15.1% of the payroll number of employees were on maternity leave (maternity and childcare leave) in 2019. Of these, 2 were men, the rest were women.
The Bank does not have any activities that are potentially associated with high injuries or a high risk of incidence of certain diseases.
The system of continuous training is an important factor in terms of effectiveness of staff that directly affects their professional growth, loyalty to the Bank and career development. The Bank's training system covers both specialists and managers. 766 employees underwent internal training at the training center in the following spheres: customer-oriented service, quality of service standards, sales techniques, conflict management, etc. 452 specialists received specialized training and certification on the basis of external training centers of Kazakhstan and neighboring countries. In addition to full-time training for employees, interactive distance learning courses have been developed. They are available for everyone on the Bank's training portal. On average, each employee had online trainings 5 times a year.
STAFF DEVELOPMENT PLAN
In the future, the main priority in staff relations will be to build a systematic approach (to overcome threats and maximize opportunities): the logical interconnection of all processes based on a system of internal and external communications, the development of a value proposition (EVP) in order to create an individual image of the employer and attract the target audience of candidates, enhancing the strengths of the employer.
It is planned to implement a personnel policy taking into account the following priorities and on the basis of three main levels:
STRATEGIC LEVEL TACTICAL LEVEL PROCESS LEVEL
Increasing the cost of human resources through the development of talents and the retention of valuable employees
Performance improvement through performance management and evaluation;
Improving the quality of basic services to internal customers through the improvement of business processes;
TRAINING AND DEVELOPMENT
1 2 3
The Bank performs continuous activity on retention, development and promotion of highly efficient employees. Succession program of structural unit
Labour compensation in the Bank is aimed at employees’ motivation to a high efficiency and drive for results. It is based on a fixed part of remuneration that depends on employee qualification and variable part of remuneration related to employee’s personal achievements.
Region
REMUNERATION (SALARY)THOUSAND TENGE
Remuneration (salary) per employee
Almaty (Head Office) 365,2 428,1 312,3
Almaty (Almaty city branch) 193,0 230,1 185,5
Aktau 188,6 215,6 166,3
Aktobe 170,6 167,0 171,6
Nur-Sultan 207,2 220,5 202,1
Atyrau 179,5 235,0 163,6
Zhezkazgan 165,1 151,8 170,8
Karaganda 174,6 172,0 175,7
Kokshetau 158,9 170,4 153,8
Kostanai 182,4 200,1 173,7
Kyzylorda 149,1 167,1 138,0
Pavlodar 174,3 193,1 163,7
Petropavlovsk 152,3 165,8 146,2
Semei 155,6 144,6 160,5
Taldykorgan 161,3 175,4 156,1
Taraz 146,2 155,5 141,9
Uralsk 169,9 199,1 161,9
Ust-Kamenogorsk 170,1 181,3 166,6
Shymkent 153,4 157,9 150,3
Turkestan 133,7 121,0 140,0
TOTAL BANK 242,3 302,9 211,5
Male Female
In February 2019, 3,616 people were assessed against the results they showed in 2018, of which 2,446 were women and 1,170 were men. 1,045 employees of the total number of assessed staff received a salary bonus according to the results of the assessment.
and branch senior office managers has been implemented. According to the results of the year, the Bank evaluates the performance of all employees.
46
HIGH PERFORMING TEAM
Content Glossary
CORPORATE GOVERNANCE08
Corporate governance in Bank CenterCredit JSC is performed under Corporate Governance Code, approved by the meeting of shareholders (Minutes dd. May 26, 2006, para No. 5.1.) as amended by the meetings of shareholders (Minutes dd. April 30, 2009, para No. 6.1., Minutes dd. April 26, 2013, para No. 5.1, Minutes dd. April 24, 2015, para No. 4.1., Minutes dd. April 27, 2018, para No. 4).
Corporate Governance in Bank CenterCredit JSC is based on the following principles:
Respecting the rights and legal interests of shareholders and employees of the Bank which promotes efficient Bank activity, including: increase in value of the assets, support of financial standing and profitability, and creation of new workplaces;
The basis of efficient activity and investment attractiveness of the Bank is in transparency of activities performed by all participants of corporate governance. Corporate governance principles are aimed at creation of trust in relations occurring in the process of Bank management;
Provision of the shareholders with a real possibility to exercise their rights related to corporate affiliation;
Equal attitude to shareholders who own the same types of shares. All shareholders have an opportunity to receive efficient protection in case of their rights violation;
Performing strategic governance by the Board of Directors and efficient control over the Management Board activity, as well as accountability of the members of the Board of Directors to its shareholders;
Provision by the Bank’s authorities (Management Board) of the possibility to perform reasonably, in a good faith and exclusively in the interests of the Bank to perform efficient management of the Bank’s daily operations and subordination of the executive authorities (Management Board) to the Board of Directors of the Bank and its shareholders;
Timely disclosure of a complete and reliable information about the Bank, including its financial standing, economic indicators, ownership structure and management aiming at ensuring reasonable decision making by the Bank’s shareholders and investors;
Envisaging the lawful rights of the parties concerned, including the Bank’s employees and intensification of active cooperation between the Bank and the parties concerned with a view to increase the Bank’s assets, the cost of shares and other securities of the Bank, and creation of new workplaces;
Efficient control over financial and economic activity of the Bank with the purpose to protect the rights and lawful interests of shareholders;
Necessity in environmental protection while performing banking activities.
These principles are formulated taking into account the Law of the Republic of Kazakhstan On Joint Stock Companies, Corporate Governance Principles of Organization for Economic Cooperation and Development (OECD), and international practice in the field of corporate governance..
1
2
3
4
5
6
7
8
9
10
11
CORPORATE GOVERNANCE AND CORPORATE EVENTS
47 Content Glossary
CORPORATE EVENTS 08CORPORATE GOVERNANCE
SHAREHOLDERS’ MEETING
The extraordinary general meeting of the shareholders was held on January 4, 2019 with the following agenda :
CORPORATE EVENTS
On increasing the size and introducing amendments to the procedure for calculating dividends paid on preferred shares convertible into ordinary shares of Bank CenterCredit JSC.On changing the procedure for exchanging preferred shares for ordinary shares of Bank CenterCredit JSC.On approval of amendments to the Charter of Bank CenterCredit JSC.On approval of the Counting Board members
Approval of the agenda of the extraordinary general meeting of shareholders of Bank CenterCredit JSC.
The following resolutions were adopted:
To approve amendments to the Charter of Bank CenterCredit JSC:
To approve the agenda of the extraordinary general meeting of shareholders of Bank CenterCredit Joint-Stock Company.To approve an increase in the size and introduction of amendments to the procedure for calculating dividends paid on preferred shares convertible into ordinary shares of Bank CenterCredit JSC.To approve the change in the procedure for exchanging preferred shares for ordinary shares of Bank CenterCredit JSC.
Where R - the guaranteed amount of dividend per preferred share convertible into ordinary share is calculated in tenge.
At the same time, the guaranteed amount of dividends per preferred share is set at a level not lower than 12% and not more than 14% per annum».
b - base rate of the National Bank of the Republic of Kazakhstan. The base rate of the National Bank of the Republic of Kazakhstan is defined on the first day of the year following the year in which dividends on preferred shares are paid.
R = (b+3.5%)×300,
Para 3.12 of Chapter III of the Charter shall be amended to read as follows: «3.12. The guaranteed dividend per preferred share convertible into ordinary share is calculated as follows:
1)
Para 3.16 of Chapter III of the Charter shall be amended to read as follows: «The prospectus for the issue of shares of the Bank provides for the right of the Bank's Management Board not to accrue dividends on preferred shares in the event that the accrual of dividends leads to a decrease in prudential ratios below the values established by the regulatory legal act of the authorized body. Moreover, such a cancellation of dividend payment is not a case of default and does not lead to restrictions on the Bank’s activities».
2)
Para 3.14. of Chapter III of the Charter shall be appended to as follows:«The issue of exchanging preferred shares for ordinary shares of the Bank is mandatory for consideration by the general meeting of shareholders of the Bank in the event of one of the following cases:
3)
one-time complete change in the structure of major shareholders of the Bank;non-payment of dividends on preferred shares within two years.
To approve the following members of the Counting Board:
• Members of the Counting Commission:
Bykov Alexey Nikolaevich - an employee of Bank CenterCredit JSC;Timchenko Margarita Valeryanovna - employee of JSC "BCC Invest" - a subsidiary of Bank CenterCredit JSC;Sauketaev Salauat Turuspekovich - an employee of Bank CenterCredit JSC.
Idayatova Dilnara Nurkashevna - employee of Bank CenterCredit JSC;
The annual general meeting of shareholders was held on April 26, 2019 with the following agenda:
On approval of the audit organization to perform audit of financial statements of Bank CenterCredit JSC and its subsidiaries in 2019.
Approval of the net income distribution procedure of Bank CenterCredit JSC for the year 2018.
Report of “Bank CenterCredit” JSC Management Board on results of activity for the year 2018Approval of the consolidated and individual annual financial statements of Bank CenterCredit JSC for the year 2018.
On approval of amendments to the Charter of Bank CenterCredit JSC and the Corporate Governance Code of Bank CenterCredit JSC.
On the election of a member of the Board of Directors.
The following resolutions were adopted:
Leave the net income for the year 2018 in the amount of 9,623 billion (nine billion six hundred twenty three million tenge) in the reserve capital of the Bank.
To approve Bank CenterCredit Management Board Performance Statement for the year 2018.
To approve amendments to the Charter of Bank CenterCredit and Corporate Governance Code of Bank CenterCredit
To elect Saidenov Anvar Galimullayevich as the Independent Director to the Board of Directors of Bank CenterCredit JSC with the term of office up to the date of the annual general meeting of shareholders in 2022 inclusive.
To approve KPMG auditing company to perform audit of financial statements of Bank CenterCredit JSC and its subsidiaries in 2019.
Not to pay the dividends on ordinary shares of Bank CenterCredit for the financial year 2018;.
To approve consolidated and individual annual financial statements of Bank CenterCredit JSC for the year 2018, confirmed by the International KPMG Auditing Company;
BOARD OF DIRECTORS
The decision on the exchange of preferred shares for ordinary shares of the Bank, the terms, conditions and procedure for such an exchange is made by the general meeting of shareholders of the Bank in the manner established at the time of the decision by the current legislation of the Republic of Kazakhstan».
Mr. Maszczyk Roman Aleksander was elected a member of the Management Board by resolution of the Board of Directors No.3-0726-01 of July 26, 2019, with a term of office up to the date of the annual general meeting of shareholders to be held in 2022.
The Board of Directors made 251 resolutions by absentee voting during the reporting period.
On April 26, 2019, Mr. Saidenov Anvar Galimullaevich was elected to the Board of Directors as an independent director with a term of office up to the date of the annual general meeting of shareholders in 2022 inclusively.
The Board of Directors held 5 official meetings at which the following issues were considered: preliminary approval of the consolidated and individual annual statements for 2018, a decision to convene an annual general meeting of shareholders, amendments to the Charter of Bank CenterCredit JSC and the Corporate Governance Code Bank CenterCredit JSC, Risk Management Concept for 2019 -2020, Development Strategy of BCC-Invest JSC for 2020 - 2025, the Bank's draft budget for 2020 and others.
The Board of Directors was notified of the early termination of powers of Mr. Ushbaev Anuar Daniyarovich, a member of the Board of Directors, from April 25, 2019.
Chairman of the Counting Board - Tumanchinov Zhanat Mukhambekovich - an employee of Bank CenterCredit JSC.
48 Content Glossary
COMPOSITION OF THE BOARD OF DIRECTORS 08
COMPOSITION OF THE BOARD OF DIRECTORS
Full name of the member of the
Board of Directors
Bakhytbek Rymbekovich Bayseitov(born in 1958)
FOR THE PERIOD FROM 01.01.2019 TO 31.12.2019 YR.
Title
Date of election/re-election to thecomposition of
the Boardof Directors
Date of resignation
from theBoard
of Directors
Positions held during three years
Chairman of the Board of Directors
May 19, 2017 yr.
1997 – until presentChairman of the Board of Directors of Bank CenterCredit JSC1996 – until presentPresident of Banking Association of Kazakhstan2003 –until presentChairman of the Board of Directors of BCC Invest JSC2013 – until presentPresident of Financial and Banking Association of Eurasian Cooperation (FBA EAC)
Lee Vladislav Sedinovich(born in 1957)
Member of the Board of Directors
May 19, 2017 yr.
1998 – 2017Chairman of the Management Board of Bank CenterCredit JSC2000 – until presentMember of the Board of Directors of Bank CenterCredit JSC04.07. 2016 г. – Independent member of the Board of Directors of “Center for Development of the City of Almaty” JSC;07/31. 2018 - Independent member of the Board of Directors of KBTU JSC.
Galim Abilzhanovich Khusainov(born in 1982)
Member of the Board of Directors
April 27, 2018 yr.
2015-2017 President of JSC AIFRI Green InvestMay 2017 Managing Director, Member of the Management Board of Bank CenterCredit JSCSeptember 2017-until presentChairman of the Management Board of Bank CenterCreditApril 2018 – until presentMember of the Board of Directors of Bank CenterCredit JSC
Amankulov DzumageldiRakhishevich(born in 1956)
Member of the Board of Directors
May 19, 2017 yr.
2005-2017 Member of the Board of Directors of BBC Invest JSC2011 – until presentMember of the Board of Directors of Bank CenterCredit JSC
Claes Werner Frans Josef (1964 г.р.)
Member of the Board of Directors – Independent
Director
May 19, 2017 yr.
2008-until present President of Global Financial Consulting2009-until present Senior Consultant of International Financial Consulting Ltd2010-2018 Member of the Board of Directors of United International Bank2011-until presentMember of the Board of Directors, Independent Director of Bank CenterCredit JSC2016-until present Member of the Board of Directors of JSCB Hamkorbank2017 – until present Member of the Board of Directors of Bank Uralsib PJSC.
FOR THE PERIOD FROM 01.01.2019 TO 31.12.2019 YR.
Ushbaev Anuar Daniyarovich(born in 1988)
Member of the Board of
Directors – Independent
Director
April 27, 2018 yr.
Saidenov anvar Galimullaevich(born in 1960)
Member of the Board of
Directors – Independent
Director
April 26, 2019 yr.
December 2012 - November 2018 Member of the Board of Directors, Independent Director of Bank RBK JSC;April 2016 - April 2019Member of the Board of Directors, Independent Director of Halyk Bank of Kazakhstan JSC;February 2018 – until presentMember of the Board of Directors, Independent Director of SB Home Bank Credit JSC;October 2018 – until present Member of the Board of Directors,Independent Director of Development Bank of Kazakhstan JSC;April 2019 – until present Member of the Board of Directors, independent director. Bank CenterCredit JSC.
April 25, 2019 yr.
49
CORPORATE GOVERNANCE
Full name of the member of the
Board of DirectorsTitle
Date of election/re-election to thecomposition of
the Boardof Directors
Date of resignation
from theBoard
of Directors
Positions held during three years
Content Glossary
BOARD OF DIRECTORS08
COMMITTEES AT THE BOARD OF DIRECTORS
The Board of Directors has the following Committees:
BOARD OF DIRECTORS
Strategic Planning Committee
Audit Committee
Committee for Appointments and Social Issues
Finance and Risk Management Committee Loan Committee
Audit Committee
The Audit Committee is an authorized collegial body of the Board of Directors. The Committee was created for the purpose of preliminary comprehensive study of issues within its competence and preparation of recommendations facilitating the Board of Directors in adopting sound and informed decisions.
Members of the Committee:
Werner Claes – Chairman of the Committee, Member of the Board ofDirectors, Independent Director;
Lee V.S. – Member of the Board of Directors.A.G. Saideno – Member of the Board of Directors, Independent Director;
The Audit Committee held 4 official meetings in 2019; 11 issues, were considered, of which:
4 issues related to the current activity of Internal Audit Service (changes in internal regulations of the Internal Audit Service, participation in AQR etc.).
1 issue related to the yearly internal audit plan;
5 issues were related to the management reporting of the Internal Audit Service (quarterly, annual) including the results and recommendations of the audit on the effectiveness of the functioning of internal control and risk management systems;
1 issue related to the information on the activity of structural subdivisions of the Bank and following the recommendations of the Audit Committee;
Finance and Risk Management Committee at the Board of Directors
Members of the Committee:
Lee V.S. – Chairman of the Committee, Member of the Board of Directors;
Maszczyk R.А. - Member of the Management Board.Vladimirov R.V. - Member of the Management Board;Ishmuratov T.Zh. - Member of the Management Board;Asylbek E.A. – Member of the Management Board;
Amankulov D.R. – Member of the Board of Directors;Khusainov G.A. – Member of the Board of Directors;
Finance and Risk Management Committee held 12 regular and 16 extraordinary meetings, adopted around 200 resolutions in 2019.
During a year the Committee considered and took actual and timely decisions on the important issues of the Bank’s activity, that is:
Liquidity, financial and currency risks management;
Analysis of financial risks, competitive environment, and banking sector of the Republic of Kazakhstan.
Assets and liabilities structure, and capital management;
Interest-rate policy and pricing management;Rates of remuneration on loan and deposit products;Fulfillment of prudential and other regulatory standards and internal limits;
Efficiency of decisions made ensured the growth of financial and business indicators:
profitability and capital adequacy ratios increased (ROE increased from 7.8% to 9.6%);net interest margin increased by 1.1% from 3.0% to 4.1%;
banking products became more attractive for customers etc.asset diversification and business sustainability improved;
Credit Committee
Members of the Committee:
The Committee is comprised of eight (8) members of the Board of Directors and experts owning the expertise required:
The Resolution of the Board of Directors No. 3-0122-02 of January 22, 2019 approved the Regulation on the Credit Committee of the Board of Directors. Changes to the Regulation on the Credit Committee of the Board of Directors were approved by Resolution of the Board of Directors No. 3-0725-01 of 07.25.2019.
Changes affected the Committee composition: to provide the Committee quorum requirement and strengthening the responsibility of sales departments the Managing Director, Head of the Security Department was included into the list of obligatory members of the Committee.
The list of mandatory documents to consider the issue on lending to perform the analysis of solvency and creditworthiness from the employees of regional Credit Analysis Centers has been updated.
Over the year 2019 the Credit Committee considered 288issues, where the applications for new financing make 68:
68 applications from legal entities.
68 applications of legal entities were approved, i.e. the Committee reviewed 100% of the total amount of applications of the legal entities for financing.
Apart from the applications for financing, issues on changing the terms of financing for existing borrowers of the Bank aimed at ensuring a stable loan servicing process were regularly reviewed.
COMMITTEES AT THE BOARD OF DIRECTORS
Deputy Chairman of the Management Board, Member of the Management Board supervising the Lending and Risk Management Group – R. B. Tenizov Deputy Chairman of the Management Board, Member of the Management Board supervising the Business Group – T. Zh. IshmuratovManaging Director supervising the Corporate Business Group/ Head of Corporate Finance Department – V. V. LeeManaging Director supervising the Loan Management Group (in terms of clients in the Loan Management Group portfolio (hereinafter referred to as LMG) and и Distressed Asset Management Organization (hereinafter referred to as OYCA) – T. M. Umarov Head of the Legal Department – Ye. M. Muratov
Member of the Board of Directors – Deputy Chairman of the Committee – V. S. Lee.Member of the Board of Directors, Chairman of the Committee – D. R. Amankulov.
Head of Security Department – A.D. Shmakov
50
CORPORATE GOVERNANCE
Content Glossary
08
COMMITTEES AT THE BOARD OF DIRECTORS
BOARD OF DIRECTORS
Committee for Strategic Planning and its composition have been approved by the Minutes of the meeting of the Board of Directors dd. May 18, 2018. The current Chairman of the Committee for Strategic Planning was approved by Resolution of the Board of Directors No. 3-0513-03 of 13.05.2019. Tasks, functions and procedure for holding the meetings and taking the decisions by the Committee are indicated in the Regulation on the Committee for Strategic Planning at the Board of Directors, approved by the Resolution of the Board of Directors No. 167 dd. 29.06.2018.
Committee for Strategic Planning at the Board of Directors of Bank CenterCredit JSC
Members of the Committee:
A.G. Saidenov – Chairman of the Committee, Independent Director, Member of the Board of Directors;Bayseitov B.R. – member of the Committee, Chairman of the Board of Directors;Khusainov G.A. – member of the Committee, Chairman of the Management Board, member of the Board of Directors.
During the reporting year the Committee held two meetings and considered the following issues: Staff management strategy of Bank CenterCredit JSC for 2020-2022, consideration and recommendation of a candidate for the position of a member of the Bank's Management Board.
MANAGEMENT BOARD
COMPOSITION OF THE MANAGEMENT BOARD FOR THE PERIOD FROM 01.01.2019 TO 31.12.2019
Back Office of the Committee for Strategic Planning – Strategy and Analysis Department that is an independent structural unit of the Bank functionally subordinated to the Deputy Chairman of the Management Board, the member of the Management Board.
In 2019, the Committee for Strategic Planning held one meeting and considered the issue on monitoring the implementation of Bank CenterCredit Development.Strategy for the 1 half of 2019. As a result, the Management Board takes measures to develop a new medium-term development strategy for the Bank.
Committee for Appointments and Social Issues
Members of the Committee:
Khusainov G.A. - member of the Committee, member of the Board of Directors.
Werner Claes – Chairman of the Committee, Member of the Board of Directors, Independent Director.
Amankulov D.R. - member of the Committee, member of the Board of Directors.Lee V.S. – member of the Committee, member of the Board of Directors.
MANAGEMENT BOARD
The Management Board of the Bank held 85 official meetings of the Management Board over the reporting year, of which 15 were related to management reporting issues.
The Management Board considered 410 issues related to the core activities of the Bank over 2019, including issues of management reporting, at its official meetings, and 813 decisions of the Management Board were adopted by absentee voting. The Board made decisions on business development issues, procedural issues of banking; approved decisions of committees and commissions etc.
Full name of the member of the
Board of Directors
Galim Abilzhanovich
Khusainov
Date of resignation
from the Board
Positions held during three years
Chairman of the Management Board from September 23, 2017
2015-2017President of AIFRI Green Invest JSCMarch 2017-May 2017Advisor to the Chairman of the Board of Directors of Bank CenterCredit JSCMay 2017Managing Director, member of the Management Board of Bank CenterCredit JSCSeptember 2017 – until presentChairman of the Management Board of Bank CenterCredit JSC
Bubeyeva Zhanna Saparaliyevna
June 25, 2018
Asylbek Erzhan Asylbek Ugly October 18,
2017June 25, 2018
2016 Director of the Credit Risks Directorate2016-2017 Director of Finance and Planning Department2017 – until present Deputy Chairman of the Management Board, member of the Management Board
Date of election to the
Management Board as a Managing Director,
member of the Management
Board
Date of election to the
Management Board as a
Deputy Chairman,
member of the Management
Board
August 8, 2019
Vladimirov Ruslan Vladimirovich
March 1, 2018 June 25, 2018
Director of Almaty City Branch Bank CenterCredit JSC2016-March 2018 Director of Credit Risks Directorate of Bank CenterCredit JSCMarch 2018-June 2018 Managing Director, member of the Management Board of Bank CenterCredit JSCJune 2018 – until present Deputy Chairman of the Management Board, member of the Management Board of Bank CenterCredit JSC
51
CORPORATE GOVERNANCE
Content Glossary
08MANAGEMENT BOARD
SHAREHOLDERS AND CAPITAL. DIVIDEND POLICY
COMPOSITION OF THE MANAGEMENT BOARD FOR THE PERIOD FROM 01.01.2019 TO 31.12.2019
Ishmuratov Timur Zhaksylykovich
October 18, 2017
June 25, 2018
2016 Chairman of the Management Board of Bank CenterCredit JSC2016-2017 Advisor to the Chairman of the Management Board of Bank CenterCredit JSCJuly 2017 – October 2017Managing Director of Bank CenterCredit JSCOctober 2017 – June 2018Managing Director, member of the Management Board of Bank CenterCredit JSCJune 2018 until present Deputy Chairman of the Management Board, member of the Management Board of Bank CenterCredit JSC
Maszczyk Roman July 26, 2019
August 2016 - November 2017Commercial Director, Asseco KazakhstanJanuary 2018 - July 2019 Head of the Risk Department of Bank CenterCredit JSCJuly 2019 – until presentDeputy Chairman of the Management Board, member of the Management Board of Bank CenterCredit JSC
SHAREHOLDERS AND CAPITAL. DIVIDEND POLICY
As at January 1, 2020 the number of distributed ordinary shares made 165 637 911* pc., preferred shares - 39 249 255* pc. (of which 38 953 841* preferred shares were bought out by the bank), authorized capital paid in the amount of 59 019** million tenge.
As a result, as at January 1, 2020 the structure of shareholders possessing at least 5,0% of distributed shares (save from those bought out by the bank) is as follows:
In the first quarter of 2019 Bank CenterCredit JSC publicly placed common and preferred shares among shareholders and other investors. As a result of this placement, the authorized capital was increased by 954,333 million tenge owing to the sale of ordinary shares.
* According to the register of securities holders provided by Central Securities Depository JSC** According to the individual financial statements of Bank CenterCredit JSC
Shareholder Type of
securities Total number
belong to the securities holder to the
number of securities that belong to Issuer
Ratio of a number of securities that
Bakhytbek RymbekovichBayseitov
Distributed, % Voting, %
Ordinary shares
Preferred shares
79 341 075
20 278
47,82 47,93
6,86 -
Lee Vladislav Sedinovich Ordinary shares
Preferred shares
17 206 770
0
10,37 10,40
- -
Amankulov Dzhumageldi Rakkhishevich
Ordinary shares
Preferred shares
9 759 095
0
5,88 5,90
- -
Voting shares percent is calculated under para 8 Art. 1 of the Law of the Republic of Kazakhstan dd. May 13, 2003 No.415-II On Joint Stock Companies
Dividend policy
Dividend Policy is based on the balance of interests of Bank CenterCredit JSC and its shareholders when establishing the sizes of dividend payments, improving investment attractiveness, financial stability, capitalization and liquidity of the Bank, ensuring market return on investment (ROI), respect and strict compliance with the shareholders’ rights and increase in their well-being.
The shareholders’ rights to dividends and dividend payment procedure are established in the Bank Charter approved by the Decree of the Board of Directors.
A guaranteed dividend is set for preferred shares in accordance with the charter of Bank CenterCredit JSC and the prospectus for the issue of shares. It is calculated as the base rate of the National Bank of the Republic of Kazakhstan plus 3.5% per annum with threshold restrictions from 12 to 14% per annum. Based on the foregoing, holders of preferred shares were paid guaranteed remuneration in the amount of 38.25 tenge per share in 2019.
Decision to pay dividends on shares and approval of a dividend`s size following the results of the year per one ordinary share falls within the competence of the Bank CenterCredit JSC General Meeting of Shareholders.
Bank Expenses on Dividend Payment
Name For 2019 For 2018 For 2017 For 2016
Preferred shares, thousand tenge 11 207 3 392 392
Ordinary shares, thousand tenge - - - -
Total 3 392 392
According to the Kazakhstan Stock Exchange JSC, the market value of one ordinary share of Bank CenterCredit JSC (NIN KZ1C36280010) as of December 31, 2019 amounted to 226 tenge.
Income for 2019 per share in accordance with the consolidated financial statements amounted to 12.29 tenge.
The increase in dividends is due to the fact that dividends were paid in the amount of 0.01 tenge per preferred share over the periods until 2019 in accordance with the Charter of Bank CenterCredit JSC and the prospectus for the issue of shares.
11 207
52
CORPORATE GOVERNANCE
Full name of the member of the
Board of Directors
Date of resignation
from the Board
Positions held during three years
Date of election to the
Management Board as a Managing Director,
member of the Management
Board
Date of election to the
Management Board as a
Deputy Chairman,
member of the Management
Board
Content Glossary
OFFICE OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT
OFFICE OF THE SECRETARY
SHAREHOLDERS’ MEETING
BOARD OF DIRECTORS
CHAIRMAN OF THE MANAGEMENT BOARD
LEGAL DEPARTMENT SECURITY
DEPARTMENT DATA PROTECTION
DIVISION
Finance Group
Accounting and Reporting
Department
Treasury Department
Planning and Finance
Department
Quality Control Unit
Strategy and Analytics Unit
Deputy Chairman of the Management
Board, member of the Management Board
Deputy Chairman of the Management
Board, member of the Management Board
Credit Administration Department
Administrative Department
Central Back Office
OperationSupport Group
Center Leasing LLP
Deputy Chairman of the
Management Board, member of the
Management Board
Deputy Chairman of the Management
Board, member of the Management Board
Managing Director
Risk Department
Coordination and Methodology
Division
Assessment Monitoring
Division
Credit Risk Management
Group
Risk Management
Group
Regional Credit Analysis Center
Lending and Risk Management Group
Department for Individual
Assessment of Credit Risk
COMPLIANCE SERVICE
INTERNAL AUDIT SERVICE
SHAREHOLDERS’ MEETING
BOARD OF DIRECTORS
CHAIRMAN OF THE MANAGEMENT BOARD
HUMAN RESOURCES DEPARTMENT MARKETING AND PR DEPARTMENT
Deputy Chairman of the Management
Board, member of the Management Board
Managing Director
Retail Business Department
Corporate Finance Department
Bank Cards and Remote
Banking Department
Retail Business Group
Group Business Group
Business Group
Managing Director
Small and Medium Business
Department
Branches
BCC Invest JSC
Managing Director
Core Banking
Data Engineering
IT Support
IT Group
Digital Channels
IT Architecture
Managing Director
Corporate Loan Management Department
Retail Loan Management Department
Sales Division
Loan Management Group
BCC OYCA LLP
08ORGANIZATIONAL STRUCTURE OF BANK CENTERCREDIT JSC
53
CORPORATE GOVERNANCE
Content Glossary
08STANDARD STRUCTURE OF BRANCHES
FRONT OFFICE
BACK OFFICE
STANDARD STRUCTURES OF BRANCHES
Deputy Director on Business
Service
Acquiring Direction
Development
Problem Loans Department
IE Direction
**SME Direction
*** Deputy Director of Transactional
Services
IE Direction
HEAD OF BRANCH
Back Office Operations Division/Unit
Activity SupportDivision
Credit Administration Division
Support and Accounting
Operations Unit/Sector
Cash Operations Unit/Sector
Administrative Unit/Sector
Technical and software support Unit/Sector
Legal Entities Credit Administration
Unit/Sector
Individuals Credit Administration
Unit/Sector
Individuals and IndividualEntrepreneurs
Post-Credit Servicing Unit/Sector
* For branches in the cities: Semei, Petropavlovsk, Kokshetau, Taraz, Zhezkazgan** For branches in the cities: Petropavlovsk, Kokshetau, Taraz*** Except a branch in Semei city
- not in all branches
FRONT OFFICE BRANCH DIRECTOR
Aquiring Development
Direction
Deputy Director of Business
Services
*** SB Direction
***** Deputy Director on Transactional
Services
Problem Loans Department
*** MB Direction
Individuals Direction
***SME Direction
Outlets Sector for work with problem loans of legal entities **
Sectors for working with problem loans
of individuals **
BACK-OFFICE
Back Office Operations Division/Unit
Activity Support Division
Support and Accounting
operations Unit/Sector
Cash operations Unit/Sector операций
Administrative Unit/Sector
Technical and software
support Unit/Sector
- not in all branches
* For Branches in Karaganda, Shymkent, Uralsk, Pavlodar, Atyrau, Aktau, Kyzylorda, Kostanai, Aktobe ** For the Branch in Karaganda city *** Excluding branch in Uralsk city **** For branch in Uralsk city
Card Business Support Sector
Credit Administration Division
Legal Entities Credit Administration
Unit/Sector
Individuals Credit Administration
Unit/Sector
Individuals and Individual Entrepreneurs
Post-Credit Servicing
54
CORPORATE GOVERNANCE
Content Glossary
08INTERNAL AUDIT SERVICE
COMPLIANCE WITH LAW
In its turn, the Bank creates conditions ensuring unhindered and effective work of the Internal Audit Service.
The Internal Audit Service is an independent structural unit reporting to the Board of Directors and the Audit Committee.
The Internal Audit Service applies relevant internal audit practices, including the international principles of professional internal audit practice.
The mission of the Internal Audit Service is rendering the necessary assistance to the Board of Directors of the Bank in achieving strategic goals, ensuring efficiency and high results of Bank performance. The Service carries out its activities in compliance with the principles of independence, fairness, professional competence, professional ethics.
In 2019, the Audit Committee held 4 official meetings, considered 11 issues, of which:
5 issues were related to the management reporting of the Internal Audit Service (quarterly, annual) including the results and recommendations of the audit on the effectiveness of the functioning of internal control and risk management systems;
1 issue was related to information on activity from structural units of the Bank and implementation of the recommendations given by the Audit Committee;
1 issue was related to the review of the annual plan of internal audit;
4 issues were related to the current activities of the Internal Audit Service (changes to the internal regulations f the Internal Audit Service, participation in AQR and others).
The Internal Audit Service carries out inspections in all areas of the Bank’s activities, monitors the effectiveness of measures taken by the Management Board (based on the results of inspections) to reduce the level of identified risks. The Chief Auditor submits to the Board of Directors reports of the Service on the implementation of the Annual Internal Audit Plan and on the results of bank inspections for the respective reporting periods.
The audit tasks stipulated by the Annual Internal Audit Plan for 2019 have been fully implemented. In addition, IAS participated in the Asset Quality Review (AQR) - the Chief Auditor joined the Bank's Management Committee and confirmed the following:
compliance with the procedures performed by the Bank for the collection and provision of data presented by the regulator as part of the AQR.
control over the adequate observance of the policies and procedures existing in the Bank for the collection and provision of the requested data;
On a regular basis, the Chief Auditor important and urgent issues related to the activities of IAS discusses with the Bank's management team.
The management of the Bank and its branches were informed about the results of all inspections in the established manner, the implementation of recommendations is under the control of the Service.
