Examine the state of the resource base of banks in the Republic of Kazakhstan

The most popular terms for investors are usually the first, deposits in KZT at 6.5-8% with the possibility of partial withdrawals and replacements, and, second, the deposits by more than 8% (up 9.4%), but with a higher minimum deposit amount or without the option of partial withdrawals.

According to statistics of the National Bank of Kazakhstan as of February 1, 68% of the deposits of legal entities and 88.5% of retail deposits were made in KZT. National Bank statistics show a trend of popularity of KZT deposits. According to data as of February 1, 2013, deposits of legal entities in Kazakhstan's commercial banks amounted to more than 1,467 trln. KZT or about 68% of the total amount of deposits of this group of investors. The volume of retail deposits in KZT amounted to nearly 323.7 billion KZT, or 88.5% of total deposits of individuals. These do not include data on deposits of non-residents.

Contributions are often made for a period of 12 to 36 months in the national currency. The banks themselves encourage Kazakhstanis to save in the national currency. Taking into consideration the fact that for the bank the national currency is preferred for maintaining needs of business units, the highest interest rates are set on deposits in KZT. As a result customers usually place deposits in the national currency.

In addition, the Kazakhstan Deposit Insurance Fund (KDIF) recommends a nominal interest rate of 9% per annum for deposits in KZT and 5.5% for deposits in foreign currency. In December 2012 average rates for the system on retail deposits in KZT (6.7%) and foreign currency (4.7%) were below the maximum recommended rate (from 1 January 2013 - 9% and 5.5%, respectively, in the second half of 2012 was 9% and 6%).It is obvious that the Kazakh banks offering more than 9%, involve the effective rate (which is always above par), or offer award to depositors, which in the case of a bank failure may be unwarranted. The scheme is built like this: the bank itself determines what he wants to guarantee deposits, and in proportion to the volume of this contributes to the KDIF and the fund, in turn, sets the recommended rates at size of which will be guaranteed reward. The Bank may establish a higher rate, but there is no guarantee on difference. /23/

Let's consider deposit market on the example of Kazkommertsbank.

The amount of deposits on 1 January 2013 was 1,483 billion KZT, in comparison with 2012, it increased by 7.5% (Table 5). The increase in retail deposits was 12.9% (Table 6). The growth of deposits of legal entities was 4% (Table 7).

Table 5 Volume of deposits in banks

Table 6 Volume of retail deposits in banks

Table 7 Volume of deposits of legal entities in banks

Figure 7. Dynamics of change in volume of retail and deposits of legal entities of Kazkommertsbank in 2012, 2013, mln. KZT

The share of retail deposits is 58,1%, the share of deposits of legal entities is 41,9% . Nowadays we can see that retail deposits grow rapidly. Earlier in the structure of deposit portfolio the deposits of corporate clients dominated, in the last couple of years, there is such a tendency that retail deposits pursue deposits of legal entities.

Figure8. The share of retail deposits and deposits of legal entities in 2012

In comparison with other banks, we can see that an increase in retail and legal entities deposits is not high. This is can be explained by the fact that Kazkommertsbak has sufficient liquidity and sufficient funds to provide growth. As a result during 2 years Kazkommertsbank has reduced interest rates on deposits which reduced interest rates on loans to public. Another reason why bank decreases interest rate on deposits is that in July of this year, Kazakhstan Deposit Insurance Fund (KDIF) lowered the recommended interest rate for banks. So, KDIF lowered the recommended rate on KZT deposits from 10 to 9% per annum in foreign currency - from 7 to 6% per annum. According to managing director of bankAndreyTimchenko, the bank has no plans to revise interest rates on deposits. Effective annual rate of KZT deposits for individuals in Kazkom ranges from 7.2-7.7% per annum.

Table 8 Deposits with high interest rates

Let's consider deposit portfolio of Kazkommertsbank. We can see that time deposits exceed demand deposits. Bank encourages people to put money in time deposits by setting high interest rates in comparison with demand deposits. For a bank fixed deposit is advantageous because it can use these funds for a longer time for making loan to the borrower and receiving high interest rates.