The main objective of the effective functioning of the internal control and compliance risk management organization system in the Bank is to ensure control over the timely identification and regular assessment of the risks inherent in the bank, including compliance risk, and taking timely measures to minimize the occurrence of expenses (losses), as well as sanctions applied by regulatory authorities as a result of non-compliance by the Bank and its staff with the requirements of the legislation of the Republic of Kazakhstan, internal regulatory documents of the Bank.
In 2019, the National Bank of the Republic of Kazakhstan applied 18 supervisory response measures, 2 non-financial sanctions and 3 fines to the Bank.
Bank CenterCredit prevents cases of gross violation of the requirements provided for by the banking legislation of the Republic of Kazakhstan, regulatory legal acts of the National Bank of the Republic of Kazakhstan and internal documents of the Bank. Temporary inconsistencies identified during the year (including the periods of previous years) include:
Lending: (late notification of the borrower about the delay in fulfillment of obligations (notification sent later than the established 30 calendar days); late provision of the borrower information to the credit bureau/provision of inaccurate borrower information to the credit bureau; demanding payment of interest accrued after one hundred eighty consecutive calendar days of delay in fulfillment of obligations, etc.);
1)
Payments and client money transfers: (fulfillment of payment requirements without observing a limit within 50% of the amount of money received in a bank account; making payments and / or money transfers under currency transaction without submission of a foreign exchange agreement with an assigned account number).
2)
Absence of the original contract for opening a current account to a client;3)
Lack of internal control over the accounting of strict reporting forms and non-compliance with the requirements of the Bank’s internal regulations;
4)
Lack of original documents confirming that the letters are sent to the client through the courier service;
5)
Provision of false information to the National Bank of the Republic of Kazakhstan on sending a response letter to a client through a courier service;
6)
Lack of monitoring of Bank ATMs and ensuring their maintenance in a working and functioning condition; absence of CCTV at ATMs;
7)
Late record of clients’ requests.8)
There have been no cases of blocking the competition and violating antitrust legislation in 2019.
55
CORPORATE GOVERNANCE
Content Glossary
08INTERACTION WITH STAKEHOLDERS
INTERACTION WITH STAKEHOLDERS
The processing of client requests, both individuals and legal entities, is regulated by the Procedure for client requests processing at Bank CenterCredit JSC.
The Heads of the Bank's structural divisions (Head Office divisions, regional center, branch), owning the relevant information and data are responsible for completeness of the response, the content and completeness of the annexes, as well as the timely provision of requests and notifications to the NB RK. The Managing Directors, Heads of Departments, Heads of Branches, Managers of the regional centers are responsible for completeness and content of the letter being sent, monitoring of the request / notification of the NBK.
All requests, regardless of the channels of receipt, are subject to registration on the day of their receipt in the electronic Journal of registration of incoming correspondence or in the electronic Journal of registration of citizens’ requests.
The management of the Bank holds personal meetings with individuals and representatives of legal entities on certain days and hours in accordance with Appendix 3 to the Labor Regulations in Bank CenterCredit JSC.
The response to a written request received by post or personal delivery is given by registered mail with a notification at the address indicated in the client’s request, or by hand in handwritten receipt when the client arrives at the Bank, as noted in the Journal of registration of citizens’ requests (EDS) or is confirmed by the client’s signature on a copy of the response.
All requests and notifications of the NB RK must be registered on the day of receipt as incoming documentation to the Bank.
The procedure for handling requests of the National Bank of the Republic of Kazakhstan is regulated by the Rules for the organization and interaction of structural divisions during inspections by authorized bodies, external organizations at Bank CenterCredit JSC.
developing and submitting for the approval of the draft procedure for processing of the client requests arising in the process or in connection with the provision of banking services;
1)
The Board of Directors determines the authorized collegial body represented by the Management Board, which is responsible for:
monitoring and control over the Bank divisions activity related to processing of client requests arising in the process or in connection with the provision of banking services
2)
Based on the results of monitoring and control, the Board of Directors of the Bank reviews the report of the Management Board and, if required, instructs to ensure that measures are taken to improve the Bank’s performance related to processing of the clients’ requests arising in the process of providing banking services.
The Bank processes the following types of client requests:
written requests received in the form of a written application (in free form) by personal delivery, post, e-mail, fax, Internet resource of the Bank and social networks;
1)
oral requests received orally by phone, during direct visits by a client of the Bank or at a personal meetings.
2)
The main responsible structural divisions of the Bank to accept the requests are:
Head Office - the division responsible for paperwork and archiving (in hard copy/by fax/e-mail);1)UEC by phone / e-mail / Bank’s official website / Online chat / WhatsApp (in electronic form);2)Marketing Department - social networks (Instagram / Facebook / VKontakte) in electronic form;3)in the regions (centralized approach to all requests received by branch divisions and regional center(s) of one region) – secretary of the Head of the Branch - Chief Branch Clerk. The secretary of the Head of the Branch carries out paperwork on requests(complaints) received by the Bank in hard copy/ by fax / e-mail.
4)
The client requests are mainly received by the Bank by telephone, e-mail, Online chat, the Bank’s official website, WhatsApp, Instagram, Facebook, BKontakte, Fax, ICQ, postal service and courier delivery (in hard copy):
Phone line in Almaty (727) 244 30 30, 505(free from mobile phone in the Republic of Kazakhstan)8 8000 8000 88 (free from any landline phones in the Republic of Kazakhstan), incl. "voice mail";fax of the division responsible for remote client service by phone / e-mail / web / fax - (727) 259 86 22;
Web www.bcc.kz (sections "Feedback" and "Questions and Answers")E-mail: [email protected], [email protected];
56
CORPORATE GOVERNANCE
Content Glossary
ANTI-CORRUPTION MANAGEMENT
INFORMATION ON THE SIZE AND COMPOSITION OF THE REMUNERATION TO THE MEMBERS OF THE BOARD OF DIRECTORS AND BANK DIRECTORS 2018
The following internal regulations of the Bank are in place: Payment of remuneration to the members of the Board of Directors and Management Board of the Bank is executed under the Resolution of the Management Board of the National Bank of the Republic of Kazakhstan dd. 24 February 2012 No. 74 “On establishment of requirements to internal policy on remuneration of labour, charge of monetary reward and other types of material reward to executive employees of the regulated banks, insurance (reinsurance) organizations and form of a report on incomes paid to all executive employees of the regulated banks, insurance (re-insurance) organizations” and “Regulation On “Bank CenterCredit” JSC Employees Incentive Scheme approved under the internal procedures of the Bank depending on executive employee’s contribution”.
Internal Control Policy of Bank CenterCredit JSC;
Conflict of Interest Management Policy of Bank CenterCredit JSC;
The Rules of Internal Control of Bank CenterCredit JSC on Anti-money Laundering and Combating the Financing of Terrorism aimed at combating corruption, appropriation of corporate opportunities and fraudulent activities.
Code of Corporate Conduct of Bank CenterCredit JSC;
Compliance Risk Management Policy of Bank CenterCredit JSC;
Regulation on the Service Communication System in Bank CenterCredit JSC;
The Bank’s Compliance Service also provides training to the Bank staff on combating corruption, appropriation of corporate opportunities and fraudulent activities. To prevent violations, remote checks are carried out under the Compliance Service Plan.
Moreover, the Bank defines participants in the compliance risk management system based on three lines of protection that should prevent corruption offenses.
is ensured by all employees of the Bank. All structural divisions of the bank ensure timely identification, assessment of risks, communication of information thereof to divisions of the second line of defense.
The first line of defense
is ensured by independent risk management divisions, compliance control and other divisions that exercise control functions (including, within their competence, divisions that perform the functions of security, financial control, staffing, legal risk management, operational risk).
The second line of defense
is ensured by IAS through an independent assessment of the effectiveness of the compliance risk management system.
The third line of defense
Thus, taking into account that the Bank employees observed the rules and principles of the specified regulatory documents of the Bank, the Compliance Service has not established facts of corruption offenses.
The size of remuneration to the members of the Board of Directors of the Bank for the year 2019 does not exceed 5% of the planned payroll fund of the Bank for the reporting period approved by the Protocol of the meeting of shareholders dd. 30 April 2009 and makes 1,1%.
1)
The following types of remuneration were established for the members of the Board of Directors and Management Board of the Bank:
2)
Members of the Board of Directors – monthly remuneration for individual performance indicators;
Members of Management Board – guaranteed position salary, remuneration following performance for a year.
Total size of remuneration to the members of the Board of Directors and Management Board for the year 2019 made 586,9 million tenge or 4,0% of the planned payroll fund of the Bank for the reporting period.
3)
Criteria defining the quality of Bank CenterCredit JSC executive employees work performance:
achievement of annual financial indicators;receipt of net income by the Bank.
08
57
CORPORATE GOVERNANCE
Content Glossary
SOCIAL RESPONSIBILITY AND ENVIRONMENTAL PROTECTION09
As a socially responsible financial institution, BCC strictly complies with the requirements of main principles in the field of environmental protection and applicable laws and regulations on environmental protection in its daily activity.
Utmost importance of human life and health protection, prevention of environment contamination, creation of favourable conditions for life, labour and rest of the population;
MAIN BCC PRINCIPLES ON ENVIRONMENTAL PROTECTION:
Prevention of environmental damage through direct banking financial transactions.
BCC thoroughly considers environmental aspect and ensures support of ecological projects when taking decision on financing of any project.
BCC takes the necessary actions aimed at prevention of legal, financial consequences as well as the consequences for BCC business standing related to ecological problems.
When considering the project, a comprehensive parallel expertise is performed by authorized structural units of BCC for compliance with BCC main principles on environmental protection. During the lending process the monitoring of potential borrowers’ activity, the permitted use of loan funds is monitored under main environmental principles.
SOCIAL
RESPONSIBILITY
58 Content Glossary
SPONSORSHIP AND CHARITY09SOCIAL RESPONSIBILITY SPONSORSHIP AND CHARITY
Socially significant projects:
THE SPONSORSHIP SUPPORT IS MAINLY FOCUSED ON:
1
Establishing scholarships for students, with a focus on students from low-income families; payment of overseas internships; assistance in acquiring materials for the educational process.
Education
Assistance to non-commercial sports and indi-vidual athletes in the acquisition of sports equipment; payment of transportation costs and accommodation, coaching services, rental of premises for training, participation in international competitions.
Sports
One-time or constant support for events in the field of art and culture: festivals, film exhibitions, exhibitions, concerts, etc.
Culture and art Medicine and health care
Provision of equipment, vehicles for tuberculosis, oncology and other medical centers; construction of new medical facilities; financial aid in the construction of such facilities, etc.
Environment
New technologies investment projects; programs to minimize the impact on the landscape and biological diversity, to ensure control over all emissions and their impact on the surrounding territories.
The charity support is mainly focused on:
Organizational and practical events related to the activity and positioning of Bank CenterCredit JSC (international conferences, forums, investment summits, round tables, etc., including measures to support women's entrepreneurship).
2
the statutory activities of children's rehabilitation centers, maternity and childhood centers, organizations of veterans, disabled people, and other socially oriented non-profit organizations;
measures taken as a results of natural emergencies that occurred on the territory of the Republic of Kazakhstan.
Bank CenterCredit has been supporting the Eurasian Women's Business Forum For several years. This forum is one of the main platforms for training, developing and consolidating Kazakhstani business women, sharing experience and knowledge, establishing business contacts and partnerships.
Bank CenterCredit implements the ‘Women in Business’ lending program backed by the state, which allows attracting funds for various projects on favorable terms.
In June 2019, the Bank became a partner of the II International Almaty Film Festival, the goal of which is to develop the film industry of Kazakhstan, increase the general public's interest in the cinema art and strengthen international cooperation. In addition to exhibition of films, press conferences with actors, directors, a large number of master classes were held at the festival. Eight winners of the new national Alatay Film Awards established with a purpose to support young filmmakers and present them to the world community, were awarded cash prizes on behalf of the bank.
Two landmark business events of the year held with the support of Bank CenterCredit are the Summer Fest and October Fest festivals during which the leading businessmen, city activists, entrepreneurs, bloggers, mass media representatives arranged numerous business, finance, brand creation and promotion workshops.
It should be noted that improving of professional or cultural level of the Bank's employees is taken into account when making a decision on sponsorship of various projects.
This year, the Bank became a permanent sponsor of the Taiburyl charity project. The project’s mission is to support talented youth, students of various higher educational institutions with high academic performance, but poor financial situation, local scientists and inventors.
The project implements several financial support programs, such as ‘Monthly scholarships’, ‘Educational scholarships’; financing of researches and applied inventions; support of talents in the field of science, culture and sports. Monthly scholarships are the most common type of support. Technical and agricultural specialties are one of the priority sectors.
«Women in Business»
«Almaty Film Festival»
«Summer Fest and October Fest»
«Taiburyl»
Each year, the Bank supports Baltabaev Marat Sharipovich, a marathon runner well known in Kazakhstan and around the world, international master of sports. The legendary runner has a large number of medals and memorable prizes from around the globe.
At the end of the year, the Bank initiated the ‘Clean Planet-Clean We’ environmental campaign, within the framework of which the first eco-bins for separate waste collection were installed at the Head Office and the Almaty City Branch of the Bank. The campaign will later be initiated in all branches. As part of the environmental initiative, a number of other activities are planned in the near future and subsequent years.«Clean Planet
-Clean We»
59 Content Glossary
09SPONSORSHIP AND CHARITY
Each year, the Bank provides charitable assistance to veteran depositors of the Bank and veteran organizations in various regions of the country.
Support ofVeteran
Organizations
Every year BCC participates in the ‘Road to School’ charity campaign, providing material support to school children from low-income and large families, children left without parental care, orphans during preparation for the start of the school year.
«Road toSchool»
As a result of the disaster in the city of Arys (South Kazakhstan Region), 6,972,156.84 tenge were transferred to the ‘Turkestan’ corporate social development fund, established by the Mayor’s Office of the Turkestan region, by the BCC employees who couldn’t stay on the sidelines and helped the injured. The Heads of structural divisions (starting the Heads of department and so on) transferred one-day earnings to the fund to help the injured. Blankets, sweatshirts, baseball caps and stationery were given to those in need.Financial
assistance
At the end of the year, the Bank acted as the general sponsor of the nationwide ‘Our Best Family Doctor and Their Team’ contest organized by the Compulsory Medical Insurance Fund and the ‘Primary Health Care’ National Association. The best family doctors and their teams from all regions of Kazakhstan, selected according to the results of online voting, were awarded cash prizes from Bank CenterCredit with a total prize fund of 29 million tenge.
«Our Best Family Doctor and Their Team»
The Bank employees provide voluntary assistance on an ongoing basis by collecting funds upon requests received by the Bank from individuals in need.
In 2019, Bank CenterCredit choose not to hold the traditional corporate New Year corporate party and spend the saved money on charity. Everyone interested purchased gifts for children of the National Scientific and Practical Center for Corrective Pedagogy State Institution and handed them over at a festive matinee.
The Bank also congratulated the students of Day Care Center for Disabled Children with Psychological and neurological Pathologies in the City of Almaty" on New Year, handing in New Year presents and Marwin store certificates.
Gifts forChildren
10
FINANCIAL RESULTS
60
SOCIAL RESPONSIBILITY
Content Glossary
FINANCIAL RESULTS 10
Loan portfolio
At the end of 2019, slight decrease was observed in the Bank’s assets by 4% as a result of exchange differences and increase in provisions (Bank’s net balance was reduced).
ASSETS
Million tenge
Cash and cash equivalents
Financial instruments and securities
Funds at Bank
Loans granted to Clients and banks (net)
Other assets
TOTAL
175 413 158 868
220 466 184 286
31 292 9 102
968 684 982 390
121 905 125 793
1 517 760 1 460 439
01.01.2018
188 056
183 727
13 140
831 251
114 324
1 330 498
01.01.2019 01.01.2020
9%
29%
62%
8%
28%
64%
9%
24%
67%
Liquid assets
Other assets
5THE 5TH AMONG SECOND-TIER BANKS IN TERMS OF ASSETS WITH A MARKET SHARE OF 5.5%
STRUCTURE OF THE CLIENTS’ LOANS (GROSS), MILLION TENGE
01.01.2019 01.01.2020
Corporate loans
SME loans
Retail (including ‘7-20-25’ and ‘Baspana Hit’ programs)
The loan portfolio, as the most highly profitable asset, grew by 2.7% and amounted to 1,053 billion tenge (gross). The main driver of portfolio growth was loans to the Retail Business and SME.
LIABILITIES
Million tenge
TOTAL
01.01.2018 01.01.2019 01.01.2020
Funds and loans of banks and financial institutions
Funds of clients and banks
Issued debt securities
Subordinated bonds
Other liabilities
98 791
976 952
17 328
75 454
33 090
1 201 615
125 650
1 074 530
70 147
71 915
68 420
1 410 662
113 656
958 945
81 883
61 342
131 524
1 347 350
BANK AND BANK GROUP LIABILITIES STRUCTURE, MILLION TENGE
Retail deposits Corporate deposits
Funds and loans of banks and financial institutions
Issued debt securities
Subordinated bonds
Other liabilities
01.01.2019 01.01.2020
At the same time, the Bank increased volumes of more stable funds represented by debt securities and funds of Baspana Mortgage Organization JSC (as part of the implementation of state programs).
At the end of 2019, the total liabilities of the banking group amounted to 1,347 billion tenge.
During the year, the Bank carried out activities related to minimizing the risks of concentration of the funding base, which led to a slight decrease in the volume of the deposit base by the end of 2019.
6 THE 6TH AMONG SECOND-TIER BANKS IN TERMS OF THE RETAIL DEPOSITS WITH A MARKET SHARE OF 6,0%
68 420
71 915
70 147
125 650
490 723
583 807
01.01.2019 01.01.2020
131 524
61 342
81 883
113 656
414 482
544 463
6 THE 6TH AMONG SECOND-TIER BANKS IN TERMS OF THE CORPORATE DEPOSITS WITH A MARKET SHARE OF 4,4%
324 226 369 592
221 333 218 952
480 027 464 524
1 025 586 1 053 068
1 410 662
1 347 350
61 Content Glossary
CAPITAL
Million tenge
TOTAL
01.01.2018 01.01.2019 01.01.2020
3,10%
54,20%
42,60%
PROFITABILITY
Million tenge 2017 2018 2019
DYNAMICS OF NET INTEREST INCOME OF THE BANKING GROUP, MILLION TENGE
Authorized capital 57 600 57 865
Revaluation reserve 841 4 784
Undistributed profit 48 280 50 440
Non-controlling interest 377 -
69 569
3 343
55 575
396
128 883 107 098 113 089
THE STRUCTURE OF PRUDENTIAL CAPITAL OF BANK CENTERCEDIT AS OF 01.01.2020
Core capital 54,20%
Additional capital 3,10%
At the beginning of 2020, the banking group's capital amounted to 113,1 billion tenge, having increased by 5,6 % compared to the previous year.
Factors of capital growth are: positive dynamics of net profit, additional capitalization by shareholders, as well as an increase in reserves of positive revaluation of securities.
Tier 2 capital - 85 321 million tenge.
The equity capital of Bank CenterCredit JSC in accordance with the regulator’s methodology for calculating prudential ratios (prudential capital) as of January 1, 2020 amounted to 200 160 million tenge.
Capital structure:
Additional capital - 6,275 million tenge;Core capital - 108 564 million tenge;
DYNAMICS OF CAPITAL ADEQUACY INDICATORS OF BANK CENTERCREDIT, %
21,4%
17,1%
к2 (min. 10%) к 1-2 (min. 8.5%) к1 (min. 7,5%)
01.01.2018 01.01.2019 01.01.2020
10,0%
13,3%
10,4%8,7%
17,4%
10,0%
9,4%
- 43 743
INCOME BEFORE PROVISIONS 28 871
- 30 814
9 169
- 41 657
1 984
As a result, the Bank's net interest income increased by 13.1 billion tenge and amounted to 59 billion tenge in 2019. Net interest margin of the Bank increased by almost 1% and amounted to 4.93%.
The increase in operating expenses by 7.5 billion tenge compared to the previous 2018 is due to the active growth of the Bank's business in 2019 and the corresponding investments in the team and development: investments in IT, digital and mobile banking, opening branches (1 branch and 6 outlets ) and the corresponding depreciation on capital investments made.
Fee and commission income in 2019 increased by 1.9 billion tenge and amounted to 26.5 billion tenge. Commission expense increased from 4.4 to 7.7 billion tenge as a result of the active development of the card business, the launch of new card products (the first contactless metal cards #iron card, #card cards).
Due to the balanced growth of operating expenses and operating income, the Cost to income indicator grew slightly and is at the average market level.
Interest income in 2019 increased in comparison with 2018 by 9.3 billion tenge and amounted to 121 billion tenge. The positive dynamics of interest income was made possible due to an increase in the share of high-yield retail business loans and SME loans. Interest expenses decreased by 3.9 billion tenge and amounted to 62 billion tenge due to a decrease in the share of expensive client deposits.
Revenue from operations with securities and foreign currency amounted to 7.4 billion tenge, which is at the level of the previous year.
47 500 45 848
58 977
- 43 743
- 30 814
- 41 657
2017 2018 2019
Net interest income before provisions
Formation of reserves for lending activity
Net interest income
3 757
15 034
NIM, % 4.65% 4.08% 4.93%
Cost/Incomе, % 26.1% 41.7% 46.1%
10
Tier 2 capital42,60%
Interest income 109 938 111 703 120 981
Net interest income before provisions 47 500 45 848 58 977
Interest costs - 62 438 - 62 004- 65 855
Creation of provisions
Fee and Commission income 21 698 24 554 26 482
Commission expenses - 2 797 - 4 387 - 7 720
Revenue from operations with securities and foreign currency 6 533 7 586 7 418
Net interest income 60 612 27 759 23 799
Operating income before provisions 108 339 74 969 84 046
Operating expenses - 28 299 - 31 232 - 38 746
17 320
62
FINANCIAL RESULTS
Content Glossary
LENDING
ENHANCEMENT OF FINANCIAL MANAGEMENT SYSTEM
Enhancing analytical systems to improve the performance of managing financial flows is one of the key priorities of the Bank CenterCredit financial group. Currently, the Bank has successfully implemented the following projects.
Automated financial planning process
Automated process of control functions of budget execution
IBM Cognos Business Intelligence System
Predictive analytics applied
Allows the Bank to effectively manage
expenses and payments according to the planned estimate on the basis of a
single platform
The main analytical platform of the Bank
Shifting away from manual data
processing in excel
Ensures transparency of Bank expenses
Integrated Business Intelligence Suite for
Access to a Wide Range of Functions
Efficiency of preparation, adjustment and
coordination of several versions of the plan
Eliminates the possibility of budget overruns in excess of agreed limits
Allows to automate the necessary
management reports
Detailed formation of planned financial statements, key
performance indicators, sales plans, cost and
investment budgets, etc.
Prompt receipt of reports by
management on its implementation, with
the necessary analytical detail
The following cubes have been developed: daily, weekly, monthly and planned/actual for
use by all Bank employees
The Bank was awarded the “Near Abroad” nomination for winning the Global CIO contest organized by the
professional community of Russian IT directors for the implementation of the project
In 2019, the Bank was actively lending, which, together with favorable market trends, affected the positive dynamics of BCC's loan portfolio, which increased at the year end by 2.7% to KZT 1,053.1 billion and allowed the Bank to improve its market position and rise from 5th to 4th place in terms of loan portfolio.
BANK LOANS (MILLION TENGE)
930 656
1 025 5861 053 068
01.01.2018 01.01.2019 01.01.2020
Reference: Audited data for 2019, taking into account loans issued under the Baspana program
As of 01.01.2020, the share of foreign currency loans amounted to 21.79%, which does not exert significant pressure on the Bank in terms of currency risks associated with the weakening of tenge.
SHARE OF CURRENCY LOANS
78,21%
21,79%
Tenge Foreign currency
The loan portfolio of the Bank is fairly balanced and diversified. The retail loan portfolio makes 35%, large business loan portfolio - 44% and SMEs portfolio - 21% of the Bank's total loan portfolio.
Loans for the ‘Trade’ sector (18.3%) and ‘Real estate lease’ (16.5%) sector account for the largest share in the corporate portfolio (large business and SMEs). The proportion of other sectors individually does not exceed 10%.
СТРУКТУРА КРЕДИТОВ, (%)
44%
35%
Retail loans Corporate loans
21%
SME loans
STRUCTURE OF THE CORPORATE PORTFOLIO (%)
10,6%
0,5%
3,4%
4,7%
5,1%
5,7%
6,7%
6,7%
6,7%
6,8%
8,3%
16,5%
18,3%
Other
Financial services
Agriculture
Equipment transportation and maintenance services
Power supplies
Food industry
Industrial construction
Transport and telecommunication
Residential construction
Oil and gas industry
Manufacture
Real estate lease
Trade
Reference: Audited data for 2019, taking into account loans issued under the Baspana program
LENDING
10
63
FINANCIAL RESULTS
Content Glossary
LENDING
One of the important tasks of the Bank, along with increasing the volume of the loan portfolio in 2019, was to continue work on improving its quality indicators. As a result of the actions taken during the year, the share of non-performing loans in the loan portfolio (NPL) decreased from 6.4% to 6.2%. The volume of stage 3 loans (credit-impaired loans) decreased from 310.2 billion to 269.7 billion tenge.
LOAN PORTFOLIO QUALITY
Reference: Information posted on the official website of the Agency of the Republic of Kazakhstan on regulation and development of the financial market (AFR). Audited data for 2019, taking into account loans issued under the Baspana program.
AQR RESULTS
In 2019, the National Bank of the Republic of Kazakhstan conducted the Assets Quality Review (hereinafter referred to as AQR) of the banking sector of the Republic of Kazakhstan. AQR was carried out on 14 largest second-tier banks, which account for 87% of the total assets of the banking sector.
To ensure transparency and objectivity of the review, the National Bank carried out the AQR jointly with an international consultant and independent audit companies. AQR was carried out in accordance with the European Central Bank methodology and the requirements of the legislation of the Republic of Kazakhstan in the field of accounting and prudential regulation.
Based on the results of this audit, it is identified that Bank CenterCredit JSC has sufficient capital adequacy within the established regulatory limits. The identified potential need to create additional reserves for individual assets of Bank CenterCredit JSC in the amount of 26.9 billion tenge is due to a conservative approach applied in the AQR methodology and includes reserves previously determined in accordance with prudential regulation under the first State program.
The authorized body of the Bank decided to participate in the Program for Banking sector financial stability improvement, within the framework of which the Bank was given a five-year state guarantee acting as an asset protection tool. It ensures the Bank’s business continuity for the specified period.
Additionally, by the end of May 2020, Bank shareholders will increase the capital to the amount of 4.312 million tenge. According to the results of the general meeting of shareholders dated March 31, 2020, a decision was made to increase the number of authorized shares through an additional issue of 215,263,858 ordinary shares.
1 110
RISK REPORT
64
FINANCIAL RESULTS
Content Glossary
RISK REPORT RISK MANAGEMENT SYSTEM
RISK MANAGEMENT SYSTEM
It is a possibility of loss by the Bank of a financial asset due to incapability of contractors (borrowers) to fulfill their obligations on payments of interest and principal amount under the contract terms.
CREDIT RISK
Collateral Policy.Lending and Risk Management Policy;Policy:
Finance and Risk Management Committee;Credit Committee.
Risk Management Committee:
Key Credit Risk Management Methods:
Ensuring the completeness and reliability of information in order to make decisions;Сompliance with generally accepted lending rules, internal policies and procedures for managing credit risk;Existence of a loan evaluation procedure independent of business units;
Maintaining a sufficient level of provisions.
Transaction collateral management;Regular monitoring and control of the level of credit risk;
Credit risk limitation through the use of a multi-level system of limits and / or risk restrictions;
Classification of assets by credit risk level;
Credit risk assessment for transactions bearing credit risk is carried out taking into account the type and segment of the counterparty’s business:
corporate lending - on the basis of a combination of expert assessment and the level of credit rating, determined taking into account indicators of the financial condition of the counterparty, credit history, industry, and other characteristics of the business;retail lending - through a scoring model based on methods of mathematical statistics, built taking into account behavioral information and information from external sources.
The risk of difficulties in obtaining funds for the repayment of deposits and obligations associated with financial instruments upon the actual maturity of their payment.
LIQUIDITY RISK
Liquidity Risk Management Policy;Policy:
Risk Management Committee of the Management Board.Finance and Risk Management Committee;Risk
ManagementCommittee:
Key Liquidity Risk Management Methods:
Analysis of the maturities of assets and liabilities and conducting cash market transactions to maintain current liquidity and optimize cash flows;
Development of a liquidity management plan in crisis situations;Stress testing and scenario analysis.
Calculation of liquidity management limits and regular monitoring of prudential and internal liquidity indicators;
Calculation of the optimal balance sheet structure and asset and liability management in order to maintain liquidity in the long term;
changes in market rates, currency exchange rate or prices for financial instruments. The risk of negative impact on the Bank’s income or capital of the
Market risk means interest-rate risk, currency risk and other price risks that the Bank may be exposed to in the course of its activity.
MARKET RISK
Market Risk Management Policy Policy:
Finance and Risk Management Committee;Risk Management Committee of the Management Board.
Risk Management Committee:
Key Market Risk Management Methods:
Monitoring the current financial condition of the Group, assessing the sensitivity of the Group to changes in interest rates and their impact on the profitability of the Group;Calculation of interest rate risk management limits and regular monitoring of the interest rate risk level.
Maintaining an acceptable ratio of attracted resources with fixed and floating rates;
Key Currency Risk Management Methods:
Management through open foreign exchange position management, that makes it possible for the Bank to minimize losses from considerable fluctuations in the national and foreign currency exchange rates;
Calculation of limits for open foreign currency exchange positions, currency and interest-rate VaR, arbitration positions, as well as limits of stop-loss and stop-out and monitors their performance.
Control over open foreign exchange position of the Bank with the purpose of ensuring its compliance with the NBRK requirements;
Key Price Risk Management Methods: Setting adequate limits on the amount of allowable losses;
Setting requirements for profit margins and collateral.
Periodic assessment of potential losses that may be incurred as a result of negative changes in market conditions;
11
65 Content Glossary
RISK MANAGEMENT SYSTEM
The risk of losses due to systems’ fault, undefined organizational structure, errors of the employees or improper construction of business processes, as well as the result of external events impact.
TRANSACTIONS RISK
Transactions Risk Management Policy Policy:
Finance and Risk Management Committee;Risk Management Committee of the Management Board;
Risk Management Committee:
Key Transactions Risk Management Methods:
Distribution of powers and responsibilities for managing operational risk between heads of departments at various levels, providing them with the necessary resources, establishing procedures for interaction and reporting;
Identification, monitoring of operational risks and their periodic assessment, carried out by the Bank divisions, are part of the Bank's daily activities;
Involvement of all employees and management of the Bank (the Management Board, the Finance and Risk Management Committee and the Board of Directors) in the operational risk management process;
The shortcomings of the TRMS and cases of their implementation are promptly communicated to the managers of the appropriate level, the Management Board of the Bank and the Board of Directors and are promptly addressed;
The cost of operational risk control measures should be less than the Bank’s potential losses from this risk, while the adoption of additional operational risk does not directly entail any additional costs.
The probability of losses due to breach by the Bank and its employees of the requirements of the laws of the Republic of Kazakhstan, regulatory legal acts of the authorized body, internal documents of the Bank that regulate the transactions conducting procedure by the Bank in the financial market, as well as the laws of foreign states, influencing the Bank’s activity.
COMPLIANCE RISK
Conflict of Interest Management Policy.Internal Control Policy;
Compliance Risk Management Policy;“Know Your Customer” Policy;Anti-Money Laundering and Combating Financing of Terrorism;
Policy:
Key Compliance Risk Management Methods:
Development and analysis of quantitative and qualitative indicators characterizing the Bank's degree of exposure to compliance risk;
Development of internal guidelines (instructions) for Bank employees on compliance risk management issues, including the risks of money laundering and the financing of terrorism, through the preparation of internal documents;
Conducting investigations (checks), independently or jointly with structural units and (or) officials of the Bank, of facts of violation by the employees of the Bank of the legislation of the Republic of Kazakhstan governing the provision of services by the Bank and conducting operations in the financial market, as well as the laws of foreign countries affecting the activities of the bank, according to the procedure determined by the internal document of the Bank.
Monitoring compliance by the Bank and its employees with compliance risk management policies and procedures;Collection of data on compliance risk events;Analysis of complaints (statements) of customers (counterparties) about the actions of the Bank or its employees regarding compliance risk and taking measures to eliminate (prevent) it;
11
66
RISK REPORT RISK MANAGEMENT SYSTEM
Content Glossary
RISK REPORT RISKS IDENTIFIED IN 2019
RISK MANAGEMENT SYSTEM ENHANCEMENT IN 2019
CREDIT RISK
MARKET RISK
TRANSACTIONS RISK
LIQUIDITY RISK
OTHER RISKS
Default Risk Concentration
Risk Country Risk
Counterparty risk related to financial market
transactions
Currency Risk Interest Risk Price Risk Risk of Property Value Change
Transactions Risk Legal Risk IT RiskInformation
Security Risk
Current Liquidity Risk
Liquidity Ratio Risk
Structural Liquidity Risk (Concentration
Risk)
Compliance Risk
Regulatory Risk
Reputational Risk
Technology Risk
Behavioral Risk
KEY ACHIEVEMENTS
The lending process was optimized and credit committees were centralized;
The Electronic Credit Committee was introduced.
The issue of tender guarantees was optimized by automating calculations of the average monthly net turnover of a client to determine the amount of a possible guarantee.
Scoring system was implemented for the of retail loans;
PCB and FICO behavioral scoring models were connected for online lending;
Internal and external sources channels were connected of information for accounting data in a scoring system.
The process of responding to exceeding established levels of indicators of the Transactions Risk early warning system is automated;
The next stage in the automation of the Transactions Risk Management System has been introduced, which more deeply involves the employees of units within the first line of defense (self-assessment) in the Transactions Risk Management processes;
A process has been introduced to evaluate the effectiveness of applying risk management measures based on calculating residual risk, as part of Information Technology and Information Security Risk Management;
Transactions Risk is assessed on an ongoing basis in key areas of business, services, processes and information systems, as well as in the implementation of new services and activities.
1
2
3
11
ModelRisk
67 Content Glossary
RISKS MANAGEMENT SYSTEM ENHANCEMENT PLANS IN 2020
Risk Management System enhancement: - in accordance with the Rules for the formation of a risk management and internal control system for second-tier banks, approved by the Resolution of the Board of the National Bank of the Republic of Kazakhstan #188 dated November 12, 2019 (hereinafter referred to as Regulation #188);
- based on the results of Asset Quality Review (AQR) in the banking sector;
Enhancement of the internal capital adequacy assessment process in accordance with the Rules #188;
Enhancement of the internal process for assessing liquidity adequacy, in accordance with Regulation #188.
Development of new scoring models in accordance with the Bank’s business development strategy;
Improvement, updating, validation of existing scoring models;
Improving antifraud processes for the retail business;
Development of analytical tools for detecting abnormal applications online;
Automation of PD / LGD / EL calculation for retail products;
Quality control of the Bank loan officers functions;
Transition to the new Decision Making System;
Development of a decision-making strategy for cross-selling in the context of consumer lending to individuals.
Improving the methodology and processes for managing Transactions Risk, Information Technology and Information Security Risk, organization of business continuity of the bank;
Improving the system for calculating the appetite for Transactions Risk, including for certain types of activities through the prism of changes in external and internal factors and the frequency of bank operations;
Continuation of measures to automate control functions and improve the functionality of the Bank's automated systems in order to reduce operational risks;
Continuation of measures to fill the early warning system with internal and / or external risk indicators aimed at timely and effective response by the Bank to risk factors;
Carrying out activities to improve the culture of Transactions Risk management at all levels of defense lines.
1
2
3
1 2
BRANCH NETWORK
11
68
RISK REPORT
Content Glossary
BRANCH NETWORK
Aktau brach
Block 12, 12th residential area,130000, Aktau city, Mangistau region
Kostanai branch
Block 39, Tauelsizdik Str., 110000, Kostanai city, Kostanai region
Taraz branch
Blcok 182, Kazybek bi Str., 080000, Taraz city, Zhambyl region
Aktobe branch
Block 30, A.Moldagulova Ave., 030000, Aktobe city, Aktobe region
Kyzylorda branch
Block 46, Tokmagambetov Str., 120015, Kyzylorda city, Kyzylorda region
Uralsk branch
Block 27/2, Mukhit Str., 090000, Uralsk city, West Kazakhstan region
Almaty City Branch
Block 98, Panfilov Str., 050000, Almaty city
Nur-Sultan branch
Block 7, Barayev Str., Baikonyr district, 010000, Nur-Sultan city
Ust-Kamenogorsk branch
Block 19, Gorky Str., 070004, Ust-Kamenogorsk city, East Kazakhstan region
Atyrau branch
Block 2, Azattyk Ave., 060002, Atyrau city, Atryau region
Pavlodar branch
Block 156/1, Satpayev Str., 140000, Pavlodar city, Pavlodar region
Shymkent branch
Block 20A, Baitursynov Str., 160021, Shymkent city, South Kazakhstan region
Zhezkazgan branch
Petropavlovsk branch
Block 166, Altynsarin Str., 150008, Petropavlovsk city, North Kazakhstan region
Turkestan regional branch
Block 47, Ismailov Str., 160900, Saryagash district, Turkestan region, South Kazakhstan
Block 26a, Mir Ave., 100600, Zhezkazgan, Karaganda region
Karaganda branch
Block 5, Alikhanov Str., 100000, Karaganda city, Karaganda region
Semei branch
Block 99 B, A.Kunanbayev Str., 071400, Semei city, East Kazakhstan region
Kokshetau branch
Block 142, Abay Str., 020000, Kokshetau city, Akmola region
Taldykorgan branch
Block 185, Abylai khan Str., 040000, Taldykorgan city, Almaty region
CONTACT INFORMATION
Licence to conduct banking and other operations and activities on the market of securities No. 1.2.25/195/34 as at 03 February 2020, issued by the Agency for Regulation and Development of the financial market of the Republic of Kazakhstan.
Bank Call-center:
505 free from mobile phone in the Republic of Kazakhstan
+7 (727) 244 77 77free from any landline phones in the Republic of Kazakhstan
8 8000 8000 88free from any landline phones in the Republic of Kazakhstan
www.bcc.kzBank web-site
For individuals:
605 free from mobile phone in the Republic of Kazakhstan
+7 (727) 244 30 44free from any landline phones in the Republic of Kazakhstan
For legal entities:
12
69 Content Glossary
TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF THE JOINT STOCK COMPANY “BANK CENTERCREDIT”
We conducted an audit of the consolidated financial statements of Bank CenterCredit Joint-Stock Company and its subsidiaries (hereinafter referred to as the “Group”), consisting of a consolidated statement on financial position as at 31 December 2019, consolidated statements on profit or loss, comprehensive income, changes in equity and cash flows for the year ended on that date, as well as notes consisting of the main provisions of the accounting policy and other explanatory information.
In our opinion, the attached consolidated financial statements reliably reflect, in all material respects, the consolidated financial position of the Group as at 31 December 2019, as well as its consolidated financial results and consolidated cash flows for the year ended on that date, in accordance with International Financial Reporting Standards (“IFRS”).
Opinion
We conducted the audit in accordance with International Standards on Auditing. Our responsibility in accordance with these standards is described further in the section “Auditors' Responsibilities for the Audit of the Consolidated Financial Statements” of our report. We are independent of the Group in accordance with the International Code of Ethics for Professional Accountants (including international standards of independence) and ethical requirements applicable to our audit of the consolidated financial statements in the Republic of Kazakhstan, and we have fulfilled other ethical obligations in accordance with these requirements and this Code. We believe that the audit evidence we have obtained is sufficient and appropriate to warrant the expression of our opinion.
Reasons for expression of opinion
KPMG Audit LLP, company is registered in accordance with the legislation of the Republic of Kazakhstan, a member of the network of independent companies KPMG, members of the KPMG International Cooperative ("KPMG International"), registered under the law of Switzerland.
13
AUDIT REPORTof independent
auditors
70 Content Glossary
13 AUDIT REPORTOF INDEPENDENT AUDITORS
Key audit matters are matters that, in our professional judgment, were the most significant for our audit of the consolidated financial statements for the current period. These issues were considered in the context of our audit of the consolidated financial statements as a whole and in the formation of our opinion on these statements, and we do not express a separate opinion on these issues.
Key audit matters
Expected credit losses (“ECL”) for loans to clients
See notes 3 (o) and 17 to the consolidated financial statements.
Key audit matter Audit Procedures for a Key Audit matter
We analyzed the main aspects of the Group's methodology and policies regarding the assessment of ECL for compliance with the requirements of IFRS 9, involving financial risk management specialists.
assessment of the probability of default (PD), the amount of loss in case of default (LGD);
timely identification of a significant increase in credit risk and default events relating to loans to clients (referred to as Stage 1, 2 and 3 in accordance with IFRS 9);
estimating expected cash flows for loans classified as Stage 3, including key assumptions regarding the timing of collateral.
Loans to clients and banks account for 67% of assets and are carried net of any allowance for expected credit losses (hereinafter referred to as ECL), assessed on a regular basis and sensitive to the assumptions used.
The Group applies the expected credit loss assessment model, which requires the management to apply professional judgment and use assumptions with respect to the following key aspects:
For loans granted to corporate clients, we tested the organization and opera-tional effectiveness of controls in relation to the timely allocation of loans to the respective Stages.
Based on a sample of loans granted to corporate clients, the potential change in the assessment of ECL which could have a significant impact on the consolidated financial statements, we verified the correctness of determining the Steps by analyzing financial and non-financial information, as well as assumptions and professional judgments applied by the Group.
Using a selection of loans provided to corporate clients, we checked the correctness of the source data used in calculating PD.
To analyze professional judgment and assumptions made by the management in calculating the reserve for ECL, we carried out the following procedures:
Based on a sample of loans granted to corporate clients assigned to Stage 3, reserves for ECL for which they are assessed on an individual basis, we critically assessed the assumptions used by the Group in calculating future cash flows, including an assessment of the value of realized collateral and the timing of their implementation, based on our understanding of historical experience and planned measures agreed with the regulator in terms of improving the repayment process, and available market information.
On a selective basis, we compared the initial data of the model used to evaluate the ECL for loans granted to individuals with primary documents and checked the correct allocation of these loans to the corresponding Stages.
For loans to individuals, we tested the organization and operational effective-ness of controls with respect to the timely reflection of delinquencies in the res-pective systems.
We estimated overall predictive ability of models, used by the Group to calculate ECL by comparing the estimation made on 1 January 2019 with factual results for 2019.
We paid special attention to the results of the Group assets quality assessment check (QAC), held by the National Bank of Kazakhstan in order to provide transparency of the second-tier banks` financial situation. We analyzed the results of the QAC and examined whether the results of the QAC testify to the need to review the amount of reserves for QAC.
We also verified whether the disclosures in the consolidated financial statements appropriately reflect the Group's exposure to credit risk.
Due to the significant amount of loans granted to clients and the associated uncertainty in assessing the amount of reserves for ECL, this issue is a key audit issue.
71 Content Glossary
13
Evaluation of Group`s ability for business continuity in connection with coronavirus pandemics
See notes 2 (г) and 34 to consolidated financial statements.
Key audit matter Audit procedures in relation to the key audit matter
The consolidated financial statements of the Group have been prepared based on business continuity. On 11 March 2020, the World Health Organization announced that the spread of a new coronavirus infection had become pandemic. The Government of the Republic of Kazakhstan has taken a number of measures to curb the spread of the coronavirus infection, including border closure, quarantine, severe restrictions on internal and external transport, a ban on social, cultural, leisure or sporting events. In this regard, the Group was forced to tempo-rarily transfer part of its staff to work from home and adjust its operating plans.
The assessment of business continuity assumption of the Group was based on cash flow forecasts that, in the opinion of management, confirm the intention that the Group will have sufficient resources to continue operations in the foreseeable future.
As part of this analysis, the management also considered a number of measures aimed at mitigating the consequences of disruptions in operating activities and maintaining the Group's liquidity. This analysis reflects a number of scenarios as described in note 2 (г).
The coronavirus pandemic is an unprece-dented challenge to the global economy. At the date of preparation of the consolidated financial statements, the assessment of its effects is subject to significant uncertainty.
The Group`s assumption on business continuity is a key audit issue due to the high degree of management judgments needed to analyze this assumption, as well as due to the uncertainty inherent in forecasting and assessing the impact on the financial performance of current operating conditions of activities and measures planned by the Group.
OF INDEPENDENT AUDITORS
As part of the audit, we performed the following procedures:
We analyzed the management's assessment on business continuity assumption, including an assessment of operational risk and liquidity risks associated with the spread of coronavirus infection, as well as a program of further actions planned to reduce the identified risks. As part of this procedure, we also conducted a survey of the Chairman of the Management Board of the Bank.
We have considered the Group`s business planning process and have tested the development, implementation of basic means of internal control with respect to assessing the Group's ability to carry on with its business continuously, including in relation to the preparation of cash flow forecasts used in this assessment.
We evaluated the validity and feasibility of these plans aimed at mitigating the effects of the pandemic by performing the following procedures:
analysis of the sensitivity assessment of the Group's ability to continuously carry on with its activities to changes in the above key assumptions, as well as an analysis of the presence of management bias signs in the formation of this assessment.
testing of the main assumptions used in the formation of the forecast financial information for various scenarios of the situation development. First of all, we assessed changes in the loan portfolio and portfolio of client funds as of 31 March 2020 in accordance with our understanding of the Group's activities, including their impact on capital adequacy ratios;
Other information
Our opinion on the consolidated financial statements does not apply to other information, and we will not provide conclusions with assurance in any form in relation to this information.
The management is responsible for other information. Other information includes information contained in the Group's annual report for 2019, but does not include the consolidated financial statements and our audit report about it. The Group's annual report for 2019 is expected to be provided to us after the date of this audit report.
In connection with our audit of the consolidated financial statements, our responsibility is to familiarize ourselves with other information when it becomes available, and to examine whether there are significant discrepancies between other information and the consolidated financial statements or our knowledge obtained during the audit, and whether or not the other information contains other possible material misstatements.
We assessed the accuracy and completeness of the information disclosures regarding the assessment of the business continuity assumption, as well as the associated uncertainty in the Group's consolidated financial statements.
We also took into account additional facts and information that became known after the date the management completed the assessment of the Group's ability for business continuity.
Responsibility of the management and entities in charge of corporate governance for the consolidated financial statements
The management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with IFRS and for the internal control system that management considers necessary to prepare the consolidated financial statements that are free from material misstatement due to fraud or errors.
In preparing the consolidated financial statements, the management is responsible for evaluating the ability of the Group for business continuity, for disclosing, as appropriate, information related to business continuity, and for reporting based on assumption of business continuity, unless the management intends to liquidate the Group, to terminate its activity or when it does not have any other real alternative, except liquidation or termination of activity.
Entities liable for corporate governance are responsible for overseeing the process of preparing the consolidated financial statements of the Group.
72
AUDIT REPORT
Content Glossary
13
Auditors` responsibility for the audit of consolidated financial statements
As part of an audit conducted in accordance with International Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. In addition, we do the following:
Our goal is to obtain reasonable assurance that the consolidated financial statements do not contain material misstatements due to fraud or errors, and to issue an audit report containing our opinion. Reasonable assurance represents a high degree of assurance, but does not guarantee that an audit conducted in accordance with International Standards on Auditing will always reveal material misstatements, if any. Misstatements may result from fraud or errors and are considered material if it can be reasonably assumed that, individually or collectively, they can affect the economic decisions of users being made based on these consolidated financial statements.
identify and assess the risks of material misstatement of the consolidated financial statements due to fraud or errors; develop and conduct audit procedures in response to these risks; obtain audit evidence that is sufficient and appropriate to serve as the basis for expression of our opinion. The risk of non-detection of material misstatement as a result of fraud is higher than the risk of non-detection of material misstatement as a result of an error, since fraud can include conspiracy, forgery, intentional omission, misrepresentation of information or actions that bypass the internal control system;
evaluate the presentation of the consolidated financial statements as a whole, its structure and content, including disclosure of information, and whether the consolidated financial statements represent the underlying operations and events accurately;
gain an understanding of the internal control system that is relevant to the audit in order to develop audit procedures that are appropriate to the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control system;
If we conclude that there is material uncertainty, we must draw attention in our audit report to the appropriate information disclosure in the consolidated financial statements or, if such disclosure is inappropriate, to modify our opinion. Our findings are based on audit evidence obtained prior to the date of our audit report. However, future events or conditions may result in the Group losing its ability for business continuity;
evaluate the appropriateness of the applied accounting policy and the reasonableness of accounting valuations and related information disclosure, prepared by the management;
make a conclusion on the adequacy of applying the methods for business continuity assumption by the management, and based on the audit evidence obtained, deduce whether there is significant uncertainty in relation to events or conditions that could result in significant doubts about the Group's ability to continue its business.
Auditors` responsibility for the audit of consolidated financial statements
We obtain sufficient appropriate audit evidence relating to the financial information of the organizations or activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the management, control and audit of the Group. We remain fully responsible for our audit opinion.
We carry out information interaction with persons responsible for corporate governance, bringing to their attention, among other things, information about the planned scope and timing of the audit, as well as significant comments on the results of the audit, including significant deficiencies in the internal control system, which we identify in the audit process.
We also provide those in charge of corporate governance with a statement that we have complied with all relevant ethical requirements regarding independence and have informed these persons of all relationships and other issues that can reasonably be considered to affect the independence of auditors, and, if necessary, on appropriate precautionary measures.
From the issues that we brought to the attention of entities responsible for corporate governance, we identify the issues that were most significant for the audit of the consolidated financial statements for the current period and, therefore, are key audit issues. We describe these issues in our audit report, except for cases where the public disclosure of information on these issues is prohibited by law or regulation or when, in extremely rare cases, we conclude that information on any issue should not be communicated in our report, since it can reasonably be assumed that the negative consequences of the delivery of such information will exceed the socially significant benefit of its communication.
The head of the assignment, based on the results of which this audit report of independent auditors was issued:
Urdabayeva А. А. Certified auditor of the Republic of Kazakhstan Qualification certificate of an auditor No. МФ-0000096 as at 27 August 2012
Dementiyev S.A.,General Director of KPMG Audit LLP, acting under the Charter
73
OF INDEPENDENT AUDITORS
AUDIT REPORT
Content Glossary
Note For the year ended31 December 2019
Other interest income
Interest expense
Expected credit loss allowance on interest bearing assets
Net interest income
Interest income calculated using effective interest rate method
1,472
(62,004)
(41,657)
17,320
1,593
(65,855)
(30,814)
15,034
For the year ended31 December 2018
110,110119,509
1,47Net interest income before expected credit loss allowance on interest-bearing assets
58,977 45,8485
6
Fee and commission income
Fee and commission expense
26,482
(7,720)
24,554
(4,387)
7
Net fee and commission income 18,762 20,167
Net gain on financial instruments at fair value through profit or loss 4,0671,150
Net gain on sale and repayment of financial assets measured at fair value through other comprehensive income
6291,031
Net foreign exchange gain 5,237 2,890
Charge of allowance for expected credit losses on other financial assets
(1,265) (1,339)
Charge of provision for credit related commitments (5) (23)
Impairment loss on other financial assets (880) -
Other (expenses)/income (231) 1,368
Net non-interest income 23,799 27,759
8
9
19
CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2019 (in millions of Kazakhstani tenge, except for earnings per share which is expressed in tenge)
13
for the year ended on 31 December 2019
CONSOLIDATED STATEMENTS
7
74
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
Content Glossary
Operating expenses
NoteYear ended
31 December 2019
Operating income before income tax
Operating income
2,373
(389)
11,561
(2,392)
Year ended31 December 2018
42,793
(31,232)
41,119
(38,746)
Owners of the Parent Bank
Non-controlling interest
1,984
-
9,116
53
1,984 9,169
10
Income tax expense 11
Profit for the year 1,984 9,169
Attributable to:
Earnings per share
Basic (KZT) 12.29 56.5512
Diluted (KZT 12.28 54.07
The consolidated financial statements as set out on pages 158 to 292 were approved by Management Board on 30 April 2020 and were signed on its behalf by:
Year ended 31 December 2019
PROFIT FOR THE YEAR
OTHER COMPREHENSIVE INCOME
1,984 9,169
Year ended 31 December 2018
Net gain/(loos) resulting on revaluation of available-for-sale investments during the period (net of tax – KZT nil)
5,096 (1,462)
Total items that are or may be reclassified subsequently to profit or loss
(2,091)4,065
Items that are or may be reclassified subsequently to profit or loss:
Reclassification adjustment relating to investment securities disposed of during the period (net of tax – KZT nil)
(1,031) (629)
OTHER COMPREHENSIVE INCOME AFTER INCOME TAX
4,065 (2,091)
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 6,049 7,078
Attributable to:
Owners of the Parent Bank
Non-controlling interest
6,049
-
7,025
53
6,049 7,078TOTAL COMPREHENSIVE INCOME FOR THE YEAR
13CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2019 (in millions of Kazakhstani tenge, except for earnings per share which is expressed in tenge)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019(in millions of Kazakhstani tenge, except for earnings per share which is expressed in tenge)
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
The consolidated financial statements as set out on pages 158 to 292 were approved by Management Board on 30 April 2020 and were signed on its behalf by:
G.A. KhussainovChairman of the Management Board
30 April 2020Almaty, Kazakhstan
Ye.А. AssylbekDeputy Chairman of theManagement Board,
30 April 2020 Almaty, Kazakhstan
A.T. NurgaliyevaChief Accountant
30 April 2020Almaty, Kazakhstan
75
G.A. KhussainovChairman of the Management Board
30 April 2020Almaty, Kazakhstan
Ye.А. AssylbekDeputy Chairman of theManagement Board,
30 April 2020 Almaty, Kazakhstan
A.T. NurgaliyevaChief Accountant
30 April 2020Almaty, Kazakhstan
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
Content Glossary
13CONSOLIDATED STATEMENT OF FINANCAL POSITION AS AT 31 DECEMBER 2019(in millions of Kazakhstani tenge, unless otherwise stated)
Share capital 25
Fair value reserve for securities 559 (3,506)
57,865 57,600
Property revaluation reserve 4,225 4,347
Retained earnings 50,440 48,280
113,089 106,721Total equity attributable to owners of the Parent Bank
Non-controlling interest - 377
Total equity 113,089 107,098
TOTAL LIABILITIES AND EQUITY 1,460,439 1,517,760
672 626Book value per ordinary share (KZT) 12
297 300Book value per preference share (KZT) 12
Equity attributable to owners of the Parent Bank:
EQUITY:
The consolidated financial statements as set out on pages 158 to 292 were approved by Management Board on 30 April 2020 and were signed on its behalf by:
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
Note 31 December 2019
ASSETS:
158,868 175,413
31 December 2018
Cash and cash equivalents 13
12,241 40,088Held by the Group 14
Financial instruments at fair value through profit or loss
7,148 2,588Pledged under sale and repurchase agreement 14
164,897 177,790Investment securities 15
9,102 31,292Due from banks 16
Loans to customers and banks 17
554,705 575,531Loans to corporate customers
427,685 393,153Loans to retail customers
2,713 1,211Current income tax assets
41,056 38,583Property, plant and equipment and intangible assets
18
82,024 82,111Other assets 19
1,460,439 1,517,760TOTAL ASSETS
LIABILITIES AND EQUITY
- 12,668Financial instruments at fair value through profit or loss 14
Due to banks and financial institutions 113,656 125,65020
Customer and bank accounts 21
Due to corporate customers 414,482 490,723
Due to retail customers 544,463 583,807
Debt securities issued 81,883 70,14722
9,677 9,09911Deferred income tax liabilities
Subordinated bonds 61,342 71,91523
Other liabilities 121,847 46,65324
TOTAL LIABILITIES 1,347,350 1,410,662
LIABILITIES:
76
G.A. KhussainovChairman of the Management Board
30 April 2020Almaty, Kazakhstan
Ye.А. AssylbekDeputy Chairman of theManagement Board,
30 April 2020 Almaty, Kazakhstan
A.T. NurgaliyevaChief Accountant
30 April 2020Almaty, Kazakhstan
Note 31 December 2019 31 December 2018
Content Glossary
13CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 (in millions of Kazakhstani tenge, unless otherwise stated)
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
Sharecapital
Fair value reserve
Property revaluation
reserve
Total equity attributable to owners of the Parent Bank
Non-controlling interest
Total equityRetained earnings
69,569Balance as at 1 January 2018
Total comprehensive income
(1,415) 4,444 39,067 111,665 396 112,061
-Profit for the year - - 9,116 9,116 9,16953
Other comprehensive income
- (2,091) - (2,091)
Items that are or may be reclassified subsequently to profit or loss:
-Net change in fair value (2,091) -
- (2,091) - (2,091)
Total items that are or may be reclassified subsequently to profit or loss - (2,091) -
9,116 7,025 53 7,078
Total other comprehensive income
97 - - -
97 - - -
-Total comprehensive income for the year (2,091) -
Other movements in equity
-Transfer of the amount from revaluation resulting from depreciation and disposals
(11,969) (11,969)-
- (97)
-
(11,969) (11,969)--Total transactions with owners
(72)(72)
- -
- -
(11,969)
-Change in non-controlling interest - -
- (2,091)
-Total other movements in equity - (97)
Transactions with owners recorded directly in equity
31 December 2018 (3,506) 4,34757,600
- (2,091) - (2,091)
-
(11,969)Treasury shares purchased (Note 25) - -
106,721 107,09837748,280
77 Content Glossary
13CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 (in millions of Kazakhstani tenge, unless otherwise stated)
The consolidated financial statements as set out on pages 158 to 292 were approved by Management Board on 30 April 2020 and were signed on its behalf by:
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
Sharecapital
Fair value reserve
Property revaluation
reserve
Total equity attributable to owners of the Parent Bank
Non-controlling interest
Total equityRetained earnings
57,600Balance as at 1 January 2019
Total comprehensive income
(3,506) 4,347 48,280 106,721 377 107,098
-Profit for the year - - 1,984 1,984 1,984-
Other comprehensive income
- 4,065 - 4,065
Items that are or may be reclassified subsequently to profit or loss:
-Net change in fair value 4,065 -
- 4,065 - 4,065
Total items that are or may be reclassified subsequently to profit or loss - 4,065 -
1,984 6,049 - 6,049
Total other comprehensive income
122 - - -
122 - - -
-Total comprehensive income for the year 4,065 -
- 954 954-
Other movements in equity
-Transfer of the amount from revaluation resulting from depreciation and disposals
(689) (689)-
- (122)
-
954Treasury shares issued (Note 25)
265 265-
- -
-Total transactions with owners
(323)(377)
- -
54 54
265
-Change in non-controlling interest - -
- 4,065
-Total other movements in equity - (122)
Transactions with owners recorded directly in equity
31 December 2019 559 4,22557,865
- 4,065 - 4,065
-
(689)Treasury shares purchased (Note 25) - -
113,089 113,089-50,440
78
G.A. KhussainovChairman of the Management Board
30 April 2020Almaty, Kazakhstan
Ye.А. AssylbekDeputy Chairman of theManagement Board,
30 April 2020 Almaty, Kazakhstan
A.T. NurgaliyevaChief Accountant
30 April 2020Almaty, Kazakhstan
Content Glossary
Interest received
CASH FLOWS FROM OPERATING ACTIVITIES:
116,254 102,047
Year ended 31 December 2019
Year ended 31 December 2018
(62,525) (62,448)Interest paid
Services fee and commission received 26,482 24,554
(7,892) (4,886)Services fee and commission paid
929 (413)Net payments on derivative instrument transactions
5,545 5,967Net foreign exchange gain
(231) (277)Other (payments)/income receipts
(35,509) (29,140)Operating expenses paid
43,053 35,404Cash flow from operating activities before changes in operating assets and liabilities
Changes in operating assets:
23,504 (4,631)Financial instruments at fair value through profit or loss
2,967 (18,199)Due from banks
34,124 (117,046)Loans to customers and banks
836 (1,956)Other assets
Changes in operating liabilities:
(12,668) -Financial instruments at fair value through profit or loss
(11,364) 21,719Due to banks and financial institutions
(112,556) 29,744Customer and bank accounts
2,946 963Other liabilities
(29,158) (54,002)Cash flows used in operating activities before tax
(1,314) (461)Income tax paid
(30,472) (54,463)Net cash flows used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
646,711 535,422Proceeds from repayment and sale of investment securities
(628,774) (553,383)Purchase of investment securities
(7,287) (6,074)Acquisition of property, plant and equipment and intangible assets
1,948 -Proceeds from sale of property, plant and equipment
12,598 (24,035)Net cash flows from/ (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
265 (11,969)Proceeds on treasury shares issued/(repurchased), net
34,701 54,230Proceeds on debt securities issued
(21,701) -Repurchase and repayment of debt securities issued
400 5,507Receipts from subordinated bonds
1,786 41,768Net cash flows from financing activities
(11,879) (6,000)Repayment of subordinated bonds
(457) 24,087Effect of changes in foreign exchange rate fluctuations on cash and cash equivalents
(16,545) (12,643)NET DECREASE IN CASH AND CASH EQUIVALENTS
175,413 188,056CASH AND CASH EQUIVALENTS, beginning of the year
158,868 175,413CASH AND CASH EQUIVALENTS, end of the year (Note 13)
13CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 (in millions of Kazakhstani tenge, unless otherwise stated)
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
79
Year ended 31 December 2019
Year ended 31 December 2018
Year ended 31 December 2019
Year ended 31 December 2018
Explanatory notes as set out on pages 158 to 292 form an integral part of these consolidated financial statements.
G.A. KhussainovChairman of the Management Board
30 April 2020Almaty, Kazakhstan
Ye.А. AssylbekDeputy Chairman of theManagement Board,
30 April 2020 Almaty, Kazakhstan
A.T. NurgaliyevaChief Accountant
30 April 2020Almaty, Kazakhstan
The consolidated financial statements as set out on pages 158 to 292 were approved by Management Board on 30 April 2020 and were signed on its behalf by:
Content Glossary
1. INTRODUCTION(a) Principal activity
The Bank's principal activity consists of commercial banking activities, trading with securities, foreign currencies and derivative instruments, loan origination activities and guarantees.
As at 31 December 2019 and 31 December 2018, the Bank had 19 branches in the Republic of Kazakhstan.
The Bank is a member of the Kazakhstan Deposit Insurance Fund.
The Bank is a parent company of a banking group (the “Group”), which consists of the following subsidiaries consolidated in its consolidated financial statements:
JSC Bank CenterCredit (the “Bank”) is a Joint Stock Company, which has been incorporated and carrying out its operations in the Republic of Kazakhstan since 1988. The Bank is regulated by the legislation of the Republic of Kazakhstan. The National Bank of the Republic of Kazakhstan (the “NBRK”) is a regulatory authority of the Bank. The Bank conducts its business under the license number 1.2.25/195/34, renewed on 28 January 2015.
The registered address is 38, Al Farabi Ave., Almaty, Republic of Kazakhstan.
LLP BCC-SAOO 100%Management
of distressed assets
Ownership interest
Country of operationName 31 December2019
31 December2018
Activity
Republic of Kazakhstan 100%
JSC BCC Invest 100%Brokerage and dealer
activity97.63%
LLP Center Leasing 90.75% Finance lease90.75%
As at 31 December 2019 and 2018, the number of ordinary shares was allocated as follows:
31 December 2019, % 31 December 2018, %
47.9348.07
10.4010.05
5.905.98
35.7735.90
B.R. Baiseitov
V.S. Lee
D.R. Amankulov
Other (individually hold less than 5%)
100.00
During 2019, as part of the additional capitalisation, the Bank placed 3,181,111 ordinary shares for the amount of KZT 954,333,300.The consolidated financial statements were authorised for issue by the Management Board of JSC Bank CenterCredit on 30 April 2020.
(b) Kazakhstan business environment
The Group's operations are primarily located in Kazakhstan. Consequently, the Group is exposed to the economic and financial markets of Kazakhstan which display characteristics of an emerging market. The legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in Kazakhstan. In addition, the first months of 2020 have seen significant global market turmoil triggered by the outbreak of the COVID-19 (Note 34). Together with other factors, this has resulted in a sharp decrease in the oil price and the stock market indices, as well as a continuing depreciation of the Kazakhstan Tenge. These developments are further increasing the level of uncertainty in the Kazakhstan business environment.
The consolidated financial statements reflect the management's assessment of the impact of the Republic of Kazakhstan business environment on the operations and the financial position of the Group. The future business environment may differ from management's assessment.
2. BASIS OF PREPARATION
(a) Statement of compliance
The accompanying consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS).
(b) Basis of measurement
The functional currency of the Bank and its subsidiaries is the Kazakhstan Tenge (KZT) as, being the national currency of the Republic of Kazakhstan, it reflects the economic substance of the majority of underlying events and circumstances relevant to them.
(c) Functional and presentation currency
The KZT is also the presentation currency for the purposes of these consolidated financial statements.
The consolidated financial statements are prepared on the historical cost basis except that financial instruments at fair value through profit or loss and at fair value through other comprehensive income are stated at fair value and buildings and constructions are measured at fair value, which increase is stated in the revaluation property reserve.
Financial information presented in KZT is rounded to the nearest million.
13INTRODUCTION
BASIS OF PREPARATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
80
Republic of Kazakhstan
Republic of Kazakhstan
Content Glossary
(d) Assessment of the Group's ability to continue as a going concern
The accompanying consolidated financial statements have been prepared on assumption that the Group will continue as a going concern.
In March 2020, coronavirus infection COVID-19 was declared a pandemic. Many countries worldwide have taken measures to limit cross-border traffic and in some cases to close the borders and declared quarantine as response measures to curb and reduce spreading of the virus.
On 15 March 2020 the Government of the Republic of Kazakhstan declared a state of emergency, which was subsequently extended until 30 April 2020 in response to global COVID-19 pandemic. To reduce spreading of virus a number of restrictive measures on movement of people within Kazakhstan has been introduced, which resulted in slowdown of normal economic activity of many enterprises in the country. Governments of other countries worldwide have introduced similar restrictions in order to limit the impact of virus, which caused significant weakening of global economic activity.
State of emergency and quarantine were introduced, first of all, in the largest cities – Almaty and Nur-Sultan, with subsequent introduction of this regime throughout Kazakhstan. The bodies of executive power have introduced measures to restrict movement and contacts of the people by means of temporary suspension of work of educational institutions, shopping centres, places of public catering, cinemas, sport facilities as well as industrial enterprises, construction facilities, financial market entities, etc. These events have certain impact on the country's economy in general, which may result in its slowdown in mid-term.
Under the current economic situation the Government of the Republic of Kazakhstan is taking a number of supporting measures to stimulate business activity in the country and growth of consumption:
as part of the “Economy of simple things” financing programme and a new government programme to support businesses that have suffered from introduction of quarantine, KZT 1 trillion was allocated to provide preferential lending of the economy at the interest rate of 8%;
tax reliefs have been introduced as well as limitations on audits of small and medium-sized businesses;
social payments of KZT 42,500 were made to individuals who lost their jobs, including self-employed people and socially vulnerable groups of population;
measures have been provided for to grant deferrals in payments to both individuals and economic entities, whose activity was affected by COVID-19 pandemic.
13
In accordance with the Resolution of the Management Board of the NBRK dated 19 March 2020, No.39, the Program of Preferential Lending was approved, which stipulates measures of support to small and medium-sized businesses and individual entrepreneurs that have been affected by introduction of the state of emergency in the country as a result of spreading a coronavirus infection. To grant loans through the operator - KSF JSC, the NBRK has allocated KZT 600,000 million, of which KZT 71,000 million represent a limit for the Group. Business support mechanism is implemented though granting the concessional loans for replenishment of working capital for a term of up to 12 months.