Figure9. The share of time deposits, demand deposits, JSC National Welfare Fund's “Samruk-Kazyna”, JSC Entrepreneurship Development Fund's “Damu” and JSC Stress Assets Fund's deposits, accounts in precious metals

There is a tendency to an increase in volume of time deposits and opposite tendency to decrease in volume of demand deposits.

Table 9 Dynamics of change in time and demand deposits

Figure10. Dynamics of change in volume of time and demand deposits from 2010-2012, mln. KZT

Statistics shows that customers prefer to keep their money in KZT. KZT is the most popular currency. Dollar takes second place, euro the third place. Deposits in KZT amounted to 55,3% in 2012. For the bank the national currency is preferred for maintaining needs of business units, the highest interest rates are set on deposits in KZT . As a result customers prefer to place deposits in the national currency.

Figure11. Shares of deposits in KZT, dollar, euro, ruble, another currency in 2012

Why do people prefer to make deposits in Kazkommertsbank?

One of the main reasons is an advertisement.

Nowadays advertisement plays an important role in attracting new depositors.

Kaskommertsbank is one of the leaders in volume of funds directed at advertisement.

More than 19.4% of the market of advertising budget belongs to Kaspi bank, the second place is taken by Eurasian Bank 15.2%. Kazkommertsbank 14.3% took the third place. So, in 2012, Kaspi bank spent on advertising more than 1.2 billion, "Eurasian Bank" -1.0 billion, Kazkom - 953.6 mln.

In comparison with 2011, Kazkommertsbank reduced its expenses on advertisement by 11.2%, according to website www.kapital.kz.

Table 10 Leaders in volume of funds directed at advertisement.

2.3 Analysis of non-deposits sources of funding in Kazkommertsbank RK

As at 31 December 2012, accrued interest expense included in loans and advances from banks and other financial institutions amounted to KZT 213 million (2011: KZT 236 million, 2010: KZT 492 million).

As at 31 December 2012, loans from other banks and financial institutions of KZT 23,546 million (97.35% of total loans from other banks and financial institutions) (2011: KZT 42,890 million or 97% of total loans with other banks and financial institutions, 2010: KZT 116,985 million or 96% of total loans from other banks and financial institutions) consisted of 7 (2011: 6, 2010: 9) banks and financial institutions of such countries as Great Britain, Latvia, Kazakhstan, Russian Federation, United States of America, the Netherlands and China. Maturities of these loans range from 12 months to 97 months (2011: 7 days to 97 months, 2010: 48 days to 52 months). Interest rates on loans with other banks and financial establishments varied from 0.86% to 7.00% (2011: from 0.25% to 9%, 2010: from 1.33% to 9.75%).

In diagram we can see that Kazkommertsbank took out most of loans under repurchase agreements (65%). Loans from other banks and financial institutions take second place (22,1%). The percentage of loan with maturity of June 2014 is 7,6 %.

In 2012 the volume of non-deposit resources was 109,974 mln, 2011 - 91,877 mln, 2010-147,138 mln. In comparison with 2011, we can see the tendency to the increase in volume of non-deposit resources, but we want to notice that the volume of non-deposit resources in 2010 was higher than in 2012.

Figure 12. Percentage share of loans and advances from banks and other financial institutions

Figure 13. The volume of non-deposit sources from 2010-2012

As at 31 December 2012, included in loans and advances from banks and other financial institutions are loans under repurchase agreements of KZT 71,486 million (2011: KZT 27,937 million, 2010: KZT 26 million).

The fair value of collateral and carrying value of loans under repurchase agreements as at 31 December 2012, 2011 and 2010 are presented as follows:

Table 11 Fair value of collateral and Carrying value of loans

Figure 14 Carrying value of loans

As at 31 December 2012, reverse repurchase agreements were concluded through KASE. The Bank believes that counterparties of these agreements are banks and other financial institutions.