Taking into account the current situation in the economy and within the Group, as well as expected negative implications of COVID-19 spreading, the Group has analysed its financial positions under the following scenarios:
Scenario No.1 implies decrease of an average annual price of BRENT oil up to USD 30 per barrel by the end of 2020; while exchange rate of the national currency to USD will be KZT 450 per USD 1; GDP growth rate - 0.4%, and inflation rate - 8.3% by the end of 2020;
Scenario No.1 implies decrease of an average annual price of BRENT oil up to USD 20 per barrel by the end of 2020; while exchange rate of the national currency to USD will be KZT 475 per USD 1; GDP growth rate will be -0.6%, and inflation rate will be 10.4% by the end of 2020;
Scenario No.3 implies decrease of an average annual price of BRENT oil up to USD 10 per barrel by the end of 2020; while exchange rate of the national currency to USD will be KZT 500 per USD 1; GDP growth rate will be -2.3%, and inflation rate will be 13.2% by the end of 2020.
Based on the calculations made under the above-mentioned scenarios, the Group management has concluded that a range of possible outcomes in case of negative developments, which have been analysed to form this judgment, does not indicate that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern.
Asset Quality Review (AQR)
During 2019 the NBRK performed the Asset Quality Review (AQR) of the banking sector of the Republic of Kazakhstan. AQR was performed across 14 largest second-tier banks, which account for 87% of the total asset of the banking sector.
To ensure transparency and objectivity of the review, the NBRK carried out AQR jointly with an international consultant and independent audit firms. AQR was carried out in accordance with the methodology of the European Central Bank and in compliance with requirements of the legalisation of the Republic of Kazakhstan related to accounting and prudential regulation.
Based on AQR results, the Group presented a report, which comprised comments and recommendations on improvement of business processes, on the basis of which a detailed action plan was prepared. Based on AQR results, as part of the Program of Strengthening Financial Stability of Banking Sector of the Republic of Kazakhstan, an additional instrument was introduced to protect assets, which provides for a five-year state guarantee.
Moreover, before the end of May 2020 the Group's shareholders will provide additional capitalisation in the amount of KZT 4,312 million. According to results of the general meeting of shareholders held on 31 March 2020, a decision was made to increase a number of authorised shares by means of additional issue of 215,263,858 ordinary shares.
(e) Use of estimates and judgments
In preparing these consolidated financial statements, management has made judgement, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.
Judgements
Information about judgements made in applying accounting policies that have the most significant effects on the amounts recognised in the Bank's consolidated financial statements is included in the following notes:
classification of financial assets: assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding – Note 3(g)(i).
81
BASIS OF PREPARATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
BASIS OF PREPARATION
Content Glossary
13
establishing the criteria for determining whether credit risk on the financial asset has increased significantly since initial recognition, determining methodology for incorporating forward-looking information into measurement of ECL and selection and approval of models used to measure ECL – Note 4.
Assumptions and estimations uncertainty
Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the consolidated financial statements for the year ended 31 December 2019 is included in the following notes:
impairment of financial instruments: determining inputs into the ECL measurement model, including incorporation of forward-looking information – Note 4.
estimates of fair value of subordinated bonds issued – Note 23.
estimates of impairment of loans to customers and banks – Note 17.
estimates of fair value of financial assets and liabilities – Note 32.
estimates of financial instruments measured at fair value through profit or loss - Note 14.
(f) Changes in accounting policies and presentation
IFRS 16
The Group has initially applied IFRS 16 Leases from 1 January 2019.
The Group adopted IFRS 16 applying the modified retrospective approach. Accordingly, the comparative information presented for 2018 is not restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information.
Detailed information on the accounting policy in accordance with IFRS 16 and IAS 17 is provided in Note 3(t).
(g) Comparative information
Comparative information is adjusted to conform to changes in presentation of the consolidated financial statements in the year ended 31 December 2019.
While preparing the consolidated financial statements of the Group for the year ended 31 December 2019, management restated gross carrying amount and unwinding of discount in relation to present value of expected credit losses on loans to customers and banks. Comparative information was revised and the effects on the corresponding figures may be as follows:
929,588 929,588Loans to customers
Effect of adjustment As restated
As previously reported
-
53,584 65,092Interest accrued 11,508
983,172 994,68011,508
(121,658) (133,166)Less: loss allowance (11,508)
861,514 861,514Total loans to consumers -
Loans to corporate customers
Effect of adjustment As restated
As previously reported
472,048 480,027Corporate loans 7,979
(87,461) (95,440)(7,979)
124,651 125,432Small and medium-sized enterprises 781
(9,971) (10,752)Impairment allowance (781)
Impairment allowance
Loans to individuals
154,453 155,672Mortgage loans 1,219
(7,305) (8,524)(1,219)
130,489 130,884Consumer loans 395
(8,794) (9,189)Impairment allowance
Impairment allowance
(395)
95,115 95,901Business development 786
(8,010) (8,796)Impairment allowance (786)
6,416 6,764Auto loans 348
(117) (465)Impairment allowance (348)
861,514 861,514-
Loans to customers
Effect of adjustment As restated
As previously reported
Corporate loans
326,833 329,0262,193
Overdue:
67,792 70,843overdue less than 30 days
Not overdue
3,051
29,482 30,415933
16,379 16,587overdue 61-90 days 208
11,448 11,578overdue 91-180 days
overdue 31-60 days
130
20,114 21,578overdue more than 180 days 1,464
472,048 480,027Gross loans to corporate customers 7,979
Allowance for expected credit losses
Total loans to corporate customers net of allowance for expected credit losses
(87,461) (95,440)(7,979)
384,587 - 384,587
82
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
BASIS OF PREPARATION
Content Glossary
Effect of adjustment As restated
As previously reported
Small and medium-sized enterprises
97,941 98,097156
Overdue:
7,654 7,806overdue less than 30 days
Not overdue
152
164 202overdue 31-60 days 38
1,542 1,595overdue 61-90 days 53
7,181 7,314overdue 91-180 days 133
10,169 10,418overdue more than 180 days 249
Gross loans to customers 124,651 781 125,432
Allowance for expected credit losses (9,971) (10,752)(781)
Total loans to customers net of allowance for expected credit losses
114,680 - 114,680
Mortgage loans
122,250 122,470220
Overdue:
13,150 13,297overdue less than 30 days
Not overdue
147
2,063 2,130overdue 31-60 days 67
2,860 2,892overdue 61-90 days 32
1,473 1,570overdue 91-180 days 97
12,657 13,313overdue more than 180 days 656
Gross loans to customers 154,453 1,219 155,672
Allowance for expected credit losses
Total loans to customer net of allowance for expected credit losses
(7,305) (8,524)(1,219)
147,148 - 147,148
13
Effect of adjustment As restated
As previously reported
Loans to customers
95,701 95,75352
Overdue:
9,944 9,997overdue less than 30 days
Not overdue
53
1,551 1,559overdue 31-60 days 8
5,488 5,493overdue 61-90 days 5
1,222 1,322overdue 91-180 days 100
16,583 16,760overdue more than 180 days 177
Gross loans to customers 130,489 395 130,884
Allowance for expected credit losses (8,794) (9,189)(395)
Total loans to customers, net of impairment allowance
121,695 - 121,695
Consumer loans
67,730 67,864134
Overdue:
6,407 6,503overdue less than 30 days
Not overdue
96
498 527overdue 31-60 days 29
659 681overdue 61-90 days 22
4,191 4,262overdue 91-180 days 71
15,630 16,064overdue more than 180 days 434
Gross loans to customers 95,115 786 95,901
Allowance for expected credit losses (8,010) (8,796)(786)
Total loans to customers, net of impairment allowance
87,105 - 87,105
Business development
Analysis by credit quality of loans to customers and banks outstanding as at 31 December 2018:
83
BASIS OF PREPARATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
BASIS OF PREPARATION
Effect of adjustment As restated
As previously reported
Effect of adjustment As restated
As previously reported
Content Glossary
6,028 6,08052
Overdue:
72 87overdue less than 30 days
Not overdue
15
8 37overdue 31-60 days 29
32 40overdue 61-90 days 8
15 44overdue 91-180 days 29
261 476overdue more than 180 days 215
Gross loans to customers 6,416 348 6,764
Allowance for expected credit losses (117) (465)(348)
Total loans to customers net of impairment allowance
6,299 - 6,299
Auto loans
3. SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below are applied consistently to all periods presented in these consolidated financial statements, except as explained in note 2(f), which addresses changes in accounting policies.
(i) Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group.
The Group measures goodwill at the acquisition date as the fair value of the consideration transferred (including the fair value of any previously-held equity interest in the acquiree if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquire), plus the recognised amount of any non-controlling interests in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss.
The Group elects on transaction-by-transaction basis whether to measure non-controlling interests at fair value, or at their proportionate share of the recognised amount of the identifiable net assets of the acquiree, at the acquisition date.
Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.
(a) Basis of consolidation
13(a) Basis of consolidation
Analysis by credit quality of loans to customers and banks outstanding as at 31 December 2018:
The following reclassifications were made in the consolidated statement of cash flows for the year ended 31 December 2018 to conform to changes in presentation in 2019:
Effect of reclassification
As reclassified
As previously reported
97,247 102,0474,800Interest received
(59,263) (54,463)Net cash flows used in operating activities 4,800
CASH FLOWS FROM INVESTING ACTIVITIES:
540,222 535,422Proceeds from repayment and sale of investment securities (4,800)
Net cash flows used in investing activities(19,235) (4,800) (24,035)
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash flow from operating activities before changes in operating assets and liabilities
30,604 35,4044,800
(ii) Subsidiaries
Subsidiaries are investees controlled by the Group. The Group controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In particular, the Group consolidates investees that it controls on the basis of de facto circumstances. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
(iii) Funds management
The Group manages and administers assets held in unit trusts and other investment vehicles on behalf of investors. The financial statements of these entities are not included in these consolidated financial statements except when the Group controls the entity.
(iv) Acquisitions and disposals of non-controlling interests
The Group accounts for the acquisitions and disposals of non-controlling interests as transactions with equity holders in their capacity as equity holders. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Parent.
84
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
BASIS OF PREPARATION
Effect of adjustment As restated
As previously reported
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
applied to the gross carrying amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability. The effective interest rate is revised as a result of periodic re-estimation of cash flows of floating rate instruments to reflect movements in market rates of interest. The effective interest rate is also revised for fair value hedge adjustments at the date amortisation of the hedge adjustment begins.
However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis.
For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis, even if the credit risk of the asset improves.
For information on when financial assets are credit-impaired, see clause (n).
Dividend income is recognised in profit or loss on the date that the dividend is declared.
13
(b) Non-controlling interests
the gross carrying amount of the financial asset; or the amortised cost of the financial liability.
(с) Interest
(v) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.
Non-controlling interests are the equity in a subsidiary not attributable, directly or indirectly, to the Bank. Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity attributable to equity holders of the Bank. Non-controlling interests in profit or loss and total comprehensive income are separately disclosed in the consolidated statement of profit or loss and other comprehensive income.
Effective interest rate
Interest income and expense are recognised in profit or loss using the effective interest method. The 'effective interest rate' is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to:
When calculating the effective interest rate for financial instruments other than purchased or originated credit-impaired assets, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not expected credit losses. For purchased or originated credit-impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including expected credit losses.
The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability.
Amortised cost versus gross carrying amount
The 'amortised cost' of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any expected credit loss allowance.
The 'gross carrying amount of a financial asset' measured at amortised cost is the amortised cost of a financial asset before adjusting for any expected credit loss allowance.
Calculation of interest income and expense
The effective interest rate of a financial asset or financial liability is calculated on initial recognition of a financial asset or a financial liability. In calculating interest income and expense, the effective interest rate is
Presentation
Interest income calculated using the effective interest method presented in the consolidated statement of profit or loss and other comprehensive income includes:
interest on financial assets measured at amortised cost;
interest on debt instruments measured at FVOCI.
Interest expense presented in the consolidated statement of profit or loss and other comprehensive income includes financial liabilities measured at amortised cost.
Other interest income presented in the consolidated statement of profit or loss and other comprehensive income includes interest income on non-derivative debt financial instruments measured at FVTPL.
(d) Fees and commission
Fee and commission income and expense that are integral to the effective interest rate on a financial asset or financial liability are included in the effective interest rate (see Note 3(c)).
Other fee and commission income – including account servicing fees, investment management fees, sales commission, placement fees and syndication fees – is recognised as the related services are performed. If a loan commitment is not expected to result in the draw-down of a loan, then the related loan commitment fee is recognised on a straight-line basis over the commitment period.
85
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss.
When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gains and losses arising from such item form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity.
The exchange rates used by the Group in the preparation of the consolidated financial statements as at year-end are as follows:
Т/¤
Т/$
31 December2019
31 December2018
429 439.37
382.59 384.20
13
A contract with a customer that results in a recognised financial instrument in the Group's consolidated financial statements may be partially in the scope of IFRS 9 and partially in the scope of IFRS 15. If this is the case, then the Group first applies IFRS 9 to separate and measure the part of the contract that is in the scope of IFRS 9 and then applies IFRS 15 to the residual.
Other fee and commission expenses relate mainly to transaction and service fees, which are expensed as the services are received.
(e) Foreign currency
(i) Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of the Group entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value is determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Foreign currency differences arising on translation to foreign currencies are recognised in profit or loss, except for differences arising on translation of available-for-sale equity instruments, with exception of foreign currency differences arising from impairment of such instruments, in which case foreign currency differences classified as other comprehensive income will be reclassified to profit and loss.
(ii) Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the presentation currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated to tenge at exchange rates at the dates of the transactions.
Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. However, if the operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is allocated to non-controlling interests.
When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal.
When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests.
Cash and cash equivalents include notes and coins on hand, unrestricted balances (nostro accounts) held with the NBRK and other banks, and highly liquid financial assets with original maturities of less than three months, which are subject to insignificant risk of changes in their fair value, and are used by the Group in the management of short-term commitments. Cash and cash equivalents are carried at amortised cost in the consolidated statement of financial position.
(i) Classification
On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:
(f) Cash and cash equivalents
(g) Financial instruments
the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:
86
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
how the performance of the portfolio is evaluated and reported to the Group's management;
· the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;
· how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected;
· the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and how cash flows are realised.
Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
Assessment whether contractual cash flows are solely payments of principal and interest
For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.
In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers:
13
the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets;
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
For debt financial assets measured at FVOCI, gains and losses are recognised in other comprehensive income, except for the following, which are recognised in profit or loss in the same manner as for financial assets measured at amortised cost:
· foreign exchange gains and losses.
· Interest income calculated using the effective interest method;
· ECL and reversals; and
When a debt financial asset measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss.
On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in other comprehensive income. This election is made on an investment-by-investment basis.
Gains and losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised in profit or loss. Dividends are recognised in profit or loss unless they clearly represent a recovery of part of the cost of the investment, in which case they are recognised in other comprehensive income. Cumulative gains and losses recognised in other comprehensive income are transferred to retained earnings on disposal of an investment.
All other financial assets are classified as measured at FVTPL.
In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.
Business model assessment
The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:
· the stated policies and objectives for the portfolio and the operation of those policies in practice. In particular, whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash flows through the sale of the assets;
leverage features;
terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements);
prepayment and extension terms;
contingent events that would change the amount and timing of cash flows;
features that modify consideration of the time value of money – e.g. periodical reset of interest rates.
Assessment whether contractual cash flows are solely payments of principal and interest
A prepayment feature is consistent with the SPPI criterion if the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding, which may include reasonable compensation for early termination of the contract.
87
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
Financial assets at amortised cost
These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Debt investments at FVOCI
These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.
13
In addition, a prepayment feature is treated as consistent with this criterion if a financial asset is acquired or originated at a premium or discount to its contractual par amount, the prepayment amount substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable compensation for early termination), and the fair value of the prepayment feature is insignificant on initial recognition.
Reclassification
Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.
Financial assets at FVTPLThese assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.
Financial assets – subsequent measurement, gains and losses
Financial liabilities
The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at amortised cost or FVTPL.
Reclassification
Financial liabilities are not reclassified subsequent to their initial recognition.
(ii) Modification of financial assets and financial liabilities
Financial assets
modification'), then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value plus any eligible transaction costs.
Any fees received as part of the modification are accounted for as follows:
fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and
other fees are included in profit or loss as part of the gain or loss on derecognition.
Changes in cash flows on existing financial assets or financial liabilities are not considered as modification, if they result from existing contractual terms, e.g. changes in interest rates initiated by the Group due to changes in the NBRK key rate, if the loan agreement entitles the Group to do so.
The Group performs a quantitative and qualitative evaluation of whether the modification is substantial, i.e. whether the cash flows of the original financial asset and the modified or replaced financial asset are substantially different. The Group assesses whether the modification is substantial based on quantitative and qualitative factors in the following order: qualitative factors, quantitative factors, combined effect of qualitative and quantitative factors. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset deemed to have expired. In making this evaluation the Group analogizes to the guidance on the derecognition of financial liabilities.
The Group concludes that the modification is substantial as a result of the following qualitative factors:
change the currency of the financial asset;
change in collateral or other credit enhancement;
inclusion of conversion feature.
If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximise recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place (see below for write off policy). This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases. The Group further performs qualitative evaluation of whether the modification is substantial.
If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. For floating-rate financial assets, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset.
88
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different (referred referred to as 'substantial
Content Glossary
change in collateral or other credit enhancement;
change the currency of the financial liability;
change in the subordination of the financial liability.
inclusion of conversion option;
13
If such a modification is carried out because of financial difficulties of the borrower (see Note 3(n)), then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest method (see Note 3(c)).
Financial liabilities
The Group derecognises a financial liability when its terms are modified, and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.
Group performs a quantitative and qualitative evaluation of whether the modification is substantial considering qualitative factors, quantitative factors and combined effect of qualitative and quantitative factors. The Group concludes that the modification is substantial as a result of the following qualitative factors:
For the quantitative assessment the terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10 per cent different from the discounted present value of the remaining cash flows of the original financial liability.
If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or loss is recognised in profit or loss. For floating-rate financial liabilities, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs and fees incurred are recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.
(iii) Derecognition
Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss.
The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. In such cases, the transferred assets are not derecognised. Examples of such transactions are securities lending and sale-and-repurchase transactions.
In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. Examples of such transaction are the contracts of rights of claims to loans signed with Mortgage Organisation “Baspana” JSC (Note 17).
If the Group continues recognising asset to the extent of its continuing involvement, the Group also recog-nises a related liability. A transferred assets and liability related to it are measured on the basis, which reflects those rights and liabilities, which the Group has retained. An asset-related liability is measured so that the net carrying amount of the transferred asset and liability related to it represent an amortised cost of the rights and liabilities retained by the Group.
The Group continues recognising income arising on the transferred asset to the extent of its continuing involvement and recognises expense incurred on the associated liability.
If the transferred asset is measured at amortised cost, the associated financial liability may not be designated as at fair value through profit or loss.
Financial liabilities
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.
(iv) Fair value measurement principles
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transac-tion between market participants at the measurement date in the principal, or in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.
89
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substan-tially all of the risks and rewards of ownership of the financial asset are transferred or in which the Group
Content Glossary
13
When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with suffi-cient frequency and volume to provide pricing information on an ongoing basis.
When there is no quoted price in an active market, the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all the factors that market participants would take into account in these circumstances.
The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price, i.e., the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument, but no later than when the valuation is supported wholly by observable market data or the transaction is closed out.
If an asset or a liability measured at fair value has a bid price and an ask price, the Group measures assets and long positions at the bid price and liabilities and short positions at the ask price.
(v) Repurchase and reverse repurchase agreements
Securities sold under sale and repurchase (repo) agreements are accounted for as secured financing transactions, with the securities retained in the consolidated statement of financial position and the counterparty liability included in amounts payable under repo transactions within deposits and balances from banks or current accounts and deposits from customers, as appropriate. The difference between the sale and repurchase prices represents interest expense and is recognised in profit or loss over the term of the repo agreement using the effective interest method.
Securities purchased under agreements to resell (reverse repo) are recorded as amounts receivable under reverse repo transactions within loans to banks or loans to customers, as appropriate. The difference between the purchase and resale prices represents interest income and is recognised in profit or loss over the term of the reverse repo agreement using the effective interest method.
If assets purchased under an agreement to resell are sold to third parties, the obligation to return securities is recorded as a trading liability and measured at fair value.
(h) Loans to customers
'Loans to customers' caption in the consolidated statement of financial position include:
· loans to customers and banks measured at amortised cost (see Note 3(g)(i)); they are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method.
(i) Investment securities
The 'investment securities' caption in the consolidated statement of financial position includes:
debt and equity investment securities mandatorily measured at FVTPL or designated as at FVTPL; these are measured at fair value with changes recognised immediately in profit or loss;
equity investment securities designated as at FVOCI.
debt investment securities measured at amortised cost; these are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method;
debt securities measured at FVOCI; and
Investment securities were initially measured at fair value plus, in the case of investment securities not at FVTPL, incremental direct transaction costs, and subsequently accounted for depending on their classification as either held-to-maturity, FVTPL or available-for-sale.
(j) Property and equipment and intangible assets
(i) Owned assets
Items of property and equipment are stated in the consolidated financial statements at cost less accumulated depreciation and impairment losses, except for buildings and constructions, which are stated at revalued amounts as described below.
Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.
Buildings and constructions are subject to revaluation on a regular basis. The frequency of revaluation depends on the movements in the fair values of the buildings being revalued. A revaluation increase on a building is recognised as other comprehensive income except to the extent that it reverses a previous revaluation decrease recognised in profit or loss, in which case it is recognised in profit or loss. A revaluation decrease on a building is recognised in profit or loss except to the extent that it reverses a previous revaluation increase recognised as other comprehensive income directly in equity, in which case it is recognised in other comprehensive income.
(ii) Intangible assets
Acquired intangible assets are stated at cost less accumulated amortisation and impairment losses.
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.
90
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
Non-current assets, or disposal groups comprising assets and liabilities, that are expected to be recovered primarily through sale rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets, or components of a disposal group, are remeasured in accordance with the Group's accounting policies. Such assets, or disposal group, are generally measured at the lower of their carrying amount and fair value less cost to sell.
Deposits, debt securities issued and subordinated bonds are initially measured at fair value minus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method.
See also Note 4.The Group recognises loss allowances for expected credit losses (ECL) on the following financial instruments that are not measured at FVTPL:
loan commitments issued; and
financial guarantee contracts issued; and
financial assets that are debt instruments;
loan commitments issued.
(l) Assets held-for-sale
(m) Deposits, debt securities issued and subordinated bonds
(n) Impairment
No impairment loss is recognised on equity investments.
The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:
debt investment securities that are determined to have low credit risk at the reporting date; and
other financial instruments (other than lease receivables) on which credit risk has not increased significantly since their initial recognition (see Note 4).
The Group considers a debt investment security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of 'investment grade'.
12-month expected credit losses (ECL) are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Financial instruments for which a 12-month ECL is recognised are referred to as 'Stage 1' financial instruments.
Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. Financial instruments, other than purchased or originated credit-impaired assets, for which a lifetime ECL is recognised are referred to as 'Stage 2' financial instruments (if the credit risk has increased significantly since initial recognition, but the financial instruments are not credit-impaired) and 'Stage 3' financial instruments (if the financial instruments are credit-impaired).
ECL are a probability-weighted estimate of credit losses. They are measured as follows:
financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive);
financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;
undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and
financial guarantee contracts: the present value of expected payments to reimburse the holder less any amounts that the Group expects to recover.
13
Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of the individual assets. Items of property, plant and equipment are depreciated from the date that they are acquired, or in respect of internally constructed assets, from the date that the asset is completed and ready for us. Land is not depreciated.
Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in normal course of business, or for the use in production or supply of goods or services or for administrative purposes. Investment property is initially recognised at the cost of acquisition, including acquisition costs. Subsequently, the investment property is recognised at cost net of accumulated depreciation and impairment loss. Depreciation is charged on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives range from 10 to 40 years.
When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.
Depreciation is charged at the following annual rates:
Furniture and computers
Buildings and other constructions
Intangible assets
1.25-2.50 5.60-20.00 %6.70-100.00 % %
(k) Investment property
91
(iii) Depreciation
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
13
Restructured financial assets
If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECL are measured as follows:
If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset (see Note 4).
If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset.
Credit-impaired financial assets
At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets at FVOCI are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
it is probable that the borrower will enter bankruptcy or other financial reorganisation; or
a breach of contract, such as a default or past due event;
significant financial difficulty of the borrower or issuer;
restructuring of a loan or advance on terms that the Group would not consider otherwise;
the disappearance of an active market for a security because of financial difficulties.
A loan that was renegotiated due to a deterioration in the borrower's condition was usually considered to be credit-impaired unless there was evidence that the risk of not receiving contractual cash flows had reduced significantly and there were no other indicators of impairment. In addition, loans that are overdue for 90 days or more are considered credit-impaired.
In making an assessment of whether an investment in sovereign debt (other financial assets) is credit-impaired, the Group considers the following factors:
The rating agencies' assessments of creditworthiness.
The market's assessment of creditworthiness as reflected in the bond yields.
The country's ability to access the capital markets for new debt issuance
The international support mechanisms in place to provide the necessary support as 'lender of last resort' to that country, as well as the intention, reflected in public statements, of governments and agencies to use those mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political intent, whether there is the capacity to fulfil the required criteria.
The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory debt forgiveness.
Presentation of allowance for ECL in the consolidated financial statements
Loss allowances for ECL are presented in the consolidated statement of financial position as follows:
where a financial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on the loan commitment component separately from those on the drawn component: the Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component (loan issued). Any excess of the loss allowance over the gross amount of the drawn component (loan issued) is presented as a provision; and
financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
loan commitments and financial guarantee contracts: generally, as a provision;
debt instruments measured at FVOCI: no loss allowance is recognised in the consolidated statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value reserve.
Write-offs
Loans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Group determines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level.
Recoveries of amounts previously written off are included in 'impairment losses on 'debt financial assets' in the consolidated statement of profit or loss and other comprehensive income.
Financial assets that are written off could still be subject to enforcement activities in order to comply with the Group's procedures for recovery of amounts due.
Non-financial assets
Other non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. The recoverable amount of goodwill is estimated at each reporting date. The recoverable amount of non-financial assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
92
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
13
For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.
All impairment losses in respect of non-financial assets are recognised in profit or loss and reversed only if there has been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only reversed to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised in consolidated financial statements. An impairment loss in respect of goodwill is not reversed.
A provision is recognised in the consolidated statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the amount of such liability is significant, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
(о) Provisions
In the normal course of business, the Group enters into credit related commitments, comprising undrawn loan commitments, letters of credit and guarantees, and provides other forms of credit insurance.
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt instrument. Loan commitments are firm commitments to provide credit under pre-specified terms and conditions.
Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at fair value. Subsequently, they are measured at the higher of the loss allowance determined in accordance with IFRS 9 and the amount initially recognised less, when appropriate, the cumulative amount of income recognised in accordance with the principles of IFRS 15.
The Group has issued no loan commitments that are measured at FVTPL. For other loan commitments the Group recognises a loss allowance.
(р) Financial guarantees and loan commitments
(q) Share capital
(i) Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of the ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
(ii) Preference shares
Preference share capital that is non-redeemable and carries no mandatory dividends is classified as equity.
(iii) Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a decrease in equity.
(iv) Dividends
The ability of the Group to declare and pay dividends is subject to the rules and regulations of Kazakh legislation.
Dividends in relation to ordinary shares are reflected as an appropriation of retained earnings in the period when they are declared.
(r) Taxation
Income tax comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items of other comprehensive income or transactions with shareholders recognised directly in equity, in which case it is recognised within other comprehensive income or directly within equity.
Current tax
Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from dividends.
Deferred tax
Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences:
temporary differences related to investments in subsidiaries, associates and joint arrangements to the extent that where the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future.
temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;
initial recognition of goodwill not deductible for tax purposes;
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be used. Future taxable profits are determined based on the reversal of relevant taxable temporary differ-ences. If the amount of taxable temporary differences is insufficient to recognise a deferred tax asset in full, then future taxable profits, adjusted for reversals of existing temporary differences, are considered, based on the business plans for individual subsidiaries in the Group. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when the probability of future taxable profits improves.
93
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
An operating segment is a component of a Group that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses related to transactions with other compo-nents of the same Group); whose operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.
(s) Segment reporting
Policy applicable from 1 January 2019
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.
This policy is applied to contracts entered into, on or after 1 January 2019.
As a lessee
At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price. The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any
(t) Leases
initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.
The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.
The Group determines its incremental borrowing rate by obtaining interest rates from various external and internal financing sources and makes certain adjustments, if appropriate, to reflect the terms of the lease and type of the asset leased.
The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group's estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.
The Group used a number of practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Group:
did not recognise right-of-use assets and liabilities for leases for which the lease term is less than 12 months;
excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application.
The impact on transition to IFRS 16 was immaterial. The adoption of IFRS 16 had no material impact on the Group's consolidated financial statements as at 31 December 2019.
13
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
In accordance with the tax legislation of the Republic of Kazakhstan, tax losses and current tax assets of a company in the Group may not be set off against taxable profits and current tax liabilities of other Group companies. In addition, the tax base is determined separately for each of the Group's main activities and, therefore, tax losses and taxable profits related to different activities cannot be offset.
94
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
Content Glossary
qualitative indicators; and
quantitative test based on movement in probability of default (PD);
backstop of 30 days past due.
Credit risk grades
The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the risk of default and applying experienced credit judgement. Credit risk grades are defined using qualitative and quantitative factors that are indicative of the risk of default. These factors may vary depending on the nature of the exposure and the type of borrower.
Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference between credit risk grades 2 and 3.
Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The monitoring typically involves use of the following data.
All exposures (corporate and retail exposures)
Information obtained during periodic review of customer files – e.g. audited financial statements, management accounts, budgets and projections. Examples of areas of particular focus are: gross profit margins, financial leverage ratios, debt service coverage, compliance with covenants, quality of management, senior management changes.
Corporate exposure
Payment record – this includes overdue status as well as a range of variables about payment ratios.
13
the arrangement had conveyed a right to use the asset.
fulfilment of the arrangement was dependent on the use of a specific asset or assets; and
An arrangement conveyed the right to use the asset if one of the following was met:
the purchaser had the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output; or
facts and circumstances indicated that it was remote that other parties would take more than an insignificant amount of the output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output.
the purchaser had the ability or right to operate the asset while obtaining or controlling more than an insignificant amount of the output;
For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease based on the assessment of whether:
Assets held under other leases were classified as operating leases and were not recognised in the Group's consolidated statement of financial position. Payments made under operating leases were recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received were recognised as an integral part of the total lease expense, over the term of the lease.
(u) New standards and interpretations not yet adopted
The following amended standards and interpretations are not expected to have a significant impact on the Bank's financial statements:
A number of new standards are effective for annual periods beginning after 1 January 2019 and earlier application is permitted; however, the Bank has not early adopted the new or amended standards in preparing these financial statements.
Definition of Material (Amendments to IAS 1 and IAS 8).
IFRS 17 Insurance Contracts.
Definition of a Business (Amendments to IFRS 3).
Amendments to References to Conceptual Framework in IFRS Standards.
4. FINANCIAL RISK REVIEW
This note presents information about the Group's exposure to financial risks. For information on the Group's financial risk management framework, see Note 27 to the Group's consolidated financial statements for the year ended 31 December 2019.
Credit risk - Amounts arising from ECL
See accounting policy in Note 3(n).
Significant increase in credit risk
the remaining lifetime probability of default (PD) as at the reporting date; with
the remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted where relevant for changes in prepayment expectations).
The Group uses the following three criteria for determining whether there has been a significant increase in credit risk:
When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Group's historical experience and informed credit assessment and including forward-looking information.
The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by comparing:
95
Policy applicable before 1 January 2019
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SIGNIFICANT ACCOUNTING POLICIES
FINANCIAL RISK REVIEW
Content Glossary
As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due or, for inter-bank mounts owe and securities, more than 7 days past due. Days past due are determined by counting the number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are determined without considering any grace period that might be available to the borrower.
If there is evidence that there is no longer a significant increase in credit risk relative to initial recognition, then the loss allowance on an instrument returns to being measured as 12-month ECL. Some qualitative indicators of an increase in credit risk, such as delinquency of forbearance, may be indicative of an increased risk of default that persists after the indicator itself has ceased to exist. In these cases the Group determines a probation period during which the financial asset is required to demonstrated good behaviour to provide evidence that its credit risk has declined sufficiently. When contractual terms of a loan have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes history of up-to-date payment performance against the modified contractual terms.
The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to confirm that:
the average time between the identification of a significant increase in credit risk and default appears reasonable;
the criteria do not align with the point in time when an asset becomes 30 days past due;
exposures are not generally transferred directly from 12-month ECL measurement (Stage 1) to credit-impaired (Stage 3); and
the criteria are capable of identifying significant increases in credit risk before an exposure is in default;
there is no unwarranted volatility in loss allowance from transfers between 12-month ECL (Stage 1) and lifetime ECL measurements (Stage 2).
Modified financial assets
The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the borrower. An existing loan whose terms have been modified may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance with the accounting policy set out in Note 3(g)(ii).
When the terms of a financial asset are modified and the modification does not result in derecognition, the determination of whether the asset's credit risk has increased significantly reflects comparison of:
13
Data from credit reference agencies, press articles, changes in external credit ratings.
Quoted bond and credit default swap (CDS) prices for the issuer where available.
· Utilisation of the granted limit.
Requests for and granting of forbearance.
Existing and forecast changes in business, financial and economic conditions.
Actual and expected significant changes in the political, regulatory and technological environment of the borrower or in its business activities.
Generating the term structure of PD
Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures analysed by jurisdiction or region and by type of product and borrower as well as by credit risk grading.
The Group employs statistical models to analyse the data collected and generate estimates of the remaining lifetime PD of exposures and how these are expected to change as a result of the passage of time.
This analysis includes the identification and calibration of relationships between changes in default rates and changes in key macro-economic factors as well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the risk of default. For majority of exposures the key driver would be GDP forecast growth.
The Group uses expert judgment in assessment of forward-looking information. This assessment is based also on external information (see discussion below on incorporation of forward-looking information). The Group then uses these forecasts to adjust its estimates of PDs.
Determining whether credit risk has increased significantly
The criteria for determining whether credit risk has increased significantly vary depending on different types of lending, in particular between corporate and retail, as well as by portfolio and include both quantitative changes in PDs and qualitative factors, including a backstop based on delinquency. Credit risk of a particular exposure is deemed to have increased significantly since initial recognition if, based on the Group's quantitative modelling, it is determined that there are the objective factors resulting in deterioration of financial and economic position of the counteragent. When determining whether credit risk has increased significantly, remaining lifetime ECLs are adjusted for changes in maturity.
The credit risk may also be deemed to have increased significantly since initial recognition based on qualitative factors linked to the Group's credit risk management processes that may not otherwise be fully reflected in its quantitative analysis on a timely basis. This will be the case for exposures that meet certain heightened risk criteria, such as placement on a watch list, restructuring feature that results in transfer to Stage 3. Such qualitative factors are based on its expert judgement and relevant historical experience.
96
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
· its remaining lifetime PD at the reporting date based on the modified terms; with
Content Glossary
the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or
the borrower is more than 90 days past due on any material credit obligation to the Group;
it is becoming probable that the borrower will restructure the asset as a result of bankruptcy due to the borrower's inability to pay its credit obligations.
Inclusion of forecasting information
The Group incorporates forward-looking information into both the assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and the measurement of ECL. The Group uses expert judgment in assessment of forward-looking information. This assessment is based on the information from external sources.
The Group has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and credit losses. The key driver is GDP forecasts.
Predicted relationships between the key indicator and default and loss rates on various portfolios of financial assets have been developed based on analysing historical data for the last 5 years.
Measurement of expected credit losses (ECL)
The key inputs into the measurement of ECL are the term structure of the following variables:
probability of default (PD);
loss given default (LGD);
exposure at default (EAD).
ECL for exposures in Stage 1 is calculated by multiplying the 12-month PD by LGD and EAD.
The Group generally estimates these parameters based on statistics models and other historical data. They are adjusted to reflect forward-looking information as described above.
PD estimates are estimates at a certain date, which are calculated separately for each loan portfolio, based on Roll Rate model (Markov chains) applied to the loan portfolios with similar credit risk characteristics. The probability of transition of loan portfolio segment from one 'past due' stage to Stage 3 (default) is determined with the use of migration matrices based on historical data. Depth of historical data has to be a least 60 periods. Adjustment to average transition matrix will be made, with economic conditions taken into account, by adding standard normal distribution of an average matrix of each segment and z-criterion of macroeconomic factor. A macroeconomic factor is GDP growth. Official statistics data (official websites of regulatory authority, statistics agencies of the Republic of Kazakhstan) are used as inputs for estimates, with economic conditions taken into account. PDs are estimated considering the contractual maturities of exposures and estimated prepayment rates.
13
the remaining lifetime PD estimated based on data at initial recognition and the original contractual terms.
When modification results in derecognition, a new loan is recognised and allocated to Stage 1 (assuming it is not credit-impaired at that time).
The Group renegotiates loans to customers in financial difficulties (referred to as 'forbearance activities') to maximise collection opportunities and minimise the risk of default. Under the Group's forbearance policy, loan forbearance is granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk of default, there is evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the debtor is expected to be able to meet the revised terms.
The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms of loan covenants. Both retail and corporate loans are subject to the forbearance policy.
For financial assets modified as part of the Group's forbearance policy, the estimate of PD reflects whether the modification has improved or restored the Group's ability to collect interest and principal and the Group's previous experience of similar forbearance action. As part of this process, the Group evaluates the borrower's payment performance against the modified contractual terms and considers various behavioural indicators.
Generally, forbearance is a qualitative indicator of a significant increase in credit risk and an expectation of forbearance may constitute evidence that an exposure is credit-impaired (see Note 3(n)). A customer needs to demonstrate consistently good payment behaviour over a period of time before the exposure is no longer considered to be credit-impaired/ in default or the PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12-month ECL.
Definition of default
The Group considers a financial asset to be in default when:
based on data developed internally and obtained from external sources.
quantitative – e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and
Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances.
97
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
In assessing whether a borrower is in default, the Group considers indicators that are:
· qualitative – e.g. breaches of covenant;
Content Glossary
instrument type;
credit assets segmentation;
restructuring indicators.
The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately homogeneous.
For portfolios in respect of which the Group has limited historical data, external benchmark information is used to supplement the internally available data. The portfolios for which external benchmark information represents a significant input into measurement of ECL are as follows.
External benchmarks used
Credit quality analysis
The following table sets out information about the credit quality of financial assets measured at amortised cost, FVOCI investment securities as at 31 December 2019. Unless specially indicated, for financial assets, the amounts in the table represent gross carrying amounts.
Explanation of the terms: Stage 1, Stage 2, Stage 3, and POCI are included in Note 3(n).
Stage 112-month
expected credit losses (ECL)
Stage 2Lifetime ECL
of assets not credit-impaired
Total
rated from AА- to АA+
rated from A- to А+
- rated from BBB- to BBB+
rated from BB- to BB+
rated from B- to B+
31 December 2019
Stage 3Lifetime ECL
for credit-impaired assets
Cash and cash equivalents
7,822
25,373
50,014
5,836
3,929
not rated 604
7,822- -
25,373
50,014
5,836
3,929
604
- -
- -
- -
- -
- -
93,578 93,578
(158)Loss allowance (158)- -
93,420Total cash and cash equivalents(less cash on hand)
93,420- -
Investment securities measured at amortised cost
4,355rated from BBB- to BBB+ 4,355- -
Loss allowance - - --
4,355Total investment securities at amortised cost
4,355- -
13
The Group estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. LGD estimates are recalibrated for different economic scenarios and, for real estate lending, to reflect possible changes in property prices. They are calculated on a discounted cash flow basis using the effective interest rate as the discounting factor.
EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. The EAD of a financial asset is its gross carrying amount at the time of default. For lending commitments, the EAD includes both the recovered amount and potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. For financial guarantees, the EAD represents the guarantee exposure when the financial guarantee becomes payable.
As described above, and subject to using a maximum of a 12-month PD for Stage 1 financial assets, the Group measures ECL considering the risk of default over the maximum contractual period (including any borrower's extension options) over which it is exposed to credit risk, even if, for credit risk management purposes, the Group considers a longer period.
Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of shared risk characteristics that include:
PD
Cash and cash equivalents
LGD
158,868 175,413
Moody's default study
0% - if the Government of the Republic of Kazakhstan acts as a counterparty
70%;
LGD for investment securities, whose issuers are financial institutions is equal
to 70%, for other companies LGD is based on the history of recovery rates
depending on rating;
Carrying amount at 31 December
2019
Carrying amount at 31 December
2018
Due from banks
9,102 31,292
Investment securities 164,897 177,790
Moody's default study
0% - if the Government of the Republic of Kazakhstan acts as a counterparty
98
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
Content Glossary
Debt investment securitiesat FVOCI
rated from AА- to АA+
rated from BBB- to BBB+
rated from BB- to BB+
9,759
124,087
26,330
9,759- -
124,087
26,330
- -
- -
160,176Total debt investment securities at fair value through othercomprehensive income
160,176- -
(146)Loss allowance (146)- -
159,976
Total carrying amount of investment securities measured at fair value through other comprehensive income - debt
159,976- -
rated from AА- to АA+
rated from BBB- to BBB+
not rated
Due from banks
3,126
5,934
50
3,126- -
5,934
50
- -
- -
(8)Loss allowance (8)- -
9,110 9,110- -
9,102Total due from banks 9,102- -
Loans to corporate customers measured at amortised cost
Stage 112-month expected
credit losses (ECL)
Stage 2Lifetime ECL of assets not
credit-impaired
Originated credit-impaired
financial assets
(or POCI- assets)
31 December 2019
Stage 3Lifetime
ECL for credit-impaired assets
Total
Not overdue loans 317,782 72,960 1,712 540,277147,823
Overdue loans:
overdue less than 30 days 1,853 476 301 17,54514,915
overdue 31-60 days - 3,642 6,7143,072
overdue 61-90 days - 52 3,7533,701
overdue 91-180 days - 2,1192,119
overdue more than 180 days - 29,74329,743
-
-
-
-
-
-
319,635 600,151201,37377,130 2,013
Loss allowance (1,084) (2,667) - (107,977)(104,226)
Total loans to corporate customers measured at amortised cost
318,551 492,17497,147 74,463 2,013
13
99
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
Stage 112-month
expected credit losses (ECL)
Stage 2Lifetime ECL
of assets not credit-impaired
Total
31 December 2019
Stage 3Lifetime ECL
for credit-impaired assets
Cash and cash equivalents
Content Glossary
Loans to individuals measured at amortised cost
Not overdue loans 240,220 28,647 - 275,3296,462
Overdue loans:
overdue less than 30 days
7,029 2,285 - 11,3932,079
overdue 31-60 days - 3,050 3,593543
overdue 61-90 days - 2,300 2,852552
overdue 91-180 days - 5,2305,230
overdue more than 180 days - 51,43951,439
-
-
-
-
-
-
247,249 349,83666,30536,282 -
Loss allowance (1,961) (1,286) - (25,232)(21,985)
Total loans to individuals measured at amortised cost
245,288 324,60444,32034,996 -
Loans under reverse repo agreements
Reverse repo agreements
61,771 61,771- --
Loss allowance - -- --
Total loans under reverse repo agreements
61,771 61,771-- -
13
Stage 112-month
expected credit losses (ECL)
Stage 2Lifetime ECL of assets not
credit-impaired
Total
31 December 2018
Stage 3Lifetime ECL for
credit-impaired assets
Cash and cash equivalents
rated from AА- to АA+
rated from A- to А+
rated from BBB- to BBB+
2,577
9,853
2,577- -
9,853- -
- -100,787 100,787
- -5,733 5,733
(73)Loss allowance (73)- -
123,496Total cash and cash equivalents (less cash on hand)
123,496- -
Investment securities measured at amortised cos
rated from BBB- to BBB+
rated from BB- to BB+
5,908
1,009
5,908- -
1,009- -
(6)Loss allowance (6)- -
Total investment securities measured at amortised cost
6,911 6,911- -
rated from BB- to BB+
- -4,285 4,285rated from B- to B+
- -334 334not rated
- -123,569 123,569
rated from B- to B+ - -- -
6,917 6,917- -
100
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
Stage 112-month expected
credit losses (ECL)
Stage 2Lifetime ECL of assets not
credit-impaired
Originated credit-impaired
financial assets
(or POCI- assets)
31 December 2019
Stage 3Lifetime
ECL for credit-impaired assets
Total
Content Glossary
13
Due from banks
rated from BBB- to BBB+
rated from BB- to BB+
1,826
1,014
1,826- -
1,014- -
rated from B- to B+
not rated
5,901 19,216 25,117-
3,907 - - 3,907
12,648 19,216 - 31,864
Loss allowance (87) (485) - (572)
12,561 18,731 - 31,292Total due from banks
rated from BBB- to BBB+
rated from BB- to BB+
104,193
66,526
104,193- -
66,526- -
170,719 170,719- -
Debt investment securities at FVOCI
Total investment securities at fair value through other comprehensive income-debt
Loss allowance (165) (165)- -
Total carrying amount of investment securities measuredat fair value through other comprehensive income - debt
174,313 174,313
Stage 112-month expected
credit losses (ECL)
Stage 2Lifetime ECL of assets not
credit-impaired
Originated credit-
impaired financial assets
(POCI-assets)
31 December 2018
Stage 3Lifetime
ECL for credit-impaired assets
Total
Not overdue loans 311,034 65,932 478 427,12349,679
Overdue loan:
Loans to corporate customers measured at amortised cost
overdue less than 30 days 539 6,908 2,200 78,64969,002
overdue 31-60 days - 163 30,61730,454
overdue 61-90 days - 45 18,18218,137
overdue 91-180 days - 18,89218,357
overdue more than 180 days
- 31,99631,996
-
-
-
-
535
-
311,573 605,459217,62573,048 3,213
Loss allowance (982) (2,004) - (106,192)(103,206)
310,591 499,267114,41971,044 3,213
Total loans to corporate customers measured at amortised cost
101
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
Stage 112-month
expected credit losses (ECL)
Stage 2Lifetime ECL of assets not
credit-impaired
Total
31 декабря 2018 года
Stage 3Lifetime ECL for
credit-impaired assets
Content Glossary
13
Loans to individuals measured at amortised cost
Not overdue loans 246,165 36,681 - 292,1679,321
Overdue loans:
overdue less than 30 days
6,954 2,848 29,88420,082
overdue 31-60 days - 3,841 4,253412
overdue 61-90 days - 3,328 9,1065,778
overdue 91-180 days - 7,1987,198
overdue more than 180 days
- 46,61346,613
-
-
-
- -
253,119 389,22189,40446,698
-
-
-
Loss allowance
Total loans to individuals measured at amortised cost
252,291 362,24764,13845,818 -
(25,266) - (26,974)(880)(828)
Loans under reverse repo agreements
Reverse repo agreement
-75,071 - - 75,071
Loss allowance -- -- -
Total loans under reverse repo agreements -75,071 - - 75,071
5. NET INTEREST INCOME
Interest income calculated using the effective interest rate method
interest income on assets not credit-impaired 89,353 77,127
Year ended 31 December 2019
Year ended 31 December 2018
Interest income on financial assets measured at amortised cost:
interest income on credit-impaired assets 18,846 22,736
Interest income on financial assets measured at fair value through other comprehensive income 11,310 10,247
Total interest income calculated using the effective interest rate method 119,509 110,110
Interest income on financial assets measured at amortised cost comprises:
Interest on loans to customers and banks 104,447 96,789
Interest on investment securities measured at amortised cost 1,145 1,281
Penalties on loans to customers and banks 1,164 614
Interest on due from banks 1,443 1,179
108,199 99,863
Interest income on financial assets at fair value through profit or loss and investments in net finance lease
1,472 1,593
Other interest income 1,472 1,593
Total interest income 120,981 111,703
Interest expense:
Interest expense on financial liabilities measured at amortised cost (62,004) (65,855)
Total interest expense (62,004) (65,855)
102
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL RISK REVIEW
NET INTEREST INCOME
Stage 112-month expected
credit losses (ECL)
Stage 2Lifetime ECL of assets not
credit-impaired
Originated credit-
impaired financial assets
(POCI-assets)
31 December 2018
Stage 3Lifetime
ECL for credit-impaired assets
Total
Content Glossary
13
Interest expense on financial liabilities measuredat amortised cost:
Interest on customer and bank accounts
Interest on debt securities issued
Interest on due to banks and financial institutions
Interest on subordinated bonds
103
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
NET INTEREST INCOME
Year ended 31 December 2019
Year ended 31 December 2018
(37,702) (45,366)
(8,960) (4,218)
(7,705) (8,308)
(7,637) (7,963)
(62,004) (65,855)Total interest expense on financial liabilities measured at amortised cost
58,977 45,848
Content Glossary
17,605 101 3,709 2,797 2,967 (2) 27,20225
6. CHARGE OF EXPECTED CREDIT LOSS ALLOWANCE FOR INTEREST BEARING ASSETS
Small and medium-sized enterprises
Consumer loans
Business development
Carloans
Corporate loans
Loans tobanks
Total loans to customers
and banks
Years ended31 December 2018and 31 December 2019
Mortgage loans
1 January 2018 (restated) 7,704 5,749 115 150,548-116,215 13,804 6,961
Charge/(recovery) of allowance*
1,900 881 32 792 7 - 3,612-New financial assets originated or purchased*
4,425Effect of unwinding of discount** 8 190 380 5,491-438 50
(46,649)Write-off of assets (2,694) (352) (45) (57,678)-(4,752) (3,186)
173 74 793 396 62 15 1,513-Recoveries of amounts previously written off
1,771Foreign exchange difference 186 173 2 2,503-206 165
95,44031 December 2018 (restated) 9,189 8,796 465 133,1912510,752 8,524
95,4401 January 2019 (restated) 9,189 8,796 465 133,1912510,752 8,524
21,700 1,637 7,162 4,877 3,610 (35) 38,931(20)Charge/(recovery) of allowance*
434 238 10 2,018 21 - 2,7265
-
New financial assets originated or purchased*
3,755Effect of unwinding of discount** 236 323 1 4,874-506 53
(19,706)Write-off of assets (6,592) (6,155) (373) (45,372)-(4,879) (7,667)
273 145 413 384 135 40 1,390-Recoveries of amounts previously written off
(2,253)Foreign exchange difference (83) (51) (1) (2,521)-(65) (68)
99,64331 December 2019 10,029 6,679 97 133,219108,334 8,427
*Provisions recognised during the twelve months ended 31 December 2019 and 2018 are presented in the consolidated statement of profit or loss in “Charge of credit loss allowance for interest-bearing assets” line item.
**Unwinding of discount on present value of expected credit losses.
13
104
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
CHARGE OF EXPECTED CREDIT LOSS ALLOWANCE FOR INTEREST BEARING ASSETS
Content Glossary
7. FEE AND COMISSION INCOME/(EXPENSE)
For the year ended31 December
2019
Payment cards 8,090 6,994
For the year ended31 December
2018
Settlement 7,799 6,544
Cash operations 4,590 4,736
Guarantees issued 4,428 3,853
Custodian activities 263 266
Documentary operations 112 148
Internet banking services 112 584
Trust operations 100 181
Foreign exchange operations - 408
Other 988 840
26,482 24,554
9. NET GAIN ON FOREIGN EXCHANGE OPERATIONS
For the year ended31 December
2019
Dealing operations, net 5,545 5,967
For the year ended31 December
2018
Translation differences, net (308) (3,077)
5,237 2,890
13
Total fees and commissions income
Payment cards (5,666) (3,166)
Settlement (1,151) (544)
Documentary operations (275) (336)
Custody activities (131) (109)
Other (497) (232)
Total fees and commissions expenses (7,720) (4,387)
18,762 20,167
Commissions income that are not integral to the effective interest rate on a financial asset or financial liability, is recognised depending on the type of the service either at the point in time or over time as the Group satisfies its performance obligation under the contract:
· commission for settlement operations, cash operations, payment card operations, Internet-banking services, foreign exchange operations is charged for the execution of payment order in accordance with tariffs depending on the type of the transaction and recognised as income at the moment of the transaction execution;
· commission fee on guarantees and letters of credit issued is paid in advance and is recognised as income over the time of the relevant guarantee or letter of credit.
Contract balances
The following table provides information about receivables and contract liabilities from contracts with customers.
Receivables which are included in 'other assets' (Note 19) 8,246 8,122
8. NET GAIN ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
Year ended31 December
2019
Realised gain on trading operations 238 293
Year ended31 December
2018
Unrealised gain on operations with derivative financial instruments 9 4,068
Unrealised gain/(loss) on movement in fair value 211 (1,036)
Realised gain on operations with derivative financial instruments 692 742
1,150 4,067
10. OPERATING EXPENSES
For the year ended31 December
2019
Wages and salaries 18,142 13,287
For the year ended31 December
2018
Taxes other than on income 3,694 3,252
3,217 2,579Administrative expenses
Short-term lease expenses 3,218 2,759
105
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FEE AND COMISSION INCOME/(EXPENSE)
NET GAIN ON FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS.
For the year ended31 December
2019
For the year ended31 December
2018KZT mln
NET GAIN ON FOREIGN EXCHANGE OPERATIONS.
Content Glossary
In 2019, the applicable tax rate for current and deferred tax is 20% (2018: 20%).
Reconciliation of effective tax rate for the year ended 31 December:
11. INCOME TAX EXPENSE
For the year ended 31 December
2019
Current year tax expense 8 -
For the year ended 31 December
2018
Movement in deferred tax liabilities due to origination and reversal of temporary differences and movement in loss allowance 381 2,392
Total income tax expense 389 2,392
Profit before income tax 2,373 11,561
31 December 2019 %
31 December 2018 %
Income tax at the applicable income tax rate 475 20.00 2,312 20.00
(a) Deferred tax assets and liabilities
Temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes give rise to deferred tax liabilities as at 31 December 2019 and 31 December 2018.
Movements in temporary differences during 2019 and 2018 are presented as follows:
Accrued interest payable 123
Investment securities measured at fair value through other comprehensive income
159 - (197) (38)
Balance at 1 January 2019
Recognised in profit or loss
Recognised in equity
Balance at 31 December
20192019
(57) - 66
Tax loss carried forward 1,123 - - 1,123
164 278114 -Other
Effect of modification of financial assets terms
405 (148) - 257
Discount on loans to customers - 493 - 493
Discount on low-interest customers and banks accounts
(240) (621) - (861)
13
3,212 2,645Depreciation and amortisation
Contributions to Deposit Insurance Fund 1,982 2,380
Security and security alarming expenses 1,162 875
835 660Telecommunications
Professional services 680 255
512 580Collection expenses
452 503Equipment repair and maintenance
Advertising costs 401 344
341 350Business travel expenses
51 39Representation expenses
Other expenses 847 724
38,746 31,232
For the year ended31 December
2019
For the year ended31 December
2018Non-taxable interest and other income on transactions with state and other qualified securities
(1,365) (57.5) - -
Change in unrecognised deferred tax assets
(8) (0.4)
Non-taxable income (14) 0.61 (945) (8.17)
Non-deductible operating and other expenses 1,301 54.8 1,025 8.87
389 20.6916.39 2,392
31 December 2019 %
31 December 2018 %
106
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
OPERATING EXPENSES
Content Glossary
Discount on subordinated bonds
(7,564) 189 - (7,375)
Property, plant and equipment and intangible assets
(3,269) (351) - (3,620)
(9,099) (9,677)(381) (197)
Accrued interest payable 101
Balance at1 January 2018
Recognised in profit or loss
Recognised in equity
Balance at 31 December
2018
Financial assets and liabilities at fair value through profit or loss
113 46 - 159
2018
22 - 123
Tax loss carried forward 171 (909) 1,123
320 164(156) -Other
Effect of modification of financial assets terms
- (204) 405
1,861
609
Discount on low-interest funds of customers and banks
- (240) (240)-
Discount on subordinated bonds
(6,987) (577) (7,564)-
Property, plant and equipment and intangible assets
(3,298) (374) (3,269)403
(9,580) (9,099)(2,392) 2,873
13
107
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
OPERATING EXPENSES
Balance at 1 January 2019
Recognised in profit or loss
Recognised in equity
Balance at 31 December
20192019
Content Glossary
12. EARNINGS PER SHARE
Basic and diluted earnings per share are calculated by dividing the net income for the period attributable to equity holders of the parent by the weighted average number of participating shares outstanding during the period.
Year ended31 December
2019
Basic earnings per share
Year ended31 December
2018
Net earnings attributable to shareholders of the Bank 1,984 9,116
Less: additional dividends payable upon full distribution of profit to the preferred share holders
(2) (17)
Net earnings attributable to ordinary shareholders 1,982 9,099
Weighted average number of ordinary shares for purposes of basic earnings per share 161,293,951 160,889,241
Basic earnings per share (in KZT) 12.29 56.55
Diluted earnings per share
Net earnings attributable to ordinary shareholders1,982 9,099
Add: additional dividends payable upon full distributions of profit to the preferred shareholders 2 17
Earnings used in calculation of diluted earnings per share 1,984 9,116
Weighted average number of ordinary shares 161,293,951 160,889,241
Shares deemed to be issued:Weighted average number of ordinary shares that would be issued for the convertible preferred shares
219,968 7,698,529
Weighted average number of ordinary shares for purposes of diluted earnings per share 161,513,919 168,587,770
Diluted earnings per share (tenge) 12.28 54.07
The Group has calculated the book value of one share per each class of shares in accordance with the methodology for computation of the book value of one share provided by KASE.
The book value of one share per each class of shares as at 31 December 2019 and 31 December 2018 is as follows:
31 December 2019
Ordinary shares Preference shares
Outstanding shares
(number of shares)
160,509,129
148,073
107,937
Amount for calculation
of book valueKZT million
Book value of one share,
KZT
107,893
44
672
297
160,024,977
295,414
100,284
100,195
89
626
300
31 December 2018
The book value of one preference share is calculated as the ratio of the amount of equity attributable to preference shares to the outstanding number of preference shares as at the reporting date. The book value of one ordinary share is calculated as the ratio of the amount of net asset value of the Group for ordinary shares to the outstanding number of ordinary shares as at the reporting date. The net asset value of the Group for ordinary shares is calculated as the total equity net of intangible assets and the amount of equity attributable to preference shares as at reporting date. Outstanding number of ordinary and preference shares is calculated as outstanding shares authorised and issued net of repurchased shares by the Group as at the reporting date.
13
The management believes that the Group fully complies with the requirement of KASE as at the reporting date.
108
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
EARNINGS PER SHARE
Outstanding shares
(number of shares)
Amount for calculation
of book valueKZT million
Book value of one share,
KZT
Content Glossary
31 December 2019
Cash on hand
31 December 2018
rated from AА- to АA+
Total gross nostro accounts with other banks 44,677 22,962
Total gross term deposits with other banks 5,796 6,219
Total current accounts and term deposits with other banks
5,662 6,164
13. CASH AND CASH EQUIVALENTS
65,448 51,917
Nostro accounts with NBRK 43,105 94,388
Nostro accounts with other banks
rated from A- to A+
7,822 2,577
rated from BBB- to BBB+
25,373 9,853
rated from BB- to BB+
6,909 4,411
rated from B- to B+
3,929 5,733
not rated
40 54
604 334
Loss allowance (24) (18)
Total nostro accounts with other banks 44,653 22,944
Term deposits with other banks
rated from BBB- to BBB+ - 1,988
rated from B- to B+ 5,796 4,231
Loss allowance (134) (55)
Total cash and cash equivalents 158,868 175,413
The credit ratings are presented by reference to the credit ratings of Standard and Poor's credit rating agency or analogues of similar international agencies.
All cash and cash equivalents are categorised into Stage 1 of credit risk grading.
As at 31 December 2019 the Group has accounts with two banks (31 December 2018: 1 bank), whose balances exceed 10% of equity. The gross value of these balances as at 31 December 2019 is KZT 73,869 million (31 December 2018: KZT 94,388 million).
Minimum reserve requirements
As at 31 December 2019 minimum reserve requirements are calculated in accordance with regulations issued by the NBRK. To meet the minimum reserves requirements the Bank places cash in reserve assets, which are required to be maintained at the level of not less than the average amount of cash on hand denominated in national currency and balance on the current account with the NBRK in the national currency for 4 weeks, calculated as certain minimum level of deposits and current accounts of the customers that are residents and non-residents of the Republic of Kazakhstan, and of other liabilities of the Bank. As at 31 December 2019 the minimum reserve requirements amounted to KZT 13,749 million (31 December 2018: KZT 12,704 million) and reserve asset amounted to KZT 17,089 million (31 December 2018: KZT 34,866 million).
14. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
ASSETS Nominal interest rate, %
31 December 2019
31 December 2018
Nominal interest rate, %
Held by the Group
Derivative financialinstruments
Foreign currency contracts 27,177-
27,177-
Trading securities
Debt securities
- Government bonds of the Republic of Kazakhstan 4,0933.88-9.6 542 2.38-9.6
- Corporate bonds 7,7366.30-15 8,945 4.63-15.00
Equity securities*
Shares of Kazakhstan corporations 2,754 1,036
Shares of International corporations 46-
12,241 12,911
Pledged under sale and repurchase agreements
- Government bonds of the Republic of Kazakhstan 3.88-6.50 3,604 3.88-9.20 1,052
13
Financial assets at fair value through profit or loss comprise:
109
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
CASH AND CASH EQUIVALENTS
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
Content Glossary
- Corporate bonds 1,5366.3-15.00 3,544 9.00-15.00
2,5887,148
42,67619,389
LIABILITIESNominal
interest rate, %31 December
201931 December
2018Nominal
interest rate, %
Derivative financial instruments
Foreign currency contracts (12,668)-
(12,668)-
* Ownership interest in equity securities is below 1%
The tables below provide analysis of credit quality of debt securities at fair value through profit or loss based on Standard and Poor's ratings or ratings of other international rating agencies as at 31 December 2019:
Government bonds of the Republic of Kazakhstan
2,584rated BBB- to BBB+
Corporate bonds Total
4,146 6,730
1,681rated BB- to BB+ - 1,681
8,224rated B- to B+ - 8,224
12,489 16,6354,146
The tables below provide analysis of credit quality of debt securities at fair value through profit or loss based on Standard and Poor's ratings or ratings of other international rating agencies as at 31 December 2018:
131rated from BBB- to BBB+ 5,145 5,276
1,382rated from BB- to BB+ - 1,382
7,759rated from B- to B+ - 7,759
9,272 14,4175,145
15. NVESTMENT SECURITIES
31 December 2019
Investment securities at fair value through other comprehensive income
31 December 2018
160,542 170,879
Total investment securities 164,897 177,790
Investment financial assets at amortised cost 4,355 6,911
Инвестиционные ценные бумаги, оцениваемые по справедливой стоимости через прочий совокупный доход
Nominalinterest rate, %
31 December 2019
31 December 2018
Nominal interest rate, %
Government bonds of the Republic of Kazakhstan
Debt securities
5.3-10.2 21,882 2.38- 10.2 42,110
Corporate bonds 2.12-8.5 63,713 3.88-11.5 88,016
NBRK discounted notes 74,581 40,593
Equity securities
Shares of Kazakhstan corporations 345 138
Shares of International corporations 21 22
160,542 170,879
All investment securities are categorised into Stage 1 of credit risk grading.
Investment securities measured at amortised cost
Nominal interest rate, %
31 December 2019
31 December 2018
Nominal interest rate, %
Government bonds of the Republic of Kazakhstan
Debt securities
5.80-6.70 2,529 5.60-6.70 5,908
Corporate bonds 8.5 1,826 8.0 1,009
4,355 6,917
Allowance for expected credit losses
- (6)
4,355 6,911
13
Government bonds of the Republic of Kazakhstan
Corporate bonds Total
110
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
INVESTMENT SECURITIES
ASSETS Nominal interest rate, %
31 December 2019
31 December 2018
Nominal interest rate, %
None of financial assets at fair value through profit and loss are past due.
Content Glossary
The credit ratings are presented by reference to the credit ratings of Standard&Poor's credit ratings agency or analogues of similar international agencies.
As at 31 December 2019 all due to banks are categorised into Stage 1 of credit risk grading.
As at 31 December 2018 a term deposit in the amount of KZT 19,216 million has been categorised into Stage 2 of credit risk grading.
As at 31 December 2019 a conditional deposit with the NBRK consists of funds of KZT 3,864 million (31 December 2018: KZT 1,183 million) received from Development Bank of Kazakhstan JSC (“DBK JSC”) and KZT 2,070 million (31 December 2018: KZT 643 million) received from DAMU Entrepreneurship Development Fund JSC (“EDF DAMU JSC”) in accordance with the loan agreements with DBK JSC and EDF DAMU JSC. Funds will be distributed to small and medium businesses on special preferential terms. These funds may be withdrawn from the conditional deposit only after approval of DBK JSC and EDF DAMU JSC, respectively.
Concentration of accounts and deposits with banks
As at 31 December 2019 the Group has no banks (2018: one bank) whose balances exceed 10% of equity. The gross value of these balances as at 31 December 2018 is KZT 19,216 million.
16. DUE TO BANKS
31 December 2019
31 December2018
5,934 1,826
9,110 31,864
Term deposits
conditional deposit with NBRK
3,126 -rated from AA- to AA+
- 1,014rated from BB- to BB+
rated from B- to B+
50 3,907
- 25,117
(8) (572)
Total term deposits 9,102 31,292
17. LOANS TO CUSTOMERS AND BANKS
31 December 2019
31 December2018
Loans to customers 895,083 929,588
Accrued interest
949,987 994,680
54,904 65,092
31 December 2019
31 December2018
Less credit loss allowance (133,209) (133,166)
Total loans to customers
766 1,214
816,778 861,514
Loans to banks
Accrued interest 4 4
Less credit loss allowance
760 1,193
(10) (25)
Total loans to banks
Continued involvement in asset 103,081 30,906
Loans under reverse repurchase agreements 61,771 75,071
Total loans to customers and banks 982,390 968,684
Movement in credit loss allowance for loans to customers and banks for twelve months ended 31 December 2019 and 31 December 2018 is disclosed in Note 6.
13
Credit loss allowance
Loans to corporate customers
Gross amountCarrying amount
464,524Corporate loans (99,643) 364,881
135,627Small- and medium-sized enterprises 127,293
Loans to individuals
(8,334)
110,916Mortgage loans (8,427) 102,489
147,881Consumer loans 137,852(10,029)
83,325Business development (6,679) 76,646
7,714Auto loans 7,617(97)
949,987 816,778(133,209)
111
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
DUE TO BANKS
Gross term deposits
Allowance for expected credit losses
not rated
Content Glossary
13
The following table provides information by types of loan products as at 31 December 2019:
Credit loss allowance
Loans to corporate customers
Gross amountCarrying amount
480,027Corporate loans (95,440) 384,587
125,432Small- and medium-sized enterprises 114,680
Loans to individuals
(10,752)
155,672Mortgage loans (8,524) 147,148
130,884Consumer loans 121,695(9,189)
95,901Business development (8,796) 87,105
6,764Auto loans 6,299(465)
994,680 861,514(133,166)
112
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
The following table provides information by types of loan products as at 31 December 2018:
Content Glossary
Analysis by credit quality of loans to customers outstanding as at 31 December 2018 was as follows:
Loans to customersCorporate
loansSmall- and medium-
sized enterprisesMortgage
loansConsumer
loansBusiness
developmentAuto loans
Total
Not overdue 329,026 98,097 122,470 95,753 67,864 6,080 719,290
Overdue loans
overdue less than 30 days 70,843 7,806
overdue 31-60 days 30,415 202
overdue 61-90 days 16,587 1,595
overdue 91-180 days 11,578 7,314
overdue more than 180 days 21,578 10,418
13,297 9,997 6,503 87 108,533
2,130 1,559 527 37 34,870
2,892 5,493 681 40 27,288
1,570 1,322 4,262 44 26,090
13,313 16,760 16,064 476 78,609
Gross loans to customers 480,027 125,432 155,672 130,884 95,901 6,764 994,680
Allowance for expected credit losses (95,440) (10,752)
Total loans to customers, net of allowance for expected credit losses 384,587 114,680
(8,524) (9,189) (8,796) (465) (133,166)
147,148 121,695 87,105 6,299 861,514
(а) Credit quality of corporate loans, loans to small and medium-sized enterprises and loans to retail customers.