Details of transferred financial assets that are not derecognized in their entirety as at 31 December 2012 are disclosed below:

Securities lending and repurchase agreements

The Group has a plan to borrow and lend securities and to sell securities under agreements to repurchase (repos) and to purchase securities under agreements to resell (reverse repos). The securities lent or sold under agreements to repurchase are transferred to a third party and the Group receives cash in exchange, or other financial assets.

The Group has determined that it retains substantially all the risks and rewards of these securities, which include credit risk and market risk, and therefore it has not derecognized them. In addition, it recognizes a financial liability for cash received as collateral.

Similarly, the Group may sell or re-pledge any securities borrowed or purchased under agreements to resell, but has an obligation to return the securities and the counterparty retains substantially all the risks and rewards of ownership. Consequently, the securities are not recognized by the Group, which instead record a separate asset for any possible cash collateral provided.

Table 12 Financial assets at fair value through profit or loss

In accordance with the contractual terms of the loans from certain OECD based banks and EBRD, the Group is required to maintain certain financial ratios, particularly with regard to its liquidity, capital adequacy and lending exposures. In accordance with the terms of certain of those loans, the Group is also required to obtain the approval of the lender before distributing any dividends to the common shareholders except for dividends to be reinvested for ordinary shares. Furthermore, certain of the Group's outstanding financing agreements include covenants restricting the capability of the Group to create the right of pledge on its assets. The Group's failure to observe obligations on these covenants can lead to cross-accelerations and cross-defaults under the terms of the other financial agreements of the Group. As at 31 December 2012, 2011 and 2010, the Group was in compliance with the covenants of the various debt agreements the Group has with other banks and financial institutions.

Table 13 Characteristics of the KKGB instrument of JSC Kazkommertsbank

2.4 Analysis of assets and liabilities management of JSC Kazkommertsbank

By results of the last years Kazcom bank is the leader of the banking sector on the volume of assets: its share in the market makes -- 19,4%, it also is leading bank on crediting and deposits, the share on the volume of a loan portfolio made 20,9%, and on deposits of clients -- 17,7%.

Table 14 Assets of JSC Kazkommertsbank

Analyzed period since 2009 to 2012 showed increase in investments withheld before repayment increased by 6 bln KZT or in 634%, assets in precious metals were increased by 2,6 bln KZT of in 216%, money and accounts in national bank were increased by 16 bln KZT or in 17%, financial assets estimated at fair value through profit or loss were increased by 4,6 bln KZT or in 4%, while other assets show decrease in volume. So loans provided to clients were decreased by 243 bln KZT or in 11%, investments available for sale were decreased by 1,5 bln KZT or in 4%, loans and the means provided to banks and other financial institutions were decreased by 1,6 bln KZT or in 1%. Other assets were increased by 70 bln KZT or in 376%. In total analyzed period show decrease - total assets were decreased by 143 bln KZT or in 5,5%. Volume of "reliable" and "potentially reliable" credits, as of December 31, 2011 made 682,4 billion KZT (4 599 million dollars), in comparison with 800,9 billion KZT (5 429 million dollars) for the end of 2010. Their share in the considered period made 24,9%. For comparison year before their share I made 29,2%. The share of the problem credits in a loan portfolio grows since 2007, and it first of all is connected with deterioration of a financial condition of the borrowers interfaced to the crisis phenomena, taking place in the country more than four years. The share of the "doubtful" and "unprofitable" credits remained invariable in comparison with December 31, 2010, their share for the end of 2011 made 30,7%.

Figure15. Comparative structure of assets as of December 31, 2011, 2010 and 2009

The loans issued to clients continue to remain the largest article in structure of assets of Group. As of December 31, 2011 their share made 81,1% against 80,9% as of December 31, 2010. Decrease in the actual volumes of liquid assets, in comparison with last year, generally resulted from reduction of volumes of percentage obligations. Optimization of obligations, didn't affect execution by Bank of standards for liquidity. As of December 31, 2011 the assets relating to most liquid (money and accounts in the national banks, securities, loans and the means provided to other banks with a maturity date till 1 year) not burdened with pledge or the right of the requirement made 290,6 billion KZT (11,3% from total assets), having shown decrease in comparison with 386,7 billion KZT of 14,4% from total assets) as of December 31, 2010. Reduction made 96,1 billion KZT or 24,8%. There was a redistribution of part of liquid means between the articles "Money and Accounts in National (Central) Banks" and "Loans and the Means Provided to Banks and Other Financial Institutions". The share of money and accounts in national central) banks increased for the end of 2011 to 4,2%, in comparison with 2,3% for the beginning of the reporting period. Loans and the means presented to banks and other financial institutions, decreased and made 2,1% from assets as of December 31, 2011, in comparison with 5,4% as of December 31, 2010. The share of a portfolio of securities in structure of assets decreased from 8,2% to 7,6%. The share of other assets as of December 31, 2011 made 3,1%, against 1% for the period beginning. Considerable changes didn't occur in structure of assets of bank from 2009 to 2010. The increase in volume of assets occurred generally at the expense of growth of a portfolio of securities (126,1 billion KZT or 859 million dollars). temporarily free money was placed in the most liquid assets, such as short-term notes of national bank of the Republic of Kazakhstan and the state treasury obligations. Decrease in a share of the loans provided to clients on 2,6 points became possible generally at the expense of increase in a share of liquid assets in structure of assets of bank to 15,9% in 2010 in comparison with 13,0% in 2009. Owing to increase bank of investments in liquid financial instruments, the share of a portfolio of securities in structure of assets grew from 3,7% to 8,2%./28/

Table 15 Liabilities sector efforts of KazCom bank in 2012

During the analyzed period since 2009 on 2012 means of clients grew by 277 billion KZT or in 21,71%, reserves grew by 3,6 billion KZT and dividends to payment grew by 30 mln KZT or in 166,6% while other articles showed decrease in volumes, so according to loans and means of banks and other financial institutions decrease made 98 billion KZT or in 47,7%, financial liabilities estimated at fair value through profit or loss were decreased by 27 bln KZT or in 75%, the issued debt securities were deceased by 166 bln KZT or in 35%, other raised funds were decreased by 12,5 bln KZT or in 40%, subordinated loan was decreased by 14 bln KZT or in 10%, liabilities for a deferred income tax were closed. Other liabilities were increased by 1,3 bln KZT or in 10%. However in total there are almost no changes for analyzed period - total liabilities were decreased by 61 bln KZT or in 2,7%.

Optimization of obligations of the bank, directed on decrease in percentage expenses has the main impact on decrease in volumes of corporate sector./28/

In liabilities sector efforts of KazCom bank in 2012 were directed on decrease in percentage expenses by optimization of percentage obligations.

At the same time KazCom bank traced a situation in foreign markets, for definition of acceptable opportunity for attraction of financing, and finished placement of Eurobonds on 300 million US dollars that showed degree of confidence and interest of the international investors in bank. In the reporting period the bank continued service of the obligations under the established schedules.

Analyzing data on the banking sector of Kazakhstan it is possible to tell that as of December 31, 2011, Bank is one of conducting in the banking sector on the volume of means of clients, the share makes 17,7%. Despite decrease in an interest rate for deposits, deposits of clients from the population increased that also testifies to unconditional trust to KazCom bank from clients. Volumes of the issued debt securities, and also loans and means from banks and other financial institutions showed decrease, explainable, generally routine maintenance of the obligations, according to available schedules of repayments and arrangements. Volumes of the credits and means of banks and financial institutions decreased by 76,8 billion KZT (523 million dollars) and made for December 31, 2011 of 44,9 billion KZT (303 million dollars). Decrease first of all is connected with planned repayments of external loans from Standard bank London for total amount of 175 million dollars and Deutsche bank London branch for the sum of 90 million dollars. As of December 31, 2011 the volume of the loans received on agreements of a repo, increased with 26 million KZTs as of the beginning of year to 27 937 million KZTs. It is connected with service of currency obligations of KazCom bank.