Analysis by credit quality of loans to customers outstanding as at 31 December 2019 was as follows:
Loans to customersCorporate
loansSmall- and medium-
sized enterprisesMortgage
loansConsumer
loansBusiness
developmentAuto loans
Total
Not overdue 425,624 114,653 86,209 118,343 63,370 7,407 815,606
Overdue loans
overdue less than 30 days 12,901 4,644
overdue 31-60 days 6,107 607
overdue 61-90 days 249 3,504
overdue 91-180 days 1,220 899
overdue more than 180 days 18,423 11,320
3,552 4,635 3,145 61 28,938
1,433 1,737 410 13 10,307
1,092 1,258 490 12 6,605
1,598 2,329 1,290 13 7,349
17,032 19,579 14,620 208 81,182
Gross loans to customers 464,524 135,627 110,916 147,881 83,325 7,714 949,987
Allowance for expected credit losses (99,643) (8,334)
Total loans to customers, net of allowancefor expected credit losses 364,881 127,293
(8,427) (10,029) (6,679) (97) (133,209)
102,489 137,852 76,646 7,617 816,778
13
113
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Content Glossary
(b) Analysis of movement in allowance for expected credit losses
Stage 112-month expected
credit losses
Stage 2Lifetime ECL of assets not
credit-impaired
Total
Twelve months ended 31 December 2019
Stage 3Lifetime ECL
for credit-impaired assets
Loans to corporate customer and small- and medium-sized
enterprises
Transition to 12-month expected credit losses 5 -
Allowance for expected credit losses as at the beginningof the period
982 106,1922,004 103,206
(4) (1)
Transition to lifetime expected credit losses for not credit-impaired assets
(1) -1,691 (1,690)
Transition to lifetime expected credit losses for credit-impaired assets (30) -(670) 700
Charge/(recovery) of allowance (366) (309) 24 012 23,337
New financial assets originated or purchased
513 6 153 672
Unwinding of discount - - 4,261 4,261
Write-off of assets - - (24,585) (24,585)
Recovery of assets previously written-off
- - 418 418
Foreign exchange difference (19) (51) (2,248) (2,318)
Allowance for ECL at the end of the period 1,084 2,667 104,226 107,977
Transition to 12-month expected credit losses 2 -
Allowance for expected credit losses as at the beginning of the period
828 26,974880 25,266
(1) (1)
Transition to lifetime expected credit losses for not credit-impaired assets
(90) -109 (19)
Transition to lifetime expected credit losses for credit-impaired assets
(339) -(89) 428
Charge/(recovery) of allowance (363) 302 15,675 15,614
New financial assets originated or purchased
1,941 92 16 2,049
Unwinding of discount - - 613 613
Write-off of assets - - (20,787) (20,787)
Recovery of assets previously written off - - 972 972
Foreign exchange difference (18) (7) (178) (203)
Allowance for ECL as at the end of the period
1,961 1,286 21,985 25,232
13
As at 31 December 2019, significant assumptions used by management to determine the amount of impairment allowance for loans to corporate customers classified into Stage 3 of credit risk and include:
estimate by management of expected operating cash flows for a number of borrowers, whose operating activities have not ceased;
estimate by management of a value of collateral as at the date of sale and timing of anticipated receipts: a delay of 36 - 60 months in obtaining proceeds from the foreclosure of collateral;
for some borrowers in Stage 3 the potential investors and partners are expected to be attracted to increase the operating cash flows sufficient to repay a debt to the Group.
Loans in Stage 3 were included in the Action Plan based on results of AQR, which comprises measures aimed at rehabilitation of the borrowers, repayment at the expense of sale of collateral and foreclosure under the court decision. In accordance with the Plan, the Group expects that the debt according to the agreed on list of borrower will be repaid during five years. The worked out Action Plan is in the process of approval by the regulator. Under this Plan the Group will start submitting report on the status of plan execution to the regulator on a quarterly basis.
Loans to individuals
114
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Key assumptions and judgments used in estimate of allowance for expected credit losses
Stage 112-month expected
credit losses
Stage 2Lifetime ECL of assets not
credit-impaired
Total
Twelve months ended 31 December 2019
Stage 3Lifetime ECL
for credit-impaired assets
Loans to corporate customer and small- and medium-sized
enterprises
Content Glossary
Transition to 12-month ECL 3 -
Allowance for ECL as at the beginning of the period
2,255 130,0191,976 125,788
(3) -
Transition to lifetime expected credit losses for not credit-impaired assets
(40) -40 -
Transition to lifetime expected credit losses for credit-impaired assets
(155) -(1,584) 1,739
Charge/(recovery) of allowance (3,080) 749 20,037 17,706
New financial assets originated or purchased
1,985 796 - 2,781
Unwinding of discount (restated) - - 4,863 4,863
Write-off of assets (restated) - - (51,401) (51,401)
Recovery of assets previously written off - - 247 247
Foreign exchange difference 14 30 1,933 1,977
Allowance for ECL as at the end of the period 982 2,004 103,206 106,192
Transition to 12-month expected credit losses 1 -
Allowance for ECL as at the beginning of the period
301 20,5291,402 18,826
(1)
Transition to lifetime expected credit losses for not credit-impaired assets
(28) -53 (25)
Transition to lifetime expected credit losses for credit-impaired assets
(1,093) -(493) 1,586
Charge/(recovery) of allowance 838 (130) 8,763 9,471
New financial assets originated or purchased
791 40 - 831
Unwinding of discount (restated) - - 628 628
Write-off of assets (restated) - - (6,277) (6,277)
Recovery of the previously written off assets - - 1,266 1,266
Foreign exchange difference 18 9 499 526
Allowance for ECL as at the end of the period
828 880 25,266 26,974
13
(b) Movement in allowance for expected credit losses, continued
115
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Stage 112-month expected
credit losses
Stage 2Lifetime ECL of assets not
credit-impaired
Total
Twelve months ended 31 December 2019
Stage 3Lifetime ECL
for credit-impaired assets
Loans to corporate customer and small- and medium-sized
enterprises
Stage 112-month expected
credit losses
Stage 2Lifetime ECL of assets not
credit-impaired
Total
Twelve months ended 31 December 2019
Stage 3Lifetime ECL
for credit-impaired assets
Loans to individuals
Content Glossary
(с) Analysis of movements in the gross carrying amounts
The note further explains how significant movements in the gross carrying amounts of loans to customers have contributed to changes in allowances for expected credit losses:
Loans to corporate customers and small- and medium-sized enterprises
Loans to individuals
(d) Analysis of collateral and other credit enhancements
(i) Loans to corporate customers
Loans to corporate customers are secured by various types of collateral depending on the type of transactions. The general creditworthiness of a corporate customer and small and medium-sized customer tends to be the most relevant indicator of credit quality of the loan extended to it. However, collateral provides additional security and the Group generally requests corporate borrowers and small and medium-sized customers to provide it.
The following tables provides information on collateral and other credit enhancements securing loans to corporate customers and small and medium-sized enterprises (net of loss allowance) by types of collateral:
Loans to corporate customers
Carrying amount of loans
to customers
Fair value of collateral - for
collateral assessed
as of reporting date
Fair value of collateral - for
collateral assessed as of loan
inception date
Fair value of collateral
not determined31 December 2019
Cash and deposits 841 841 - -
Real estate 258,449 258,449 - -
Vehicles 606 606 - -
Equipment 16,316 16,316 - -
Corporate guarantees 29,892 - - 29,892
Income from future contracts 12,793 - - 12,793
Goods in turnover 7,382 - - 7,382
Mineral rights 24,297 24,297 -
Other collateral 4,323 - 4,323 -
No collateral or other credit enhancement
9,982 - - 9,982
Total loans to corporate customers 364,881 300,509 4,323 60,049
Loans to small- and medium-sized enterprises
Cash and deposits 5,284 5,284 - -
Real estate 106,023 106,023 - -
Vehicles 760 760 - -
Equipment 3,667 3,667 - -
Corporate guarantees 7,676 - - 7,676
Goods in turnover 397 - - 397
As volume of loans issued to customers during 12 months of 2019 caused increase in gross carrying amount of the portfolio of loans to corporate customers and small and medium-sized enterprises by KZT 178,617 million, while respective increase in 12-month loss allowance amounted to KZT 519 million.
A volume of loans repaid during 12 months of 2019, caused decrease in gross carrying amount of the portfolio of loans to corporate customers and small and medium-sized enterprises by KZT 169,938 million, while respective decrease in 12-month loss allowance amounted to KZT 407 million.
Write-off of loans with gross carrying amount of KZT 24,585 million resulted in decrease in loss allowance categorised into Stage 3 by the same amount.
13
A volume of loans to customers during 12 months of 2019 caused increase in gross carrying amount of the portfolio of retail loans by KZT 46,686 million, while respective increase in 12-month loss allowance measured on 12-month basis amounted to KZT 2,033 million.
A volume of loans repaid during 12 months of 2019 caused decrease in gross carrying amount of the portfolio of loans to corporate customers and small and medium-sized enterprises by KZT 52,556 million, while respective decrease in 12-month loss allowance amounted to KZT 476 million.
Write-off of loans with gross carrying amount of KZT 20,787 million resulted in decrease in loss allowance categorised into Stage 3 by the same amount.
Other collateral 1,241 158 656 427
116
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Content Glossary
Loans to corporate customers
Cash and deposits 2,257 2,257 - -
Real estate 276,848 276,848 - -
Vehicles 492 492 - -
Equipment 9,753 9,753 - -
Corporate guarantees 44,230 - -
Goods in turnover 6,325 - -
Mineral rights 3,372 3,372 -
No collateral or other credit enhancement
23,016 - - 23,016
Total loans to corporate customers 384,587 292,722 12,893 78,972
Income from future contracts 5,401 --
Other collateral 12,893 - 12,893
Loans to small- and medium-sized enterprises
Cash and deposits 2,587 2,587 - -
Real estate 102,618 102,618 - -
Vehicles 1,058 1,058 - -
Equipment 856 856 - -
Corporate guarantees 4,201 - -
Goods in turnover 141 - -
Other collateral 1,682 - 1,682
44,230
5,401
6,325
-
-
4,201
141
-
No collateral or other credit enhancement
1,537 - -
Total loans to small- and medium-sized enterprises
114,680 107,119 1,682 5,879
1,537
Total loans to corporate customers 499,267 399,841 14,575 84,851
The tables above exclude overcollateralisation. In accordance with the recommendations of NBRK, collateral in the form of income from future contract is not sufficient and cannot be used in calculation of allowances. As at 31 December 2019 the loans to corporate customers with net carrying amount of KZT 12,793 million (31 December 2018: KZT 5,401 million) are secured by income from future contracts.
Amount recorded in the item “No collateral or other credit enhancement” comprises unsecured loans and parts of loans, which are not fully secured.
For majority of loans the fair value of collateral was assessed at the reporting day. The Group also has loans, for which the fair value of collateral was assessed at the loan inception date and it was not updated for further changes, and loans for which the fair value of collateral is not determined and cannot be determined. Information on the valuation of collateral is based on when this estimate was made, if any.
For loans secured by multiple types of collateral, collateral that is most relevant for credit losses assessment is disclosed. Sureties received from individuals, such as shareholders of the company's borrowers, are not considered for credit losses assessment purposes.
Credit impaired loans to corporate customers
As at 31 December 2019, the net carrying amount of credit-impaired loans to corporate customers amounts to KZT 99,160 million (2018: KZT 117,632 million), while the value of collateral (mostly commercial real estate) securing these loans is KZT 99,160 million (2018: KZT 98,378 million), excluding overcollaterisation. Value of collateral securing each loan is limited by the loan carrying amount.
During 2019, there was no change in the Group's collateral policy.
13
No collateral or other credit enhancement
2,245 - - 2,245
Total loans to small- and medium-sized enterprises
127,293 115,892 656 10,745
Total loans to corporate customers
492,174 416,401 4,979 70,794
117
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Carrying amount of loans
to customers
Fair value of collateral - for
collateral assessed
as of reporting date
Fair value of collateral - for
collateral assessed as of loan
inception date
Fair value of collateral
not determined31 December 2019
Carrying amount of loans
to customers
Fair value of collateral - for
collateral assessed
as of reporting date
Fair value of collateral - for
collateral assessed as of loan
inception date
Fair value of collateral
not determined31 December 2018
Content Glossary
(d) Analysis of collateral and other credit enhancements, continued
(ii) Loans to retail customers
Mortgage loans are secured by the underlying housing real estate. Business development loans are secured by real estate. Auto loans are secured by the underlying cars. Consumer loans are usually secured by underlying property and in some cases by assets, including real estate, cash and motor vehicles.
Mortgage loans
Included in mortgage loans are loans with a net carrying amount of KZT 9,533 million (31 December 2018: KZT 16,310million), which are secured by collateral with a fair value of less than the net carrying amount of the individual loans. The fair value of collateral for these loans amounts to KZT 5,196 million (31 December 2018: KZT 7,723 million).
For mortgage loans with a net carrying amount of KZT 92,956 million (31 December 2018: KZT 130,838 million) management believes that the fair value of collateral is at least equal to the carrying amount of individual loans at the reporting date.
Auto loans
Included in auto loans are loans with a net carrying amount of KZT 48 million (31 December 2018: KZT 51 million), which are secured by collateral with a fair value of less than the net carrying amount of the individual loans. The fair value of collateral for these loans amounts to KZT 12 million (31 December 2018: KZT 13 million).
For auto loans with a net carrying amount of KZT 7,569 million (31 December 2018: KZT 6,248 million) management believes that the fair value of collateral is at least equal to the carrying amount of individual loans at the reporting date.
Consumer loans
Included in consumer loans are loans with a net carrying amount of KZT 67,025 million (31 December 2018: KZT 26,132 million), which are secured by collateral with a fair value of less than the net carrying amount of the individual loans. The fair value of collateral for these loans amounts to KZT 2,651 million (31 December 2018: KZT 5,846 million).
For consumer loans with a net carrying amount of KZT 70,827 million (31 December 2018: KZT 95,563 million) management believes that the fair value of collateral is at least equal to the carrying amount for these loans amounts at the reporting date.
Business development
Included in the business development portfolio are loans with a net carrying amount of KZT 4,877 million (31 December 2018: KZT 6,923 million), which are secured by collateral with a fair value of less than the net carrying amount for these loans amounts. The fair value of collateral for these loans amounts to KZT 2,048 million (31 December 2018: KZT 3,379 million).
Management believes that the fair value of collateral of business development loans with a net carrying amount of KZT 71,769 million (31 December 2018: KZT 80,182 million) is at least equal to the carrying amount of individual loans at the reporting date.
Credit impaired loans to retail customers
The following table stratifies credit exposures from credit-impaired loans to retail customers by ranges of loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross carrying amount of the loan to the value of the collateral. The valuation of the collateral excludes any adjustments for obtaining and selling the collateral. For credit-impaired loans the value of collateral is based on the most recent appraisals.
(e) Loan portfolio analysis
As at 31 December 2019 the Group has 10 borrowers or groups of related borrowers (31 December 2018: 14), whose loan balances exceed 10% of equity. The gross value of these balances as at 31 December 2019 is KZT 200,063 million (31 December 2018: KZT 276,797 million).
As at 31 December 2019 and 31 December 2018 included in the loans to customers are renegotiated loans that would otherwise be past due or impaired of KZT 64,359 million and KZT 76,716 million, respectively. Otherwise these loans would be past due or impaired.
Industry and geographical analysis of the loan portfolio
Loans to customers were issued primarily to customers located within the Republic of Kazakhstan that operate in the following economic sectors:
31 December2019
31 December2018
Individuals 349,836 389,221
Trade
Rent of real estate 99,223
Manufacturing 40,390
Oil and gas industry
Transport and telecommunications 40,366 39890
20,354
Housing construction 40,442 30,391
Industrial construction
109,829 128,162
49,858
40,840
110,861
42,43239,916
Food industry 34,012
Power industry 32,498
34,059
30,783
13
20,58421,919
5,518 7,751
18,21834,468
Credit-impaired loansLTV ratio
Less than 50%
51-70%
More than 70%
2019 2018
44,320 64,138
Repossessed collateral
During 2019, the Group obtained certain assets by taking possession of collateral for loans to customers with a net carrying amount of KZT 6,126 million (2018: KZT 5,046 million). As at 31 December 2019, the repossessed collateral was KZT 48,917 million (31 December 2018: KZT 51,375 million of repossessed collateral) (Note 19).
118
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Content Glossary
(f) Loan maturities
The maturity of the loan portfolio is presented in Note 27, which shows the remaining period from the reporting date to the contractual maturity of the loans. Due to the short-term nature of the loans issued by the Group, it is likely that part of the loans will be extended at maturity. Accordingly, the effective maturity of the loan portfolio may be significantly longer than the contractually agreed term.
(g) Continuing involvement in asset
To realise the first initiative “New Opportunities for Each Family to Procure Housing”, announced in the Address to the People by the President of the Republic of Kazakhstan “Five Social Initiatives of the President”, the Program “7-20-25. “New Opportunities for Each Family to Procure Housing” (the “Program”) was approved by the Resolution of the NBRK dated 31 May 2018. To implement the Program, Mortgage Organisation “Baspana” JSC (the “Operator”) was established.
The Program enables Kazakhstan citizens to procure residential real estate on a primary market under conditions that are more preferential in comparison with those applicable in second-tier banks (“STB”) for mortgage loans.
The Bank issues loans in accordance with the conditions of the Program: it includes into bank loan contracts the terms and conditions of obligation and responsibility of a borrower to repay a loan, establishes a repayment schedule and ensures maintaining a loan file containing information and documents in compliance with the requirements of the laws of the RK.
Once a loan has been issued, the Bank should transfer rights of claim on loans by provision to the Operator of documents in accordance with an agreement, no more frequently than once in 10 business days.
31 December 2019 31 December 2018
Fair value of collateral
Carrying amount of loans
Fair value of collateral
Carrying amount of loans
53,164 66,26366,11652,262
11,928 13,3168,9559,509
Kazakhstan
Other
Government bonds of the Republic of
65,092 79,57975,07161,771
Collateral security: real estate purchased on a primary market.
Annual nominal interest rate: 7%.
Commission for issue and servicing a loan: nil.
To be eligible for a loan under the Program, an individual must meet the following requirements:
Loan term: up to 25 years; initial instalment: no less and no more than 20% of cost of collateralised housing real estate.
Maximum cost of housing real estate acquired: KZT 25 million - for cities of Astana, Almaty, Atyrau, Aktau, Shymkent and KZT 15 million – for other regions of the RK.
be a citizen of the Republic of Kazakhstan;have documentary supported income;
no owned housing real estate in the Republic of Kazakhstan, other than: dorm rooms with useful area of no more than 15 square meters per each family member, dilapidated housing which may ruin (breakdown) as certified by a corresponding document by a local executive bod where such housing facility is located.
no outstanding debt on mortgage loans;
As at 31 December 2019, 10,101 loans in the amount of more than KZT 106,000 million have been issued under the Program “7-20-25” (2018: 2,733 loans for the amount of KZT 32,000 million).
To enhance possibilities for Kazakhstan citizens to purchase housing facilities, on 28 December 2018 the Bank launched a mortgage loan program named “Baspana Hit”. Under this Program, loans are issued for purchasing real estate on both primary and secondary housing markets.
The lending conditions under “Baspana Hit” Program are as follows:
Loan term: up to 15 years; initial instalment: at least 20% of cost of acquired housing real estate;
Maximum cost of housing real estate acquired – KZT 25 million for cities of Astana, Almaty, Atyrau, Aktau, and KZT 15 million – for other regions of the RK;
Interest rate is calculated with the formula: base rate of the National Bank of the RK + 175 basis points;
To be eligible for a loan under the Program, an individual must meet the following requirements:
be a citizen of the Republic of Kazakhstan;have documentary supported income;no outstanding debt on mortgage loans.
As at 31 December 2019, the Bank has issued 3,497 loans in the amount of more than KZT 30,023 million under Baspana Hit Program (31 December 2018: 4 loans in the amount pf KZT 22 million).
13
Agriculture 20,320 22,123
Financial services 2,923 5,815
Other 63,367 63,603
Total 949,987 994,680
Allowance for expected credit losses (133,209) (133,166)
816,778 861,514
Fair value of assets received as collateral and carrying amount of reverse repurchase agreements as at 31 December 2019 and 31 December 2018 is as follows:
Transportation and equipment maintenance services 34,88128,272
In accordance with the Program and Trust Management Contract, the Bank acts as a trustee for loans received and ensures trust management of transferred loans and proper maintenance of a credit file. Compensation for trust management is paid in the amount and in timeframe established by the trust management contract and amounted to 4% of the carrying amount of assets at the end of each month. In case of partial repayment of interest by the borrowers, a trust management fee is calculated pro rated to the interest paid.
The Bank is obliged to repurchase rights of claim on transferred mortgage loans when the loan principal amount and interest are overdue more than 90 calendar days.
The lending conditions under the Program are as follows:
119
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
LOANS TO CUSTOMERS AND BANKS
Content Glossary
(h) Transfer of financial assets
During 2019, the Group sold a portfolio of mortgage loans at its carrying amount, the balance of which amounted to KZT 103,081 million at the year-end (2018: KZT 30,906 million) and issued a customer a guaran-tee of reverse repurchase or exchange of certain loans, if loans are overdue for more than 90 days. The amount of reverse repurchase or exchange is not limited. Reverse repurchase is performed at the loan nominal value (outstanding principal and interest accrued) as of the purchase date.
The Group has determined that it neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset transferred; however, the Group has determined that it retains control over the assets transferred and continues recognising thereof to the extent of continuing involvement in the assets transferred. As the Group's continuing involvement takes a form of the guarantee on the asset transferred, the extent of the Group's continuing involvement is determined equal to maximum amount of consideration received that the Group has to return. The Group believes that the value of the guarantee is high enough and this guarantee will prevent the Operator from selling of the asset transferred thereto, as such sale will be impracticable.
The Group's continuing involvement in said transferred portfolio is recorded in the consolidated statement of financial position within the loans to customers (Note 17) in the amount of KZT 103,082 million, which is equal to the respective liability from continuing involvement, which is included in other liabilities (Note 24).
The Group has determined that the carrying amount of the transferred portfolio of mortgage loans reflects its fair value.
18. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
Buildings and constructions
Furniture and equipment
Intangible assets
Construction in progress Total
Cost/revalued amount
1 January 2018
Additions
31,010
Transfers
Disposals
31 December 2018
Additions
Transfers
Disposals
31 December 2019
13,992 105 9,339 54,446
(151) (959) - (1,765) (2,875)
2 3,205 245 2,622 6,074
(5,900) 5 (92) - (5,987)
- (1,752) (11) (448) (2,211)
25,112 15,450 247 11,513 52,322
831 4,074 1,375 1,007 7,287
120 6 (126) - -
25,912 18,571 1,496 10,755 56,734
Accumulated depreciation, amortisation and impairment
1 January 2018
Charge for the year
(393)
Disposals
31 December 2018
Disposals
31 December 2019
Net carrying amount
(8,887) - (4,346) (13,626)
(269) (1,376) - (801) (2,446)
153 1,733 - 447 2,333
(509) (8,530) - (4,700) (13,739)
(234) (1,730) - (939) (2,903)
5 922 - 37 964
(738) (9,338) - (5,602) (15,678)
Charge for the year
31 December 2019 25,174 9,233 1,496 5,153 41,056
31 December 2018 24,603 6,920 247 6,813 38,583
Intangible assets comprise software, patents and licenses.
The Group revalued its buildings and constructions during 2017. Evaluation was performed by independent appraisers. Independent appraisers used two approaches to measure the fair value of property and equip-ment – comparative approach using the market information to measure fair value of buildings and construc-tions under active market conditions, and cost approach, when no active market existed for items subject to revaluation. As at 31 December 2019 and 31 December 2018, the total amount of fair value of buildings and constructions was KZT 25,174 million and KZT 24,603 million, respectively. If buildings and constructions of the Group had been valued at cost, their carrying amount would have been KZT 18,735 million and KZT 18,164 million as at 31 December 2019 and 31 December 2018, respectively.
Fair values of buildings and constructions are categorised into Levels 2 and 3 of the fair value hierarchy.
31 December2019
31 December2018
Other financial assets
Accounts receivable
Accrued commission 8,246
164
12,159
4,052 3,873
335
12,633
8,122
19. OTHER ASSETS
Western Union and other wireless transfers
13
120
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
ROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
OTHER ASSETS
Buildings and constructions
Furniture and equipment
Intangible assets
Construction in progress Total
Content Glossary
As at 31 December 2019 other financial assets of KZT 10,074 million were categorised to Stage 1 of the credit risk gradings (31 December 2018: KZT 8,905 million), KZT 869 million and KZT 1,690 million are categorised to Stages 2 and 3 of credit risk gradings, respectively (31 December 2018: KZT 517 million and KZT 2,737 million, respectively).
Movements in allowance for expected credit losses for other financial assets are as follows:
Other non-financial assets
Repossessed collateral
Payment receivable on repossessed collateral 4,884
10,587
3,323
48,917 51,375
11,490
4,249
3,688
Taxes receivable other than income tax 1,9192,047
Investment property
4036
Allowance for expected credit losses (1,388)(2,476)
10,77110,157
Advances paid
Inventories
408
71,340
1,124
72,747
Allowance for expected credit losses -(880)
Other assets
71,34071,867
82,11182,024
Stage 2Stage 1 TotalStage 3
-2019Balance at 1 January
- (1,388) (1,388)
(70)Net remeasurement of loss allowance (716) (394) (1,180)
-Write-offs - 92 92
(70)Balance at 31 December (716) (1,690) (2,476)
-2018Balance at 1 January
- (1,747) (1,747)
-Net remeasurement of loss allowance - 359 (359)
-Balance at 31 December - (1,388) (1,388)
Repossessed collateral Repossessed collateral represents real estate accepted by the Group in exchange for its liabilities on credit-impaired loans. These assets have been initially recognised at fair value and subsequently measured at the lower of fair value less cost to dispose or the carrying value. The Group's policy is to sell these assets as soon as it is practicable.
Payment receivable on repossessed collateral Payment on repossessed collateral comprises prepayments for repossessed collateral which is acquired through auctions.
Fair value of investment property was measured using the market comparison approach, which reflects the prices of latest transactions on similar real estate items, and as at 31 December 2019 and 31 December 2018 amounted to KZT 13,535 million and KZT 12,253 million, respectively.
The fair values of investment properties are categorised into Level 3 of the fair value hierarchy.
Included into operating lease income is investment property rental income for the years ended 31 December 2019 and 31 December 2018 amounted to KZT 552 million and KZT 400 million, respectively. Operating expenses related to investment property from which the Group earned rental income for the years ended 31 December 2019 and 31 December 2018 amounted to KZT 410 million and KZT 179 million, respectively.
20. DUE TO BANKS AND FINANCIAL INSTITUTIONS
Nominal interest rate, %
31 December2019
31 December2018
Nominal interest rate, %
Long-term loans due to banks and financial institutions
Perpetual financial instruments
Loans due to international credit organisations
Correspondent accounts of banks
Loans due to NBRK
Accrued interest expense
1.00-9.80 52,366 1.00-9.80
7.93 29,652 8.34
7.80-9.45 16,841 8.50-10.00
7,688 -
9.25 74 5.50
629
107,250
Loans under repurchase agreements 9.25-10.85 6,406 8.50-11.00
113,656
62,577
30,056
16,920
10,201
90
979
120,823
4,827
125,650
Long-term loans due to banks and financial institutions Long-term loans due to banks and financial institutions comprise long-term loans from JSC Entrepreneurship Development Fund DAMU (“DAMU”) and JSC Development Bank of Kazakhstan (“JSC DBK”) in the amount of KZT 36,540 million at 1%-9.08% p.a.
13
121
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
OTHER ASSETS
DUE TO BANKS AND FINANCIAL INSTITUTIONS
31 December2019
31 December2018
Content Glossary
maturing in 2020-2035 and of KZT 15,807 million at 1%-2% p.a. maturing in 2034-2037, as at 31 December 2019, respectively (31 December 2018: KZT 48,079 million and KZT 14,483 million, respectively). During the 2019 and 2018, the Group has been repaying principal and interest according to the repayment schedules.
During the year ended 31 31 December 2019, the Group received additional tranche of long-term loans from JSC DBK in the amount of KZT 3,189 million (the year ended 31 December 2018: KZT 445 million) at 1-2% p.a. maturing in 2034-2037. The loans have been received for further financing of large-sized enterprises (“LSE”) operating in the processing industry and further financing of retail customers who purchase cars produced in Kazakhstan.
During the year ended 31 December 2019, the Group received a long-term loan from JSC DAMU in the amount of KZT 1,096 million at 1% p.a. and additional tranche of KZT 378 million at 4.5% p.a. maturing in 2025. During 2019 the Group repaid a long-term loan from JSC Damu in the amount of 11,111 million at 7% per annum.
During the year ended 31 December 2018, the Group received a long-term loan from JSC DAMU in the amount of KZT 13,289 million at 9.08% p.a. maturing in 2020, KZT 700 million at 4.5% p.a. and KZT 400 million at 1% p.a. maturing in 2025.
The loans from JSC DAMU were received in accordance with the Government program to finance small and medium enterprises (“SME”) of certain industries (“the Program”). Under the loan agreement between DAMU and the Group, the Group extends loans to SME borrowers, eligible to participate in the Program, at the interest rate with margin of 4% and with maturity not exceeding 10 years. The Group's obligation to repay the loan to DAMU is not contingent on collectability of the loans extended to SME borrowers. The Group is obligated to pay a 15% penalty on the amounts not extended to SME borrowers within 3-9 months after receiving the money from DAMU.
The Group management believes that there are no other financial instruments similar to loans received from DAMU, JSC DBK and JSC Agrarian Credit Corporation at the interest rates of 1-2% p.a. and due to specific nature of LSE and SME clients, this product represents a separate market. As a result, the loans received from DAMU, JSC DBK and JSC Agrarian Credit Corporation at the interest rates of 1-2% p.a. Represent the orderly transactions and as such have been recorded at fair value at the recognition date.
Perpetual financial instruments The perpetual non-cumulative financial instruments were issued by the Bank in March 2006 with an option to repay in whole, but not in part, on any interest payment date from and including 3 March 2016 at the face value of USD 100 million. Interest payment dates are 3 March, 3 June, 3 September and 3 December in each year.
Loans due to international credit organisations Loans due to international credit organisations comprise loans from the European Bank for Reconstruction and Development (“EBRD”) at 7.8%-9.45% p.a. maturing in 2020-2022.
During the year ended 31 December 2019 the Group received a loan from European Bank for Reconstruction and Development JSC in the amount of KZT 8,651 million at 7.8% p.a. maturing in 2022. During 2019 the Group has been repaying principal and interest according to the repayment schedules in the amount of KZT 10,448 million.
During the year ended 31 December 2018 the Group received a loan from European Bank for Reconstruction and Development JSC in the amount of KZT 8,335 million at 8.5% p.a. maturing in 2021. During 2018 the Group was repaying principal and interest according to the repayment schedules in the amount of KZT 8,860 million.
The Group is obligated to comply with financial covenants in relation to due to banks and financial institutions mentioned above. These covenants include stipulated ratios, debt to equity ratios and other coefficients used for financial performance ratios. As at 31 December 2019 and as at 31 December 2018 the Group has not breached any of these covenants.
As at 31 December 2019 and 31 December 2018, due to banks and financial institutions included loans received under repurchase agreements of KZT 6,406 million and KZT 4,827 million that were repaid in January 2020 and 2019, respectively. The fair value of assets pledged under repurchase agreements amounted to KZT 6,822 million and KZT 5,409 million, respectively, as at 31 December 2019 and 31 December 2018.
21. CUSTOMER AND BANKS ACCOUNTS
31 December2019
31 December2018
Customer accounts
583,807544,463Retail
Corporate
1,074,530958,945
Term deposits
490,723414,482
Demand deposits 302,280270,584
1,069,808955,273
Accrued interest
1,074,530958,945
4,7223,672
767,528684,689
As at 31 December 2019, the Group has 1 customer (31 December 2018: 8 customers), whose balances exceed 10% of equity. The gross balances of the above mentioned customers as at 31 December 2019 are KZT 17,019 million (31 December 2018: KZT 116,040 million).
31 December 2019
31 December 2018
Individuals
99,78493,382Construction
Social services
Trade 54,06862,434
28,03235,626
Transportation and communication
118,56270,636
Manufacturing 25,45715,520
27,16123,678
Analysis by sectors:
Education and health care
583,807544 463
13
122
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
DUE TO BANKS AND FINANCIAL INSTITUTIONS
CUSTOMER AND BANKS ACCOUNTS
Content Glossary
Agriculture
6,04510,769Power industry
Entertainment services
Fuel 6,3967,596
4,5826,216
Oil and gas industry
4,5489,863
Insurance and pension fund activities 23,4764,307
8,6275,797
Research and development
14,04213,547
5,1864,078Chemical production
Metallurgy
Machinery 3,1171,305
7941,439
Other
10,5863,377
Total due to customers 1,074,530958,945
50,26044,912
Public administration
22. DEBT SECURITIES ISSUED
Kazakhstani bonds
Currency Date ofissue
Maturity date
Interest rate, %
31 December 2019
Interest rate, %
31 December 2018
16/03/2015-31/10/2019
USD
KZT
10/06/2019
16/03/2022-05/02/2028
10/06/2021
8.50-12.00
4.50
75,752
4,974
8.00-12.00 68,825
-
80,726 68,825
Accrued interest
1,157 1,322
81,883 70,147
During twelve months ended 31 December 2019, the Group issued debt securities with a nominal value of KZT 34,701 million.
Coupons on debt securities issued are repayable semi-annually; principal is repayable at maturity.
23. SUBORDINATED BONDS
Fixed rate27/11/2009-03/11/2017KZT
05/12/2007- 27/11/2009
27/11/2024-03/11/2032
27/11/2019-11/11/2023
4.00-11.00
6.30-6.50
51,904
8,373
4.00-11.00 50,555
20,217
60,277 70,772
Accrued interest
1,065 1,143
61,342 71,915
KZT 7.00-7.50
Coupons on subordinated bonds are repayable semiannually, principal is repayable at maturity.
Participation in the Program of Strengthening of the Banking Sector Financial Stability
Resolution of the NBRK No.191 dated 10 October 2017 approved the Bank's participation in the Program of Strengthening Financial Stability of Banking Sector of the Republic of Kazakhstan (the “Program”).
In accordance with the terms of the Program, the Bank received cash from the NBRK subsidiary – Kazakhstan Sustainability Fund JSC by means of issue of registered coupon subordinated bonds of the Bank (the “Bonds”) convertible into the Bank's ordinary shares on the terms provided for in the Bond Issue Prospectus.
The Bank is subject to restrictions (covenants) in its activities valid for 5 years from the Bonds' issue date, breach of any of each will result in exercising by the Bonds' holders of their right of Bonds being converted to the Bank's ordinary shares:
Within the framework of the Bank's participation in the Program, on 3 November 2017, the Bank placed the Bonds at Kazakhstan Stock Exchange in the amount of KZT 60,000 million with 15-year maturity and coupon rate of 4.00% per year. Unwinding of discount of the Bonds using the market interest rate of 13%, which was recognised as income in the statement of profit or loss at initial recognition of the Bonds, is KZT 34,993 million. As at 31 December 2019, the carrying amount of the Bonds is KZT 23,507 million (31 December 2018: KZT 22,561 million).
the Bank undertakes to comply with capital adequacy ratios set by the authorised body for the second-tier banks of the Republic of Kazakhstan;
the Bank undertakes not to commit action intended to withdraw the Bank's assets; at that, summary of activities to be considered the withdrawal of assets is set out in the Bond Issue Prospectus.
13
123
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
DEBT SECURITIES ISSUED
SUBORDINATED BONDS
31 December2019
31 December2018
Currency Date ofissue
Maturity date
Interest rate, %
31 December 2019
Interest rate, %
31 December 2018
Floating rate
Content Glossary
Reconciliation of movements of liabilities to cash flows arising from financing activities 24. OTHER LIABILITIES
31 December2019
31 December2018
Other financial liabilities:
103,082Liability arising from continuing involvement (Note 17 (h))
Settlements on other liabilities 8,271
Liabilities in guarantees issued 7,764
Accrued commission expenses 499450
Provisions for guarantees and letters of credit 125113
45,714119,680
Other non-financial liabilities:
Taxes payable other than income tax 740765
Other non-financial liabilities 1991,402
Total other liabilities 46,653121,847
6,253
30,904
7,933
25. SHARE CAPITAL
Unissuedshare capital
Repurchased share capital
from shareholders
Placement of authorised
ordinary shares
Total share capital
Authorised share capital
Ordinary shares,items
Preference shares,items
995,876,753 (833,419,953) 3,181,111 (5,128,782) 160,509,129
39,249,255 - - (39,101,182) 148,073
As at 31 December 2019 the Bank's share capital is presented as follows:
As at 31 December 2019 the Bank's share capital comprised:
Placement of authorised
ordinary sharesTotal
Repurchased shares
Authorised and issued share
capital
Простые акции
Привилегированные акции
57,511 954 (644) 57,821
89 - (45) 44
57,600 954 (689) 57,865
13
Liabilities
Debt securities issued
TotalSubordinated
bonds
17,328 92,78275,454Balance at 1 January 2018
Changes from financing cash flows
54,230 54,230-Receipts from debt securities issued
- 5,5075,507Receipts from subordinated bonds
- (6,000)(6,000)Repayment of subordinated bonds
54,230 53,737(493)Total changes from financing cash flows
(1,554) (4,747)(3,193)Changes in carrying amount from recognition of discount
209 650441Other movements
(4,218) (12,181)(7,963)Interest expense
4,152 11,8217,669Interest paid
70,147 142,06271,915Balance at 31 December 2018
70,147 142,06271,915Balance at 1 January 2019
Changes from financing cash flows
34,701 34,701Receipts from debt securities issued
- 400400Receipts from subordinated bonds
- (11,879)(11,879)Repayment of subordinated bonds
13,000 1,521(11,479)Total changes from financing cash flows
(1,014) (2,109)(1,095)Changes in carrying amount from recognition of discount
(1,188) (118)1,070Other movements
8,960 16,5977,637Interest expense
(8,022) (14,728)(6,706)Interests paid
81,883 143,22561,342Balance at 31 December 2019
(21,701) (21,701)Repayment of debt securities issued
3,181,111 ordinary shares for the total amount of KZT 954 million were placed in March 2019, with a placing price of KZT 300 per share.
124
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SUBORDINATED BONDS
OTHER LIABILITIES.
SHARE CAPITAL
Content Glossary
As at 31 December 2018 the Bank's share capital comprised:
Unissuedshare capital
Total share capital
Repurchased share capital
from shareholders
Authorised share
capital
Ordinary shares
Preference shares
995,876,753 (833,419,953) (2,431,823) 160,024,977
39,249,255 - (38,953,841) 295,414
On 13 February 2018, Bank CenterCredit JSC announced repurchase of 100% of the placed preference shares convertible into ordinary shares of Bank Center Credit JSC. As at 26 December 2018 the procedure of repurchase of the Bank's preference shares was completed: 38,953,841 preference shares were repurchased, including 8,366,560 preference shares repurchased from Tsesnabank JSC and 27,067,109 preference shares - from Financial Holding “Tsesna” JSC.
As at 31 December 2018 the Bank's share capital comprised:
Repurchased shares
TotalAuthorised
and issued share capital
Ordinary shares
Preference shares
57,794
11,775
(283)
(11,686)
57,511
89
69,569 (11,969) 57,600
Treasury shares purchased (147) (38,954)
For the year ended31 December2019Quantity (in thousands
For the year ended31 December2018Quantity(in thousands)
Preference shares, end of the period 148 295
Ordinary shares, beginning of the year 160,025 161,004
Treasury shares purchased (2,853) (2,344)
Treasury shares sold 156 1,365
Placement of authorised ordinary shares 3,181 -
Ordinary shares, end of the year 160,509 160,025
Reserve capital
Until 2013, in accordance with amendments to the Resolution No. 196 “On Establishment of Minimum Limit on Reserve Capital of Second-Tier Banks” issued by the Agency of the Republic of Kazakhstan on the Regulation and Supervision of Financial Markets and Financial Organisations (the “FMSA”) dated 31 January 2011 (that became invalid in 2013), the Bank was obligated to establish a reserve capital by transferring an amount from retained earnings to provision for future expected losses.
As at 31 December 2019, reserve for general banking risks of the Bank included in retained earnings in the consolidated statement of financial position of the Group amounts to KZT 4,981 million (31 December 2018: KZT 4,981 million). During twelve months ended 31 December 2018, the Group utilised the accumulated reserve to recognise the effect of transition to IFRS 9.
26. SEGMENT REPORTING
The segment information below is presented on the basis used by the Group's chief operating decision maker to evaluate performance in accordance with IFRS 8 and in accordance with the segment reporting presented in the consolidated financial statements for the year ended 31 December 2019 and 2018. The Group's reporting segments under IFRS 8 are as follows:
Preference shares, beginning of the year 295 39,249
Corporate banking – maintenance of settlement accounts, deposit taking, provisions of overdrafts, loan and other credit facilities.
Retail banking – provisions of private banking services, private customer current accounts, taking of savings, deposits, investment savings products, custody, credit and debit cards, consumer loans and mortgages.
Investment banking – financial instruments trading, money market operations, repo agreements, foreign currency and derivative products, structured financing, corporate lease and asset management services, merger and acquisitions advice, provision of Group's funding through issue of debt securities and attracting loans. This segment is responsible for redistribution of funds attracted by other segments.
13
All ordinary shares are ranked equally, carry one vote, and have no par value.
Preference shares are cumulative and convertible into ordinary shares according to the decision of the Board of Directors, one preferred share can be exchanged for one ordinary share. According to the legislation of the Republic of Kazakhstan and Bank's incorporation documents, dividends are payable on ordinary shares in the form of cash or securities of the Bank, on condition that the decision was made at the annual meeting of shareholders of the Bank. In accordance with the Bank's Charter, dividend on ordinary shares are paid on the basis of financial results for the year. Distributable reserves are subject to rules and regulations of the Republic of Kazakhstan.
Terms of preference shares required that the Group pays dividends per one preference share as follows:
R = (b+3.5%) х 300, where— is a guaranteed amount of dividends per one preference share convertible into an ordinary share, which is calculated in tenge.
— is a base rate of NBRK. The base rate is determined as at the first day of the year following the year, in which dividends o on preference shares were paid. In this regard the guaranteed amount of dividends per one preference share is set at the level of not less than 12% and not more than 14% per annum.
R
b
Dividends on preference shares are paid to comply with the legislation of the Republic of Kazakhstan. This legislation envisages that joint stock companies pay the fixed guaranteed amount of the dividend on the preference shares. According to Kazakhstan law on joint stock companies, the amount of the dividend paid on the ordinary shares may not exceed the amount of the dividends paid on preference shares. In addition, dividends on ordinary shares may not be paid until dividends on preference shares have been paid in full.
125
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SHARE CAPITAL
SEGMENT REPORTING
Content Glossary
The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies, of these consolidated financial statements. The Board of Directors reviews discrete financial information for each of its segments, including measures of operating income, assets and liabilities. The segments are managed primarily on the basis of their results, which do not include the effects of intragroup eliminations.
Segment assets and liabilities comprise all assets and liabilities, which account for the major portion of the consolidated statement of financial position but excluding income tax assets and liabilities. Internal charges and transfer pricing adjustments have been reflected in the performance of each business. All revenues and expenses are attributable only to external customers, and there are no transactions between business segments.
Therefore, the Group presents its business on the basis of three main segments. Segment information about these businesses is presented below.
Retail banking
Corporate banking
For the year ended
31 December2019
Investing activity
Interest income calculated using the effective interest method
Provision for impairment losses on interest-bearing assets
Other interest income
52,579 50,842 16,088
(17,126) (24,531) -
- - 1,472
119,509
(41,657)
1,472
Interest expenses (27,915) (17,495) (16,594) (62,004)
Net non-interest income 4,710 16,365 2,724 23,799
Operating expenses (9,072) (27,053) (2,621) (38,746)
Profit/(loss) before income tax 3,176 (1,872) 1,069 2,373
Segment assets* 429,377 842,437 185,912 1,457,726
Segment liabilities* 567,940 548,516 221,217 1,337,673
Other segment items
Depreciation charge on property, equipment and intangible assets
(727) (2,354) (131) (3,212)
Loans to customers and banks 427,685 554,705 - 982,390
Customer and bank accounts 544,463 414,482 - 958,945
Financial guarantees and credit related commitments
- 138,821 - 138,821
Interest income calculated using the effective interest method
Provision for impairment losses on interest-bearing assets
Other interest income
49,845 42,526 17,739
(10,302) (20,512) -
- - 1,593
110,110
(30,814)
1,593
Interest expenses* (27,291) (32,210) (6,354) (65,855)
Net non-interest income 6,649 17,597 3,513 27,759
Operating expenses (14,993) (15,291) (948) (31,232)
Profit/(loss) before income tax 3,908 (7,890) 15,543 11,561
Segment assets* 394,465 924,387 197,697 1,516,549
Segment liabilities* 602,230 589,073 210,260 1,401,563
Other segment items
Depreciation charge on property, equipment and intangible assets
(1,270) (1,296) (79) (2,645)
Loans to customers and banks 393,153 575,531 - 968,684
Customer and bank accounts 583,807 490,723 - 1,074,530
Financial guarantees and loan commitments
- 154,019 - 154,019
*- net of current and deferred income tax. Income tax expense is not allocated.
The majority of the Group's assets are located in the Republic of Kazakhstan and the Group generates income from operations conducted within the Republic of Kazakhstan.
Information on large customers
For the year ended 31 December 2019 the reporting segments have no corporate and retail customers (for the year ended 31 December 2018: five customers), whose income from transactions individually exceed 10% of the total income of the Group.
13
126
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SEGMENT REPORTING
Retail banking
Corporate banking
For the year ended
31 December2018
Investing activity
Content Glossary
(а) Corporate governance structure
The Bank was established as an open joint-stock company in accordance with the requirements of the legislation of the Republic of Kazakhstan. The Bank's highest body is the general meeting of the shareholders, which is convened to hold the annual and extraordinary meetings. The general meeting of shareholders makes strategic decisions related to the Bank's operations.
The general meeting of shareholders determines the structure of the Board of Directors. The Board of Directors has overall responsibility for the general management of the Bank's activity.
The legislation of the Republic of Kazakhstan and Bank's Charter determine the lists of decisions, which are exclusively approved by the general shareholders' meeting and that are approved by the Board of Directors.
The Board of Directors meeting elects the Chairman of Management Board, determines the structure of the Management Board. The Bank's executive bodies are responsible for implementation of the decision made by the general meeting of shareholders and Board of Directors. The Bank's executive bodies are subordinated to the Board of Directors and general meeting of shareholders.
(b) Risk management policies and procedures
Management of risk is fundamental to the Group's business of banking and is an essential element of the Group's operations. The major (significant) risks faced by the Group are those related to market risk, credit risk, liquidity risk and operating risk, legal risk and reputational risk.
The risk management policies aim to identify, analyse and manage the risks faced by the Group, to set appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits. Risk management policies and procedures are reviewed regularly to reflect changes in market conditions, bank products and services offered and emerging best practice.
As at 31 December 2019, the Group's internal documentation establishing the procedures and methodologies for identification, managing and stress-testing the Bank's significant risks, was approved by the authorised management bodies of the Group in accordance with regulations and recommendations issued by the NBRK.
The Board of Directors has overall responsibility for the oversight of the risk management framework, overseeing the management of key risks and reviewing its risk management policies and procedures as well as approving significantly large exposures.
The Management Board is responsible for monitoring and implementing risk mitigation measures, and ensuring that the Group operates within established risk parameters. Risk Management function (Risk Department and Department of Credit Risks) is responsible for the overall risk management and compliance functions, ensuring the implementation of common principles and methods for identifying, measuring, managing and reporting both financial and non-financial risks. Risk Management function reports directly to the Chairman of the Management Board and indirectly to the Board of Directors.
Credit, market and liquidity risks, both at the portfolio and transactional levels, are managed and controlled through a system of Credit Committees, Finance and Risk Management Committee (FRMC) and Risk Management Committee (FMC). In order to facilitate efficient and effective decision-making, the Group established a hierarchy of credit committees, depending on the type and amount of the exposure.
Both external and internal risk factors are identified and managed throughout the organisation. Special attention is given to revealing the whole list of risk factors and determining the level of adequacy of the current risk mitigation procedures.
27. RISK MANAGEMENT POLICY (с) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises currency risk, interest rate risk and other price risks. Market risk arises from open positions in interest rate and equity financial instruments, which are exposed to general and specific market movements and changes in the level of volatility of market prices and foreign currency rates.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return on risk.
FRMC, FMC manage interest rate risk and market risk thus ensuring a positive interest margin for the Group. The Department of Planning and Finance exercises monitoring of the current financial position of the Group, assesses the Group's sensitivity to changes in the interest rates and their impact on the Group's profitability.
The Group manages its market risk by setting open position limits in relation to financial instruments, interest rate maturity and currency positions and stop-loss limits. These are monitored on a regular basis and reviewed and approved by the Management Board.
(i) Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group is exposed to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of such changes but may also reduce or create losses in the event that unexpected movements occur.
Interest rate sensitivity analysis
The management of interest rate risk based on interest rate gap analysis is supplemented by monitoring the sensitivity of financial assets and liabilities. An analysis of the sensitivity of net profit or loss and equity (net of taxes) to changes in interest rates (repricing risk), based on a simplified scenario of a 100 basis point (bp) symmetrical fall or rise in all yield curves and positions of interest-bearing assets and liabilities existing as at 31 December 2019 and 2018, is as follows:
13
2019 2018
(1,112)100 bp parallel fall
100 bp parallel rise
EquityProfit or loss
(1,112)
1,112 1,112
1,212 1,212
(1,212) (1,212)
127
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Profit or loss
Equity
Content Glossary
An analysis of the sensitivity of net profit or loss and equity as a result of changes in the fair value of financial assets measured at fair value through other comprehensive income and through profit or loss due to changes in the interest rates, based on positions existing as at 31 December 2019 and 2018 and a simplified scenario of a 150 bp symmetrical fall or rise in all yield curves, is as follows:
(ii) Currency risk
The Group has assets and liabilities denominated in several foreign currencies. Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates.
The Treasury Department performs currency risk management through management of open currency position, which enables the Group to minimize losses from significant fluctuations of exchange rates of national and foreign currencies. The Risk Department determines limits on open currency positions and stop-loss. All limits and restrictions are approved by the Management and the Board of Directors. The Treasury Department performs monitoring of the Group's currency position with the aim to match the requirements of the NBRK.
The following table shows the foreign currency exposure structure of financial assets and liabilities as at 31 December 2019:
USD 1 USD =
KZT 382.59
OtherCurrency
EUR 1 EUR = KZT 429
31 December 2019 Total
KZT
Financial assets:
Cash and cash equivalents 38,326 103,930 11,716 4,896 158,868
12,382 6,980 - 27 19,389Financial instruments at fair value through profit or loss
100,984 59,537 21 - 160,542Investment financial assets at FVOCI
4,355 - - - 4,355Investment financial assets at amortised cost
Due from banks
781,474 190,200 10,716 - 982,390Loans to customers and banks
Other financial assets
Total financial assets
Financial liabilities:
75,232 38,339 85 - 113,656Due to banks and financial institutions
Customer and banks accounts
76,897 4,986 - - 81,883Debt securities issued
61,342 - - - 61,342Subordinated bonds
113,969 5,380 202 129 119,680Other financial liabilities
935,747 372,627 22,675 4,457 1,335,506Total financial liabilities
Open position
5,957 3,145 - - 9,102
5,245 4,688 213 11 10,157
948,723 368,480 22,666 4,934 1,344,803
608,307 323,922 22,388 4,328 958,945
12,976 (4,147) (9) 477
The Group's exposure to foreign currency exchange rate risk as at 31 December 2018 is presented in the table below:
USD 1 USD =
KZT 384.2
OtherCurrency
EUR 1 EUR =
KZT 439.37
31 December 2018 Total
KZT
Financial assets:
Cash and cash equivalents 38,464 124,564 7,141 5,244 175,413
9,547 5,394 219 339 15,499Financial instruments at fair value through profit or loss
13
128
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
2019 2018
(1,049)150 bp parallel rise
150 bp parallel fall
EquityProfit or loss
(5,169)
612 5,023
(850) (7,741)
1,093 8,548
EquityProfit or loss
USD 1 USD =
KZT 382.59
OtherCurrency
EUR 1 EUR = KZT 429
31 December 2019 Total
KZT
Content Glossary
61,321 109,099 459 - 170,879Investment financial assets at FVOCI
Due from banks
752,604 204,650 11,008 422 968,684Loans to customers and banks
Other financial assets
Total financial assets
1,853 27,011 2,428 - 31,292
4,685 5,944 113 29 10,771
875,385 476,662 21,368 6,034 1,379,449
6,911 - - - 6,911Investment financial assets at amortised cost
Financial liabilities:
82,212 43,436 - 2 125,650Due to banks and financialinstitutions
Customer and banks accounts
70,147 - - - 70,147Debt securities issued
71,915 - - - 71,915Subordinated bonds
39,660 5,966 60 28 45,714Other financial liabilities
849,524 511,589 21,086 5,757 1,387,956Total financial liabilities
Open position
585,590 462,187 21,026 5,727 1,074,530
25,861 (34,927) 282 277
The currency risk analysis by types of derivative financial instruments and spot contracts as at 31 December 2018 is presented in the following table:
USD 1 USD =
KZT 384.2
OtherCurrency
EUR 1 EUR =
KZT 439.37
31 December 2018 Total
KZT
Accounts receivable on spot and derivative contracts 11,111 50,330 - - 61,441
Accounts payable on spot and derivative contracts (23,496) (23,436) - - (46,932)
Net spot and derivative financial instruments position
(12,385) 26,894 - - 14,509
Open position 13,476 (8,033) 282 277
A weakening of the KZT, as indicated below, against the following currencies at 31 December 2019 and 2018, would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is on a net-of-tax basis, and is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant.
(664)(643)
(1)23
7622
20% appreciation of USD against KZT (2018: 10%)
20% appreciation of EUR against KZT (2018: 10%)
20% appreciation of other currencies againstKZT (2018: 10%)
(iii) Other price risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded in the market. Other price risk arises when the Group takes a long or short position in a financial instrument.
VAR is a technique that estimates the potential losses that could occur on risk positions as a result of movements in market rates and prices over a specified time horizon and to a given level of confidence. The VAR model used by the Group is based on a 95 percent confidence level and assumes a 60-day holding period depending on the type of positions. The VAR model used is mainly based on historical simulation. The model derives plausible future scenarios based on historical market rate time series, taking into account inter-relationships between different markets and rates. Potential movements in market prices are determined with reference to market data from at least the last 12 months.
Although VAR is a valuable tool in measuring market risk exposures, it has a number of limitations, especially in less liquid markets as follows:
· the use of historical data as a basis for determining future events may not encompass all possible scenarios, particularly those that are of an extreme nature;
13
Derivative financial instruments and spot contracts
129
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
USD 1 USD =
KZT 384.2
OtherCurrency
EUR 1 EUR =
KZT 439.37
31 December 2018 Total
KZTUSD
1 USD = KZT 384.2
OtherCurrency
EUR 1 EUR =
KZT 439.37
31 December 2018 Total
KZT
Content Glossary
a 60-day holding period assumes that all positions can be liquidated or hedged within that period. This is considered to be a realistic assumption in almost all cases but may not be the case in situations in which there is severe market illiquidity for a prolonged period
· the use of a 95% confidence level does not take into account losses that may occur beyond this level. There is a five percent probability that the loss could exceed the VAR estimate;
· VAR is only calculated on the end-of-day balances and does not necessarily reflect exposures that may arise on positions during the trading day.
· The VAR measure is dependent upon the position and the volatility of market prices. The VAR of an unchanged position reduces if market volatility declines and vice versa.
The Group does not solely rely on its VAR calculations in its market risk measurement due to inherent risk of usage of VAR as described above. The limitations of the VAR methodology are recognised by supplementing VAR limits with other position and sensitivity limit structures, including limits to address potential concentration risks within each trading portfolio, and gap analysis.
A summary of the VAR estimates of losses that could occur in respect of the portfolio of financial instruments at fair value as at 31 December is as follows:
305
31 December 2019
31 December 2018
305
2,070
2,070Foreign
exchange risk
(d) Credit risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group has policies and procedures in place to manage credit exposures (both for recognised financial assets and unrecognised contractual commitments), including guidelines to limit portfolio concentration and the establishment of a Credit Committee to actively monitor credit risk. The credit policy is reviewed and approved by the Management Board and the Board of Directors.
The credit policy establishes:
methodology for the credit assessment of borrowers (corporate and retail);
methodology for the credit assessment of counterparties, issuers and insurance companies;
methodology for the credit assessment of counterparties, issuers and insurance companies;
methodology for the evaluation of collateral;
credit documentation requirements;
procedures for the ongoing monitoring of loans and other credit exposures.
Credit applications from the corporate customers are originated by the relevant credit managers. On-site visit and financial analysis can be made either with or without participation of the credit risk department employees, depending on the authority level and borrower's rating. To comply with the statutory procedures of the regulator for generating a credit file and ensuring internal risk control, the related departments (legal department, security department and credit analysis department) provide their opinions on the project. A credit decision is made by the authorised Credit committees represented by the Credit committees at the levels of branches, regions and the Head Office. In case of review of the credit applications, which are outside of the authority and limits of the branches at the Head Office Credit committees, the Credit Risk Department prepares additionally its opinion.
The Group enters into numerous transactions where the counterparties are not rated by international rating agencies. The Group has developed internal models, which allow it to determine the rating of counterparties, which are comparable to ratings of international rating agencies. These models include rating models for corporate customers and scoring models for individuals and small business. The Group uses these instruments for initial measurement of credit risk and pricing of the loans issued.
Scoring models
Scoring is an automated system of customer evaluation, which processes applications from different sales channels, treats these applications and uses the strategies to make accurate decisions on loan granting. The system produces online decision, which allows to standardise and automate the process of making decisions on loan granting and reduce the operating expenses and operating risks.
The system sets the lending strategies comprising the Credit Rules, scoring models and antifraud strategies, which use the customer initial parameters and the product parameters. The input parameters for decision-making are the social and demographic, financial indicators of the customers, as well as data from external sources, such as credit bureau, telecommunication and transaction data, etc.
Credit Rules serve as an instrument for automated check of the applicants against the credit policy. These are a set of conditions, upon passing of which a subject receives a positive decision; or if there are negative indicators arise, a negative decision is made with regard to a customer. Credit Rules are developed and updated on the basis of statistical analyses and customers' behaviour in the market.
A scoring models as a statistical model used for quantitative assessment of future creditworthiness of new and existing borrowers of the Group. When scoring is used, each of the parameters inserted into scoring model has a numeric value, the sum of which represents the borrower's internal credit score. The assigned score reflects the probability of default of the borrower. Quality of scoring models is checked on the continuous basis for their compliance with international standards by assessing their effectiveness and accuracy.
Antifraud strategy includes a number of checks to prevent the fraud risks on the part of the applicant.
The scoring methodologies are tailor-made for specific products and are applied during the stage of making decision on loan issuance.
13
130
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Content Glossary
The maximum exposure to credit risk is generally reflected in the carrying amounts of financial assets in the consolidated statement of financial position and unrecognised contractual commitment amounts. The impact of possible netting of assets and liabilities to reduce potential credit exposure is not significant.
The maximum exposure to credit risk from financial assets at the reporting date is as follows:
2019
ASSETS
2018
Cash and cash equivalents 93,420 123,496
Financial instruments at fair value through profit or loss
Investment financial assets at FVOCI - debt financial instruments
Investment financial assets at amortised cost
Available-for-sale investments - -
Due from banks 9,102 31,292
Loans to customers and banks 982,390 968,684
Other financial assets 10,157 10,771
Total maximum exposure
16,635 41,594
160,176 170,719
4,355 6,911
1,276,235 1,353,467
For the analysis of collateral held against loans to customers and concentration of credit risk in respect of loans to customers, see note 17.
The maximum exposure to credit risk from unrecognised contractual commitments at the reporting date is presented in note 29.
The Bank calculates and monitors, on the ongoing basis, the mandatory norm of the maximum risk per one borrower or group of related borrowers, which regulates the Bank's credit risk with regard to a single borrower or group of related borrowers and determines the maximum ratio of the total liabilities of a borrower (borrowers included in the group of related borrowers) to the Bank to the Bank's equity. As at 31 December 2019 and 31 December 2018 the maximum allowable value of k-3 norm established by NBRK was 25%. The value of k-3 norm calculated by the Bank as at 31 December 2019 and 31 December 2018 was in compliance with the statutory norm.
As at 31 December 2019 the Group has 6 debtors or groups of connected debtors (31 December 2018:14 debtors or groups of related debtors), credit risk exposure to whom exceeds 10 percent maximum credit risk exposure. The credit risk exposure for these customers as at 31 December 2019 is KZT 186,215 million (31 December 2018: KZT 276,797 million).
Offsetting financial assets and financial liabilities
The disclosures set out in the tables below include financial assets and financial liabilities that:
are offset in the Group's consolidated statement of financial position; or
are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments, irrespective of whether they are offset in the consolidated statement of financial position.
Similar financial instruments include derivatives, sales and repurchase agreements, reverse sale and repurchase agreements, and securities borrowing and lending agreements.
The Group conducts derivative transactions that are not transacted on the exchange through a central counterparty. Management believes that such settlements are, in effect, equivalent to net settlement and that, the Group meets the net settlement criterion as this gross settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk, and that the Group will process receivables and payables in a single settlement process or cycle.
The Group receives and accepts collateral in the form of cash and marketable securities in respect of the following transactions:
sale and repurchase, reverse sale and repurchase agreements; and
derivatives;
securities lending and borrowing.
Such collateral is subject to the standard industry terms of the International Swaps and Derivatives Association (“ISDA”) Credit Support Annex. This means that securities received/given as collateral can be pledged or sold during the term of the transaction but must be returned on maturity of the transaction. The terms also give each counterparty the right to terminate the related transitions upon the counterparty's failure to post collateral.
The table below shows financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar arrangements as at 31 December 2019:
13
131
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Content Glossary
Total financial liabilities
Related amounts not offset in the consolidated
statement of financial position
Types of financial assets/liabilities
Gross amounts of recognised
financial asset/liability
Gross amount of recognised
financial liability/asset offset in the
consolidated statement of financial
position
Net amount of financial
assets/liabilitiespresented
in the consolidated statement of financial
position
Financial instruments
Cash collateral received
Net amount
Loans to customers and banks
Current accounts and deposits from customers
Due to banks and financial institutions (loans under REPO agreements)
58,777 - 58,777 - (8,746) 50,031
Loans under reverse repurchase agreements 61,771
120,549
8,746
6,406
15,152
-
-
-
-
-
61,771
120,549
8,746
6,406
15,152
(61,771)
(61,771)
(8,746)
(6,406)
(15,152)
-
(8,746)
-
-
-
-
50,031
-
-
-
Total financialassets
The table below shows financial assets and financial liabilities subject to offsetting, enforceable master netting arrangements and similar arrangements as at 31 December 2018:
Total financial liabilities
Related amounts not offset in the
consolidated statement of financial position
Types of financial assets/liabilities
Gross amounts of recognised
financial asset/
liability
Gross amount of recognised
financial liability/asset
offset in the consolidated statement of
financial position
Net amount of financial assets/
liabilities presented in the
consolidated statement of
financial position
Financial instruments
Cash collateral received
Net amount
Loans to customers and banks
Current accounts and deposits from customers
Due to banks and financial institutions (loans under REPO agreements)
59,641 - 59,641 - (7,725) 51,916
Loans under reverse repurchase agreements
75,071
134,712
7,725
4,827
12,552
-
-
-
-
-
75,071
134,712
7,725
4,827
12,552
(75,071)
(75,071)
(7,725)
(4,827)
(12,552)
-
(7,725)
-
-
-
-
51,916
-
-
-
Total financial assets
13
132
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Content Glossary
The gross amounts of financial assets and financial liabilities and their net amounts as presented in the consolidated statement of financial position that are disclosed in the above tables are measured in the consolidated statement of financial position on the following basis:
Assets and liabilities resulting from sale and repurchase agreements, reverse sale and repurchase agreements and securities lending and borrowing – amortised cost.
The securities lent under agreements to repurchase (Note 15) represent the transferred financial assets, which are not completely derecognised. The securities lent or sold under agreements to repurchase are transferred to a third party and the Group receives cash in exchange. These financial assets may be repledged or resold by counterparties in the absence of any default by the Group, but the counterparty has an obligation to return the securities when the contract matures. The Group has determined that it retains substantially all the risks and rewards related to these securities and therefore has not derecognised them. Because the Group sells the contractual rights to the cash flows of the securities, it cannot use the transferred assets during the term of the agreement.
Geographical concentration
The Finance and Risk Management Committee (“FRMC”) exercises control over the risk in the legislation and regulatory arena and assesses its influence on the Group's activity. This approach allows the Group to minimise potential losses from the investment climate fluctuations in the Republic of Kazakhstan.
The geographical concentration of assets and liabilities is set out below:
KazakhstanNon-OECD countries
31 December 2019 Total
OECD countries
Financial assets:
Cash and cash equivalents 119,074 928 38,866 158,868
Financial instruments at FVTPL 19,389 - - 19,389
Investment financial assets at FVOCI
142,158 8,604 9,780 160,542
Investment financial assets at amortised cost 4,355 - - 4,355
Due from banks
Loans to customers and banks 968,439 13,951 - 982,390
Other financial assets
5,957 - 3,145 9,102
10,157 - - 10,157
Total financial assets 1,269,529 23,483 51,791 1,344,803
13
Financial liabilities:
Due to banks and financial institutions
61,660 113,6564,110 47,886
Customer and banks accounts 948,053 5,333 5,559 958,945
Financial assets:
Cash and cash equivalents 155,689 4,995 14,729 175,413
Financial instruments at FVTPL 42,478 - 198 42,676
Investment financial assets at FVOCI
148,777 18,121 3,981 170,879
Investment financial assets at amortised cost
6,911 - - 6,911
Due from banks
Loans to customers and banks 954,092 14,591 1 968,684
Other financial assets
Total financial assets
27,415 - 3,877 31,292
10,771 - - 10,771
1,346,133 37,707 22,786 1,406,626
Financial liabilities:
Financial instruments at FVTPL 12,668 - - 12,668
Due to banks and financial institutions
68,954 8,326 48,370 125,650
Customer and banks accounts
Total financial liabilities
1,074,530 - - 1,074,530
1,343,928 8,326 48,370 1,400,624
Debt securities issued 70,147 - - 70,147
Subordinated bonds 71,915 - - 71,915
Other financial liabilities 45,714 - - 45,714
Open position 2,205 29,381 (25,584)
133
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Open position (3,089) 14,040 (1,654)
Debt securities issued
Subordinated bonds
Other financial liabilities
Total financial liabilities
81,883
61,342
119,680
1,272,618
-
-
-
9,443
-
-
-
53,445
81,883
61,342
119,680
1,335,506
KazakhstanNon-OECD countries
31 December 2019 Total
OECD countries
KazakhstanNon-OECD countries
31 December 2018 Total
OECD countries
Content Glossary
(e) Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash. Liquidity risk exists when the maturities of assets and liabilities do not match. The matching and/or controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to liquidity management. It is unusual for financial institutions ever to be completely matched, since business transacted is often of an uncertain term and of different types. An unmatched position potentially enhances profitability, but can also increase the risk of losses.