Figure 16.Comparative structure of liabilities as of December 31, 2011, 2010 and 2009

The bank pays much attention to effective management of assets and obligations which allows Bank to offer competitive products in the market and, at the same time, to support a risk and profitability ratio at the level creating additional cost for shareholders. The body responsible for risk management, assets arising in management process and obligations is the Committee on management of assets and liabilities of Group. Information considered by this committee includes data on a portfolio of securities, currency positions, liquidity gaps, cash flows, stress tests and others. It is very important to define bank liquidity coefficient correctly.

By data from a site AFN.kz the coefficient of the current bank liquidity in 2012 made 0,5, having decreased by 20,9% as a result of decrease in money for 26,3%. The average value of the current liquidity over the last 5 years made around 1,15.

While the absolute liquidity index in 2012 made 5,6 that is 32,1% lower than an indicator of 2011 equal to 8,3 at the expense of decrease in money for 26,3%. The average value over the last 5 years makes about 5,9. The minimum limit of the standard is 0,2.

The analysis of liquidity of balance consists in comparison of means on an asset, grouped in degree of decreasing liquidity, with sources of formation of assets on a passive which are grouped in degree of urgency of repayment.

The following tables submit the analysis of financial assets and liabilities grouped in terms before repayment from reporting date as of Dec. 31, 2011:

Table 16 Structure of assets by liquidity

Table 17 Structure of liabilities by liquidity

Now we can compare assets and liabilities with standards:

Table 18 Comparison of assets and liability with standards

Table 19 Execution of prudential and standards of liquidity

Thus, JSC Kazkommertsbank isn't absolutely liquid. Bank liquidity is broken in the short-term period, i.e. the most urgent obligations exceed the most liquid assets. It can cause difficulty in performance by Bank of the obligations under deposits before clients. As for long-term liquidity and performance of standards of sufficiency of the capital, it is possible to draw a conclusion that the bank in long-term prospect is solvent. The bank stabilizes liquidity in comparison with 2009 when liquidity in the short-term and medium-term period was broken. However it should be noted that management of bank considers that depositors won't lose confidence of bank at once, and on the contrary the bank will attract all new and new deposits. In this case this deviation of liquidity is part of policy of the bank. In general liquidity conforms to standards./16/

3. The ways of improvement in funding of banking operations and asset management of the bank

3.1 The implementation of Basel III

This document presents the liquidity portion of the Basel Committee's1 reforms to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The objective of the reforms is to improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the rules text and timelines to implement the liquidity portion of the Basel III framework.

During the early “liquidity phase” of the financial crisis that began in 2007, many banks - despite adequate capital levels - still experienced difficulties because they did not manage their liquidity in a prudent manner. The crisis again drove home the importance of liquidity to the proper functioning of financial markets and the banking sector. Prior to the crisis, asset markets were buoyant and funding was readily available at low cost. The rapid reversal in market conditions illustrated how quickly liquidity can evaporate and that illiquidity can last for an extended period of time. The banking system came under severe stress, which necessitated central bank action to support both the functioning of money markets and, in some cases, individual institutions.

The difficulties experienced by some banks were due to lapses in basic principles of liquidity risk management. In response, as the foundation of its liquidity framework, the Committee in 2008 published Principles for Sound Liquidity Risk Management and Supervision (“Sound Principles”).2 The Sound Principles provide detailed guidance on the risk management and supervision of funding liquidity risk and should help promote better risk management in this critical area, but only if there is full implementation by banks and supervisors. As such, the Committee will coordinate rigorous follow up by supervisors to ensure that banks adhere to these fundamental principles.

To complement these principles, the Committee has further strengthened its liquidity framework by developing two minimum standards for funding liquidity. These standards have been developed to achieve two separate but complementary objectives. The first objective is to promote short-term resilience of a bank's liquidity risk profile by ensuring that it has sufficient high-quality liquid assets to survive a significant stress scenario lasting for one month. The Committee developed the Liquidity Coverage Ratio (LCR) to achieve this objective. The second objective is to promote resilience over a longer time horizon by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis. The Net Stable Funding Ratio (NSFR) has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities.