The Group maintains liquidity management with the objective of ensuring that funds will be available at all times to honour all cash flow obligations as they become due. The liquidity policy is reviewed and approved by the Management Board.
The Group seeks to actively support a diversified and stable funding base comprising debt securities in issue, long- and short-term loans from other banks, core corporate and retail customer deposits, accompanied by diversified portfolios of highly liquid assets, in order to be able to respond quickly and efficiently to unforeseen liquidity requirements.
The Treasury Department performs management of these risks through analysis of asset and liability maturity and performance of money market transactions for current liquidity support and cash flow optimisation. The Department of Planning and Finance determines the optimum structure of balance and limits on liquidity ratios. Gap-positions are approved by the FRMC. The Risk Department performs monitoring of liquidity ratios.
The liquidity management policy requires:
monitoring of liquidity risk and liquidity positions, establishment of reporting system, including prudential and management reporting;
liquidity risk identification and measurement;
stress-testing;
development of alternative options of liquidity planning, maintaining liquidity and funding contingency plans and their regular review;
organisation of internal controls over liquidity risk and liquidity risk management, exercise of internal audit;
disclosure of respective information on liquidity risk and liquidity position.
liquidity risk limitation, formation of the system of limits (restrictions) and early warning indicators;
The following tables show analysis of financial assets and liabilities grouped according to the principle of period remaining from the balance sheet date till maturity date, except for the financial assets through profit or loss and investment financial assets at fair value through other comprehensive income, which were categorised as “on demand and less than 1 month” as they may be realised, as necessary, at any time.
13
134
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Content Glossary
On demand and up to 1 month
3 months to1 year
1 year to 5 years
Over 5 years
Financial assets
Financial instruments at fair value through profit or loss
Weightedaverage effective
interest rate
31 December2019 Total
31 December 2019 1 month to 3 months
Cash and cash equivalents 2.50% - 5,662 - - - 5,662
- - - 16,6417.71% 16,641
-
Investment financial assets at FVOCI - - - 160,1765.63% 160,176 -
Investment financial assets at amortised cost 2,318 1,826 - 4,3556.15% - 211
Loans to customers and banks 11.50% 110,145 45,362 183,741 456,434 186,708 982,390
Total interest bearing financial assets 286,962 51,235 186,059 458,260 186,708 1,169,224
Cash and cash equivalents 153,206 - - - - 153,206
Financial instruments at fair value through profit or loss - - - 2,7482,748 -
Investment financial assets at FVOCI - - - 367367 -
Due from banks 9,102 - - - - 9,102
Other financial assets 10,157
Total financial assets 462,542 51,235 186,059 458,260 186,708 1,344,804
Financial liabilities
Customer and banks accounts 6.16% 39,874
Debt securities issued 9.91% -
Subordinated bonds 11.75% -
Other financial liabilities 3.00% 857
Total interest bearing liabilities 80,557
Due to banks and financial institutions 5,367
Customer and banks accounts 274,086
10,157
13
Due to banks and financial institutions 39,8266.12%
60,606
1,106
559
1,122
1,298
284,466
51
508
2,667
25,325
276,390
28,607
16,357
16,945
9,947
17,439
52,119
43,918
81,492
31,893
678,775
81,883
61,342
103,083
108,289
- - - -
1,033,372226,861348,246313,01764,691
- - - - 5,367
280,1701,5933794,1111
Other financial liabilities 16,597 16,597----
Total financial liabilities 376,607 1,335,506228,454348,625317,12864,692
Liquidity gap 85,935 (41,746)109,635(131,069)(13,457)
135
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
Content Glossary
Interest sensitivity gap (126,958) 110,014 (40,153)206,405 (13,456)
Cumulative interest sensitivity gap 65,990 176,004 135,851206,405 192,948
Cumulative interest sensitivity gap as a percentage of total financial assets 5.64% 15.05%17.65% 16.50%
13
11.62%
Financial assets
Financial instruments at fair value through profit or loss
Cash and cash equivalents 2.84% 3,910
8.77% 41,594
Investment financial assets at FVOCI 4.15% 170,719
Investment financial assets at amortised cost 6.37% -
Loans to customers and banks 11.84% 113,498
Total interest bearing financial assets 337,699
Cash and cash equivalents 169,249
Financial instruments at fair value through profit or loss 1,082
Investment financial assets at FVOCI 160
Due from banks 3,704
Other financial assets 10,771
Total financial assets 522,665
Financial liabilities
Financial instruments at fair value through profit or loss 12,6683.00%
2,254 - - - 6,164
- - - 41,594-
- - - 170,719-
4,436 2,475 - 6,911-
19,610 - - - 27,588
64,924 206,050 375,939 237,048 1,221,660
- - - - 169,249
- - - 1,082-
- - - 160-
- - - - 3,704
10,771- - - -
Due from banks 2.60% 7,978
43,060 201,614 373,464 237,048 968,684
64,924 206,050 375,939 237,048 1,406,626
- - - - 12,668
136
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
On demand and up to 1 month
3 months to1 year
1 year to 5 years
Over 5 years
Weightedaverage effective
interest rate
31 December2019 Total
31 December 2019 1 month to 3 months
On demand and up to 1 month
3 months to1 year
1 year to 5 years
Over 5 years
Weightedaverage effective
interest rate
31 December2018 Total
31 December 2019 1 month to 3 months
Content Glossary
13
Due to banks and financial institutions
Customer and banks accounts 5.83% 84,025
Other financial liabilities 166
Total interest bearing liabilities 129,194
Due to banks and financial institutions
54,701 296,309 308,430 20,266 763,731
30,904216 655 4,125 25,742
58,141 350,058 386,319 141,102 1,064,814
Debt securities issued 8.62% - 1,107 - 70,14721,271 22,632 25,137
Subordinated bonds 11.09% - 550 71,915
Customer and banks accounts
Other financial liabilities
Total financial liabilities 457,150
Liquidity gap
Interest sensitivity gap
Cumulative interest sensitivity gap
Cumulative interest sensitivity gap as a percentage of total financial assets
6.42% 32,335 1,567
3.00%
10,201 -
302,945 7
14,810 -
58,148
65,515 6,776
208,505 6,783
208,505 215,288
17.07% 17.62% 5.83% 4.99%
71,280 60,900 156,846
(144,008) (10,380) 95,946
(149,428) (10,904) 94,043
355,478 386,843 143,005 1,400,624
14,810- - -
5,420 524 1,903 310,799
- - -
In accordance with Kazakhstan legislation, depositors can withdraw their term deposits at any time, losing in most of the cases the accrued interest. These deposits are classified in accordance with their stated maturity dates.
However, management believes that in spite of this early withdrawal option and the fact that a substantial portion of customer accounts are on demand, diversification of these customer accounts and deposits by number and type of depositors, and the past experience of the Group indicates that these customers accounts provide a long-term and stable source of funding.
Management expects that the cash flows from certain financial assets and liabilities will be different from their contractual terms, either because management has the discretionary ability to manage the cash flows, or because past experience indicates that cash flows will differ from contractual terms.
A further analysis of the liquidity and interest rate risks is presented in the following tables in accordance with IFRS 7. The amounts disclosed in these tables do not correspond to the amounts recorded on the statement of financial position as the presentation below includes a maturity analysis for financial liabilities that indicates the total remaining contractual payments (including interest payments), which are not recognised in the
19,360 42,786 19,401 115,449
12,463 8,346 50,556
10,201
137
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
On demand and up to 1 month
3 months to1 year
1 year to 5 years
Over 5 years
Weightedaverage effective
interest rate
31 December2018 Total
31 December 2019 1 month to 3 months
Content Glossary
1 month to3 months
3 months to 1 year
1 month to
5 years
Over 5 years
On demand and up to1 month
31 December 2019Total
Financial liabilities:
1,80339,922 29,676 11,400 43,107 125,908Due to banks and financial institutions
65,896 45,943 299,979 284,623 17,295 713,736Customer and banks accounts
1,785- 6,608 57,785 63,321 129,499Debt securities issued
1,108- 4,857 39,791 102,629 148,385Subordinated bonds
1,509866 4,388 26,101 108,437 141,301Other financial liabilities
72,10186,731 345,508 419,700 334,789 1,258,829Total interest bearing liabilities
-5,367 - - - 5,367Due to banks and financial institutions
1274,086 4,111 379 1,593 280,170Customer and banks accounts
-16,597 - - - 16,597Other financial liabilities
72,102382,781 349,619 420,079 336,382 1,560,963Total financial liabilities
-138,821 - - - 138,821Financial guarantees and commitments
Financial derivative liabilities
Gross settled derivatives
-- 23,816 - - 23,816Inflow
-- (11,111) - - (11,111)Outflow
Definition of operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks, such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group's operations.
13
statement of financial position under the effective interest rate method. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate yield curves at the end of the reporting period.
Financial liabilities:
2,13632,413 22,686 49,035 25,137 131,407Due to banks and financial institutions
56,179 86,295 304,313 316,761 20,813 784,361Customer and banks accounts
1,681- 25,441 42,204 33,691 103,017Debt securities issued
1,088- 17,677 29,608 80,491 128,864Subordinated bonds
370244 1,334 7,467 33,295 42,710Other financial liabilities
61,454118,952 371,451 445,075 193,427 1,190,359Total interest bearing liabilities
-10,201 - - - 10,201Due to banks and financial institutions
7302,945 5,420 524 1,903 310,799Customer and banks accounts
-14,810 - - - 14,810Other financial liabilities
61,461446,908 376,871 445,599 195,330 1,526,169Total financial liabilities
-154,019 - - - 154,019Financial guarantees and commitments
The timing of cash outflows has been prepared on the following basis:
Derivative financial instruments
Contractual payments for derivative financial instruments are determined based on gross settlements due to initial and final exchange of notional amounts and applicable interest rates in accordance with the terms of these financial instruments.
Prepaid liabilities
Where a financial liability can be prepaid by the counterparty, the cash outflow has been included at the earliest date on which the counterparty can require repayment regardless whether or not such early repay-ment results in a penalty. If the repayment of financial liability is triggered by, or is subject to, specific criteria such as market price hurdles being reached, it is included at the earliest possible date that the conditions could be fulfilled without considering probability of the conditions being met.
The financial guarantees and commitments are included in the “On demand” category because payments can be required upon request.
138
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RISK MANAGEMENT POLICY
1 month to3 months
3 months to 1 year
1 month to
5 years
Over 5 years
On demand and up to1 month
31 December 2018Total
1 month to3 months
3 months to 1 year
1 month to
5 years
Over 5 years
On demand and up to1 month
31 December 2018Total
Content Glossary
13
28. CAPITAL MANAGEMENT
NBRK sets and monitors capital requirements for the Bank as a whole.
- is a total of basic and additional capital. Basic capital comprises paid-in ordinary share capital, share pre-mium, current and prior periods' retained earnings and reserves created thereof, less treasury share capital, intangible assets including goodwill, and current and prior periods losses, deferred tax asset net of deferred tax liability, excluding deferred tax assets recognised in relation to deductible temporary differences, other revaluation reserves, gains from sales related to asset securitisation transactions, gains or losses from revaluation of financial liabilities at fair value related to change in own credit risk, regulatory adjustments to be deducted from the additional capital, but due to insufficient levels of it deducted from basic capital, and investments in financial instruments of investees not consolidated in the Group with certain limitations. Additional capital comprises of perpetual contracts and paid-in preference share capital less adjustments for the Bank's investment in its own perpetual financial instruments, treasury preference shares, investments in financial instruments of investees not consolidated in the Group with certain limitations and regulatory adjustments to be deducted from the tier 2 capital, but due to insufficient levels of it deducted from additional capital.
- comprises subordinated debt in KZT less investments in subordinated debt of financial institutions the Bank holds 10% and more shares in.
Total capital is the sum of tier 1 and tier 2 capital (total capital is the sum of tier 1 and tier 2 capital less positive difference between retail deposits and statutory capital multiplied by 5.5, and less 33.33% of the positive difference between statutory allowance for credit losses and allowance for credit losses in accordance with IFRS as at 31 December 2018).
There are a set of different limitations and classification criteria applied to the above listed total capital elements.
Tier 1 capital
Tier 2 capital
The Group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group's reputation with overall cost effectiveness and innovation. In all cases, the Group policy requires compliance with all applicable legal and regulatory requirements.
The Group manages operational risk by establishing internal controls that management determines to be necessary in each area of its operations.
a ratio of basic capital to the sum of credit risk-weighted assets and contingent liabilities, market risk-weighted assets and contingent assets and liabilities, and quantified operational risk (k1);
As at 31 December 2019 the minimum level of ratios as applicable to the Bank are as follows:
0.075 k1not less than
31 December 2018: 0.075
0.085 k1-2not less than
31 December 2018: 0.085
0.100k2not less than
31 December 2018: 0.100
On 1 October 2019, NBRK introduced a new regulatory capital buffer for the capitalisation ratios. The regulatory capital buffer is calculated as the ratio of positive difference between provisions calculated in accordance with the Impairment Provisioning Guidelines of bank's assets (loans and accounts receivable) to the Ratio, and provisions formed and reflected in the bank's accounting in accordance with IFRS and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting (the “positive difference”) to the sum of assets and contingent liabilities weighted by the degree of credit risk.
As at 31 December 2019, the Bank complied with all prudential capital ratios k1, k1-2 and k2, exclusive of the regulatory capital buffer, and the actual ratios were 0.094, 0.100 and 0.174 (31 December 2018: k1 - 0.087, k1-2 - 0.100 and k2 - 0.171).
As at 31 December 2019, the regulatory capital buffer was 2%, and k1, k1-2 and k2 ratios, including the regulatory capital buffer were 9.5%, 10.5% and 12%, respectively. In order to comply with the capitalisation ratios, including the regulatory capital buffer, the Agency for Regulation and Development of the Financial Market of the Republic of Kazakhstan has agreed on the Action Plan to satisfy the capital adequacy ratios, including the regulatory capital buffer.
The following table shows the composition of the capital position as at 31 December 2019 calculated in accordance with the requirements established by the resolution of Board of National Bank of the Republic of Kazakhstan of the resolution of Board of National Bank of the Republic of Kazakhstan of 13 September 2018, No. 170 “On establishment of normative values and techniques of calculations of prudential standard rates and other regulations, obligatory to observance, and limits of the size of the capital of bank for the certain date and Rules of calculation and limits of the open foreign exchange position of bank” with amendments and additions.
139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
CAPITAL MANAGEMENT
In accordance with the regulations set by the NBRK the Bank has to maintain total capital adequacy within the following coefficients:
a ratio of tier 1 capital to the sum of credit risk-weighted assets and contingent liabilities, market risk-weighted assets and contingent assets and liabilities, and quantified operational risk (k1-2);
a ratio of total capital to the sum of credit risk-weighted assets and contingent liabilities, market risk-weighted assets and contingent assets and liabilities, and quantified operational risk (k2).
Content Glossary
31 December 2019
Tier 1 capital
31 December 2018
Basic capital: 108,564 102,067
Perpetual financial instruments obtained before 1 January 2015 (20% of carrying amount – in 2019, 50% - in 2018)
Statutory retained earnings of prior years
Share capital 58,932 57,977
6,186 15,531
46,575 33,104
Retained earnings of current period 1,497 13,215
Reserves formed from statutory retained earnings of prior years 4,981 4,981
Revaluation surplus for buildings 1,442 1,564
Revaluation reserve of investment securities 285 (3,708)
Statutory adjustments:
Intangible assets including goodwill (5,148) (5,066)
Total basic capital 108,564 102,067
Additional capital
Paid-in preference share capital not satisfying basic capital requirements 11,775 5,887
Bank's treasury preference shares (11,686) (5,843)
Tier 1 capital 114,839 117,642
Tier 2 capital
Subordinated debt 82,154 81,754
Subordinated debt placed before 1 January 2015 denominated in KZT 3,167 12,670
Total tier 2 capital 85,321 94,424
13
Statutory adjustments:
- (11,511)
Total capital 200,160 200,555
2018: 33.33% of positive difference between regulatory impairment provisions and IFRS impairment provision
Risk-weighted assets, contingent liabilities and derivative financial instruments and operational risk 1,151,589 1,172,381
(22,923) н/п
Positive difference between regulatory statutory allowance for credit losses and allowance for credit losses under impairment provisions and IFRS impairment provision
Risk-weighted assets, contingent liabilities and derivative financial instruments and operational risk
Credit risk-weighted assets 985,438 993,520
Credit risk-weighted contingent liabilities 105,085 114,948
Market risk-weighted assets, contingent assets and liabilities
11,686 19,777
Operational risk 49,380 44,136
k1 0.094 0.087
k1-2 0.100 0.100
k2 0.174 0.171
29. CREDIT RELATED COMMITMENTS
The Group has outstanding credit related commitments to extend loans. These credit related commitments take the form of approved loans and credit card limits and overdraft facilities.
The Group provides financial guarantees and letters of credit to guarantee the performance of customers to third parties. These agreements have fixed limits and generally extend for a period of up to five years.
The Group applies the same credit risk management policies and procedures when granting credit commit-ments, financial guarantees and letters of credit as it does for granting loans to customers.
The contractual amounts of credit related commitments are set out in the following table by category. The amounts reflected in the table for guarantees and letters of credit represent the maximum accounting loss that would be recognised at the reporting date if the counterparties failed completely to perform as con-tracted.
As at 31 December 2019 and 31 December 2018, the nominal values or contractual values and risk-weighted amounts are as follows:
140
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
CAPITAL MANAGEMENT
31 December 2019 31 December 2018
Content Glossary
31 December 2019 31 December 2018
Risk-weighted value
Nominal value
Risk-weighted value
75,407 138,490145,936132,543Guarantees issued and other similar liabilities
Nominal value
1,256 1,6178,0836,278
Letters of credit and other contingent liabilities related to other transaction
76,663 140,107154,019138,821
Management expects that loans and liabilities under credit facilities will be financed as required at the expense of the amounts received from repayment of the current loan portfolio according to the payment schedules.
As at 31 December 2019, the guarantees issued in the amount of KZT 128,089 million are classified as Stage 1 (31 December 2018: KZT 140,783 million), KZT 3,479 million and KZT 975 million are classified as Stages 2 and 3, respectively (31 December 2018: KZT 958 million and KZT 4,195 million, respectively).
The following tables shows the guarantees issued and other similar liabilities secured by different types of collaterals and not the fair value of the collateral itself.
31 December 2019 31 December 2018
Real estate 12,899 52,407
Unsecured 4,930 27,675
Cash 57,136 7,446
Corporate guarantees 12,169 12,255
Movable property 219 14,373
Goods in turnover 200 421
Accounts receivable - 10,371
Land - 42
Other 44,990 20,946
Total 132,543 145,936
13
The following table shows the letters of credit issued and other contingent liabilities secured by different types of collaterals and not the fair value of the collateral itself.
31 December 2019 31 December 2018
Cash 6,278 8,083
Unsecured letters of credit - -
Total 6,278 8,083
These commitments do not necessarily represent future cash requirements, as these credit related commit-ments may expire or terminate without being funded.
30. CUSTODIAN SERVICES
The Group provides custodian services to individuals, trusts, retirement benefit plans and other institutions, whereby it accounts and holds assets or make settlements on the customers' transactions with different financial instruments at the direction of the customer. The Group receives fee income for providing these services. Assets received under custodian management are not assets of the Group and are not recognised in the consolidated statement of financial position. The Group is not exposed to any credit risk related to such activities, as it does not guarantee these investments.
Fiduciary assets are categorised as follows based on their nominal value:
31 December 2019 31 December 2018
Securities 266,434 227,078
Investments in buildings, machinery, equipment, transport and other property 6,597 19,791
Unit investment funds 22 23
Bank deposits 373 -
Other assets 20 688
Total fiduciary assets 273,446 247,580
The Bank keeps accounting and prepares reporting for assets and investment funds, asset management and other legal entities and transactions with assets and makes reconciliation with the management company with regard to the assets being served, in accordance with the requirements of the legislation of the Republic of Kazakhstan and NBRK rules.
141
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
CREDIT RELATED COMMITMENTS
Content Glossary
13
(b) Litigation
In the ordinary course of business, the Group is subject to legal actions and complaints. Management believes that the ultimate liability, if any, arising from such actions or complaints, will not have a material adverse effect on the financial conditions or the results of future operations.
(с) Taxation contingencies in Kazakhstan
The taxation system in Kazakhstan is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities, in particular recognition of income, expenses and other items of the financial statements under IFRS. Taxes are subject to review and investigation by various levels of authorities, which have the authority to impose severe fines and interest charges. A tax year generally remains open for review by the tax authorities for five subsequent calendar years; however, under certain circumstances a tax year may remain open longer.
These circumstances may create tax risks in Kazakhstan that are more significant than in other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable tax legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and the effect on these consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.
142
31. CONTINGENCIES
(а) Insurance
The insurance industry in the Republic of Kazakhstan is in a developing state and many forms of insurance protection common in other parts of the world are not yet generally available. The Group does not have full coverage for its premises and equipment, business interruption, or third-party liability in respect of property or environmental damage arising from accidents on its property or related to operations. Until the Group obtains adequate insurance coverage, there is a risk that the loss or destruction of certain assets could have a material adverse effect on operations and financial position.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
CONTINGENCIES
Content Glossary
Financial instruments at
fair value through profit
or loss
Fair value
Total carrying amount
Financialinstruments at
fair value through other
comprehensive income
Amortised cost
Cash and cash equivalents - - 158,868 158,868 158,868
Financial instruments at fair value through profit or loss
19,389 - - 19,389 19,389
Investment financial assets at FVOCI - 160,542 - 160,542 160,542
Investment financial assets at amortised cost
- - 4,355 4,355 4,275
Due from banks - - 9,102 9,102 9,102
Loans to customers and banks - - 982,390 982,390 974,476
Other financial assets - - 10,157 10,157 10,157
19,389 160,542 1,164,872 1,344,803 1,336,809
Due to banks and financial institutions - - 113,656 113,656 113,656
Customer and banks accounts - - 958,945 958,945 957 859
Debt securities issued - - 81,883 81,883 76,136
Subordinated bonds - - 61,342 61,342 57,729
Other financial liabilities - - 119,680 119,680 119,680
- - 1,335,506 1,335,506 1,325,060
13
32. FINANCIAL ASSETS AND LIABILITIES: FAIR VALUES AND ACCOUNTING CLASSIFICATIONS
(а) Accounting classification and fair value
The table below sets out the carrying amounts and fair values of financial assets and financial liabilities as at 31 December 2019:
Financial instruments at fair
value through profit or loss
Fair value
Cash and cash equivalents
Total carrying amount
Financialinstruments at
fair value through other
comprehensiveincome
Amortised cost
- -175,413 175,413 175,413
Financial instruments at fair value through profit or loss
42,676 - - 42,676 42,676
Investment financial assets at FVOCI
- 170,879 - 170,879 170,879
Investment financial assets at amortised cost - - 6,911 6,911 6,803
Due from banks - - 31,292 31,292 31,292
Loans to customers and banks - - 968,199 968,199 957,551
Other financial assets - - 10,771 10,771 10,771
42,676 170,879 1,192,586 1,406,141 1,395,385
Due to banks and financial institutions
- - 125,650 125,650 125,650
Customer and banks accounts - - 1,074,530 1,074,530 1,073,112
Debt securities issued - - 70,147 70,147 64,549
Subordinated bonds - - 71,915 71,915 64,989
Other financial liabilities - - 45,714 45,714 45,714
12,668 - 1,387,956 1,400,624 1,386,682
Financial instruments at fair value through profit or loss
12,668 - 12,668 12,668
(а) Accounting classifications and fair values
he table below sets out the carrying amounts and fair values of financial assets and financial liabilities as at 31 December 2018:
143
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL ASSETS AND LIABILITIES: FAIR VALUES AND ACCOUNTING CLASSIFICATIONS
Content Glossary
(а) Accounting classifications and fair values, continued
The estimates of fair value are intended to approximate the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
However given the uncertainties and the use of subjective judgement, the fair value should not be interpreted as being realisable in an immediate sale of the assets or settlement of liabilities.
Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using other valuation techniques.
The objective of valuation techniques is to arrive at a fair value determination that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.
Valuation techniques include net present value and discounted cash flow models and comparison to similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premia used in estimating discount rates, bond and equity prices and foreign currency exchange rates. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm's length.
The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like interest rate and currency swaps that use only observable market data and require little management judgment and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, exchange traded derivatives and simple over the counter derivatives like interest rate swaps.
For more complex instruments, the Group uses proprietary valuation models. Some or all of the significant inputs into these models may not be observable in the market, and are derived from market prices or rates or are estimated based on assumptions. Example of instruments involving significant unobservable inputs include certain loans and securities for which there is no active market.
The following assumptions are used by management to estimate the fair values of financial instruments:
quoted market price is used for determination of fair value of debt securities issued.
discount rates of 4.4 – 12.9% and 6.0 – 18.8% are used for discounting future cash flows from loans to corporate customers and loans to retail customers, respectively;
discount rates of 1 – 7.2% and 1.2 – 9.4% are used to calculate expected future cash flows from current accounts and deposits of corporate and retail customers;
The estimates of fair value are intended to approximate the amount for which a financial instrument can be exchanged between knowledgeable, willing parties in an arm's length transaction. However, given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realisable in an immediate sale of the assets or settlement of liabilities.
(b) Fair value hierarchy
The Group measures fair values using the following fair value hierarchy, which reflects the significance of the inputs used in making the measurements:
LEVEL 1:
Quoted market price (unadjusted) in an active market for an identical instrument;
LEVEL 2:
Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.
LEVEL 3:
· Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuations. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect difference between the instruments.
The table below analyses financial instruments measured at fair value at 31 December 2019, by the level in the fair value hierarchy into which the fair value measurement is categorised:
Non-derivative financial instruments at fair value through profit or loss - debt securities
Investment financial assets at FVOCI - debt financial instruments
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
7,007 12,382 - 19,389
43,990 116,552 - 160,542
50,997 128,934 - 179,931
13
144
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL ASSETS AND LIABILITIES: FAIR VALUES AND ACCOUNTING CLASSIFICATIONS
FINANCIAL ASSETS AND LIABILITIES: FAIR VALUES AND ACCOUNTING CLASSIFICATIONS
Content Glossary
(b) Fair value hierarchy, continued
The table below analyses financial instruments measured at fair value at 31 December 2018, by the level in the fair value hierarchy into which the fair value measurement is categorised:
Level 1 Level 2 Level 3 Total
Financial instruments at fair value through profit or loss
Derivative liabilities (12,668)
Derivative assets -
Non-derivative financial instruments at fair value through profit or loss - debt securities
8,076 6,341 - 14,417
Investment financial assets at FVOCI - debt financial instruments 58,874 112,005 - 170,879
66,950 118,346 14,509 199,805
- 27,177 27,177
(12,668)- -
During 2019, due to changes in market conditions for a number of investment securities, quoted prices for these securities were not available in an active market. However, there was sufficient information to measure the fair value of these securities based on observable inputs. Therefore, these securities with carrying amount of KZT 112,005 thousand were transferred from Level 1 to Level 2 of the fair value hierarchy.
Unobservable valuation differences on initial recognition
Transaction price in the market, in which swaps transaction are entered into with NBRK may differ from the fair value of swap instruments in primary markets (Note 14). Upon initial recognition the Group measures fair value of swap transactions entered into with NBRK using the valuation technique.
In many cases all significant inputs into the valuation techniques are wholly observable, for example by reference to information from similar transactions in the currency market. In cases where all inputs are not /observable, for example because there are no observable trades in a similar risk at the reporting date, the Group uses valuation techniques that rely on unobservable inputs – e.g. volatilities of certain underlying, expectations of termination periods. When fair value at initial recognition is not evidenced by a quoted price in an active market or based on a valuation technique that uses data only from observable markets, any difference between the fair value at initial recognition and the transaction price is not recognised in profit or loss immediately, but is deferred (see note 3).
The reconciliation of Level 3 fair value measurements of financial assets is presented as follows:
Derivative financial assets
Derivative financial liabilities
1 January 2018 19,495 (9,199)
Total (losses)/gains recognised in profit or loss: 7,682 (3,469)
Settlements - -
31 December 2018 27,177 (12,668)
Total gains/(losses) recognised in profit or loss: 449 702
Settlements (27,626) 11,966
31 December 2019 - -
Although the Group believes that its estimates of fair value are appropriate, the use of different methodolo-gies or assumptions could lead to different measurements of fair value.
The following table analyses the fair value of financial instruments not measured at fair value, by the level in the fair value hierarchy into which each fair value measurement is categorised as at 31 December 2019:
Level 3Level 2Total carrying
amountTotal fair
values
-Cash and cash equivalents 158,868 158,868 158,868
-Due from banks 9,102 9,102 9,102
Assets
140,396Loans to customers and banks 834,080 974,476 982,390
-Other financial assets 10,157 10,157 10,157
Liabilities
-Customer and banks accounts 957,859 957,859 958,945
-Debt securities issued 76,136 76,136 81,883
-Subordinated bonds 57,729 57,729 61,342
-Other financial liabilities 119,680 119,680 119,680
-Due to banks and financial institutions
113,656 113,656 113,656
13
145
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
FINANCIAL ASSETS AND LIABILITIES: FAIR VALUES AND ACCOUNTING CLASSIFICATIONS
Content Glossary
The following table analyses the fair value of financial instruments not measured at fair value, by the level in the fair value hierarchy into which each fair value measurement is categorised as at 31 December 2018:
Level 3Level 2Total carrying
amountTotal fair
values
-Cash and cash equivalents 175,413 175,413 175,413
-Due from banks 31,292 31,292 31,292
Assets
173,313Loans to customers and banks 784,238 957,551 968,684
-Other financial assets 10,771 10,771 10,771
Liabilities
-Customer and banks accounts 1,073,112 1,073,112 1,074,530
-Debt securities issued 68,482 68,482 70,147
-Subordinated bonds 64,549 64,549 71,915
-Other financial liabilities 45,714 45,714 45,714
-Due to banks and financial institutions
125,650 125,650 125,650
33. RELATED PARTY TRANSACTIONS
Mr B.R. Baiseitov is an ultimate controlling party of the Group.
In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. Transactions between the Bank and its subsidiaries, which are related parties of the Bank, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below:
31 December 2018
Average effective
interest rate
Related party transactions
31 December 2019
Average effective
interest rate
Related party transactions Secured and unsecured loans and guarantees are issued to key management personnel and other related
parties in the ordinary course of business. These loans are issued mostly on the same terms, including interest rates, that are used in other similar transactions with the persons of similar status or, if applicable, with other employees. The transactions did not involve more than the normal risk of repayment or present other unfavourable features.
Amounts deposited by the Parent Bank and other related parties earn interest at the same rates as those offered to the market or on the same terms and conditions applicable to other employees within the Group.
13
205Loans to customers and banks, gross 19,414
key management personnel of the Group or its parent Bank
56in KZT 48 2.95% 3.66%
entities under common control
Provision for losses on loans to customers and banks (19)
-entities under common control (19)
11,910Customer and banks accounts 6,158
key management personnel of the Group or its parent Bank
close relatives of key management personnel
in KZT 8151 6.00% 12.83%
in USD
in KZT 68 16.26%
19,315 5.03%
- -
- -
-
in KZT 2212,089 8.92% 11.17%
640 1.27%in USD - -
close relatives of key management personnel
9,728 3.24%in USD 2,135 1.23%
in KZT 744 9.10%186 9.98%
other
in EUR 577 5.30%1,252 1.29%
- -496 10.4%in KZT
Debt securities issued
- -1,142 4.5%Shareholders
146
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS
31 December 2018
Average effective
interest rate
Related party transactions
31 December 2019
Average effective
interest rate
Related party transactions
Content Glossary
Key management personnel remuneration for the years ended 31 December 2019 and 2018 represent short-term employee benefits. Total remuneration of members of the Board of Directors and the Management Board amounted to KZT 618 million and KZT 389 million, for the years ended 31 December 2019 and 2018, respectively.
For the year ended 31 December
2019
For the year ended 31 December
2018
close relatives of key management personnel 3 7
entities under common control 530 10
Interest expense (139) (532)
key management personnel of the Group (30) (166)
close relatives of key management personnel (80) (324)
other (29) (42)
Operating expenses (618) (389)
key management personnel of the Group (618) (389)
34. SUBSEQUENT EVENTSOn 15 March 2020 the government of the Republic of Kazakhstan declared a state of emergency which has subsequently been extended to 30 April 2020 in response to the global COVID-19 virus pandemic. A number of restrictions on the movement of individuals within Kazakhstan have been imposed, in order to reduce the spread of the virus. This has reduced the normal economic activities of many businesses in the country.
Other governments across the world have imposed similar restrictions in order to limit the impact of the virus, resulting in a significant reduction in global economic activity.
Global oil prices also fell significantly in March 2020, and the Kazakhstan Tenge weakened against the USD from a rate of KZT 382.59 to one USD at 31 December 2019, to approximately 430.99 KZT to one USD at 27 April 2020.
Management of the Group believes that the economic effects of the COVID-19 virus are likely to be significant both globally and in Kazakhstan. This may result in a contraction in economic activity, and a fall in asset prices in Kazakhstan. Management has analysed the potential impact of the Group's financial position based on three stress test scenarios described in Note 2(d).
As part of the Group's continued engagement in the Program of Strengthening Financial Stability of Banking Sector of the Republic of Kazakhstan approved by the Resolution of the NBRK's Management Board and based on the results of the General Meeting of Shareholders dated 31 March 2020, it was decided to increase the number of authorised shares through issue of 215,263,858 ordinary shares.
In accordance with the Resolution of the Management Board of the NBRK dated 19 March 2020, No. 39, related to approval of the preferential lending programme, which provides for delivery of support measures to small and medium-size business entities and individual entrepreneurs affected by implementation of a state of emergency in the country as a result of spreading of coronavirus infection pandemic, the Group has proceeded to application of funds provided by KSF JSC in the amount of KZT 71,000 million.
13
Interest income 535 19
key management personnel of the Group 2 2
147
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED31 DECEMBER 2019
SUBSEQUENT EVENTS
Content Glossary