These two standards are comprised mainly of specific parameters which are internationally “harmonised” with prescribed values. Certain parameters, however, contain elements of national discretion to reflect jurisdiction-specific conditions. In these cases, the parameters should be transparent and clearly outlined in the regulations of each jurisdiction to provide clarity both within the jurisdiction and internationally.

It should be stressed that the standards establish minimum levels of liquidity for internationally active banks. Banks are expected to meet these standards as well as adhere to the Sound Principles. Consistent with the Committee's capital adequacy standards, national authorities are free to require higher minimum levels of liquidity.

To further strengthen and promote global consistency in liquidity risk supervision, the Committee has also developed a set of monitoring tools to be used in the ongoing monitoring of the liquidity risk exposures of banks, and in communicating these exposures among home and host supervisors.

According to the Board of JSC Kazkommertsbank, according to the consolidated financial statements for 2012, the bank increased its profit before deductions for reserves and taxes by 28% (to 125 billion tenge).

But in the end the bank's net loss reached 130.9 billion tenge (against a net profit of 23.5 billion tenge a year earlier). Net interest margin increased to 3.9%, while corporate lending is partly offset by the growth of retail.

In the board was told that the net loss associated with the formation of a one-time additional specific provisions for IFRS (International Financial Reporting Standards). Of the bank's capital reserve was created in 196 billion tenge loan portfolio. This was done in order to reduce the potential negative consequences for the bank in respect of regulatory capital, the volume of foreign exchange exposure and the amount of liquid assets. Thus, the amount of reserves under IFRS equal to the volume of reserves on regulatory requirements and capital adequacy was well above the regulatory requirements.

Regulatory requirements for banks to part of the capital increase in connection with the transition to the third "Basel", and are expressed in the revision of methods of calculation of provisions. Some banks reserves under IFRS higher, and others - less. And in fact, the same loan portfolio during the transition to IFRS in "KKB" appeared more risky assets, which also puts pressure on capital.

Also plays an important foreign currency position of the bank (the equivalent of loans and deposits attracted in the same currency). Recently, the rating agency Fitch, said in a special press release that it considers the impact of this factor is neutral on the creditworthiness of the bank. Many analysts agree with this opinion, and even reported an increase in profitability of the bank.

According to kursiv.kz, VTB-Capital analysts noted the bank's annual results as positive, with the increase in the interest margin from 3.3% to 3.9%. And a one-time allocation to provisions - a positive step in the bank.

Operating profit at all exceeded analysts' expectations CityBank due to high interest income - by 9.7% (to 124.3 billion tenge), and good cost control business. In the segment of the volume of net lending to the corporate sector loans reached 1.7 trillion tenge (compared with 1.87 trillion at the end of 2011). The total share of loans to the corporate sector in the total amount of loans to customers (net) amounted to 88.9% (at the end of 2011 - 90%).

The retail sector bank, on the contrary, compared with the previous year, increased by almost 11% (65.3 billion tenge) and reached 659.4 billion tenge. Since the beginning of 2012 the share of retail customer funds in the total rose to 42.4% (at the end of 2011 - only 40.6%).

The total retail sector loans grew by 2.1% - to 213.2 billion tenge mainly due to growth in total consumer loans. The share of net loans to the retail sector in the total amount of loans to customers increased to 11.1% (at the end of 2011 - 10.0%). Overall, the bank's retail sector is growing rapidly. Therefore, some analysts (Standard & Poor's) are afraid of a "credit bubble" in the retail segment.

Managing Director of "KKB" AndreyTimchenko, confirmed that the appearance of the "credit bubble" can be avoided by not issuing loans in which the monthly payment is more than 50-60% of the salary man.

Basel III has emerged as a response to the global financial crisis in 2008. Analyzing the reasons for the experts as one of the main reasons for the failures were isolated prudential regulation of financial intermediaries. In response to the deepening financial globalization, national standards organization, operation and regulation of financial intermediaries are no longer meet modern requirements.

In order to save the backbone of financial institutions («too big to fail» - Northern Rock, Merrill Lynch, Lehman Brothers), have been adopted and implemented program of entering the state in their capital. Therefore, the governments of developed countries are concerned that in the future these investments have brought adequate benefits./25/

The emergence of standards, Basel III began with the introduction of additional capital requirements of banks (equity capital, tier 1 capital, tier 2 capital, capital buffers, the total capital). The agreement represented by two documents published December 15, 2010 on the official website of the Bank for International Settlements. The international system of assessment of liquidity risks, standards and monitoring global regulatory system, enhances the stability of banks and banking systems.

The new agreement tightens the requirements for the composition of tier 1 capital due to the exclusion of the deferred tax assets and securitized. In addition, Basel III recommends an increase in the proportion of tier 1 capital and the proportion of the share capital.

Basel III establishes the need for a credit organizations from net profit optional backup buffer. Capital buffers will allow banks in the event of a systemic crisis and to reduce the capital adequacy ratio below the minimum to obtain additional liquidity without the approval of the regulator. However, after the crisis, lenders are required to restore this capital.

Simultaneously, Basel III introduces regulations aimed at limiting the financial leverage (leverage ratio - the ratio of debt and equity), which is valid for financial intermediaries. In particular, it would be a revision of the standards current and long-term liquidity.

New current liquidity will enter in 2015, and an updated long-term liquidity - three years later. The first suggests that short-term bank liabilities for a period of 30 days should be covered by liquid assets by 100%.

The second standard regulates the risk of loss of bank liquidity as a result of placing funds in long-term assets, which should be covered by liability also stable for at least 100%. There is a concept not only to back bank capital, but capital, which may introduce additional control for counter-cyclical regulation.

If the regulator believes that the country is experiencing a credit boom or overheating of the economy, it can raise the capital adequacy requirements, according to which banks in times of a potential credit "bubbles" will be required to form a special "counter-cyclical" reserve.Basel III provides that in the event of non-compliance lenders do not have to pay dividends to shareholders, as well as bonuses and other bonuses to their executives. The gradual transition to the new standards will begin in 2013 and will continue for the next six years (until 1 January 2019).

Table 20 Basel III phase-in arrangements (All dates are as of 1 January):

The effective implementation of the requirements of Basel III will demonstrate to regulators, customers and shareholders that the bank steadily recovering from the global banking crisis of 2008, the operational implementation of Basel III will also help increase the competitiveness of the bank, as it will give management a more complete vision of the business, and this, in turn, will enterprise to leverage future opportunities. Although many organizations implementing Basel III will be just the next step on the path of development, we should not underestimate the impact of the standard for many banks and banking. In fact, Basel III will cause significant problems, which need to be sorted out and to be solved. For each bank is extremely important task will be to develop the most cost-push model of Basel III.

Basel III is changing the approach of banks to risk management, and financial management. The new regime requires a higher degree of integration of the functions of financial management and risk management. This is likely to lead to the interpenetration of the duties of financial officer and chief risk-manager on the way to achieving the strategic goals of the business. However, the transition to a more rigorous regulatory requirements may be complicated by the dependence of a large number of disparate data stores and the division of powers between those responsible for finance, and those who manage risk. Particular emphasis placed on risk management in Basel III, require the introduction or re-designing an approach to risk management is just as full as the existing infrastructure of the financial management. Basel III is the regulatory regime, as well as in many aspects of giving a framework approach to risk management of the enterprise. Such wide risk management encompasses all business risks.

While banks are not forced to choose - to follow the standards of Basel III or not - the chosen method of implementing regulations may give the bank a significant competitive advantage. Those banks that are implementing Basel III in order to improve their business processes and processes to meet the requirements of regulators, will continue to be rewarded, but not so for those banks that are considering compliance with the rules of Basel III as an end in itself. The presence of a consolidated set of data will help to streamline the process of implementation of regulatory standards. In addition, it also allows managers of the organization - perhaps for the first time - to get a complete, integrated and consolidated view of the business. The ability to see consolidated picture quality and at the same time to go into details let managers make timely and informed decisions based on a more robust analytical picture. In addition, a centralized data model can provide senior management to implement a more complete administrative control over their business. Thus, it may help to introduce a more effective system of limits. In making a decision on the issuance of new loans this will help ensure that the bank will not be exposed to undue risks on one client. In addition, a centralized data model can help the bank to improve the way the management of their assets and liabilities, giving full, not having a distorted picture of assets and liabilities of the bank. This will make wide risk management more efficient and cost-effective for the bank. Re-use in different situations, the data provided by the regulator allows the bank to improve the way business management, helping to improve overall risk management at the enterprise level, as well as the growth and profitability.

Basel III standards are both an opportunity and a challenge for banks. These guidelines can serve as a solid basis for further developments in the banking sector and will ensure that the excesses observed in the past can be avoided. That the bank can consider standards of Basel III as an opportunity to improve their position in the first place, it is necessary to choose the right technical architecture that will be used to support the Framework. In this technical architecture should be taken into account the scale and structure, process and geographical coverage of banks that need to seamlessly fit into the scale and scope of the rules. The solution must be flexible to meet the needs of the bank, and open enough to accommodate changes in the business and regulations. The complexity of regulations and requirements of Basel III, as well as the level of expectations from the commercial sector in the banking sector require flexible solutions for controlling regulations of Basel III. To give a competitive advantage, such a solution must provide the speed, precision and productivity. And banks that have adopted the best solution, not only have the perfect platform to meet the standards of Basel III - they will also have a solid foundation for their future commercial development.

The process of implementation of Basel III standards for any organization creates a unique set of challenges, no matter what stage in each organization begins. This is due to the fact that Basel III - is more a set of principles rather than a detailed set of rules, and there is no ready-made solutions for their implementation. This flexibility gives banks more freedom in choosing the method of adopting the rules. For banks, implementing regulations, opened two basic approaches. Which of these is most appropriate for each organization will depend on the existing environment of the bank and its effectiveness, from the period in which the organization wishes to implement standards, as well as the resources available.

Table 21 Options for implementation of Basel III and the issues that need to be taken into account in the implementation process:

In some cases, the best option would be to upgrade the existing system in accordance with the required standards by adding additional modules to help deal with additional requirements, whether it be managing liquidity and leverage, stress testing, storage and preparation of reports. Expansion and modernization of the existing environment will give the organization the opportunity to adopt rules within the allowable time for it, with the least disruption to its operations. This means that the implementation can be done with less cost to the business, as much easier to build a regulatory system in the business than to form a business around its rules. This approach will allow banks to make optimal use of existing investments, and for some organizations, it may be the most cost-effective approach to achieving compliance, because it is associated with less interruptions in the functioning of the bank. Here, the key point is that the bank must have a very clear idea of how to build its environment. This problem can be much more complex than you imagine it initially, especially if the legal regulation for some time there, and within the organization have been significant changes. Once defined the current environment, gap analysis will help identify where to make major efforts to meet the requirements of the specification.

For other organizations, the most cost-effective option is to replace the existing regulatory model to a new, specially designed solution that makes it possible to use the rules of Basel III «off the shelf" and eliminates the need for large-scale production of the technical requirements of the client. This method is often the most expensive work of the organization and braking solution. However, in some cases, it may be the most economical and because it allows the organization to adjust to the regulations implementing Basel III in their processes. This approach has the potential to reduce the overall cost of the bank for the period of application of standards of Basel III, unless they are part of the corporate image of the bank's actions. The key to the successful deployment of the system is to determine the optimal architecture for managing norm Basel III and then define the strategy of coexistence of media and migration strategy from existing environment. Migration can be carried out in a modular approach, where certain system is transferred to a new environment. This will reduce the risks inherent in this approach.

Another issue to be resolved no matter which of the previously described embodiments, the bank will choose - is the degree to which the new framework will include the use of automated management and control. Many banks are still in some way to manually control how respected regulatory standards. Taking into account the higher workload on the requirements of Basel III, the rationale of higher compared with the automated control of the costs of manual processes will become difficult, if at all possible. Increased overhead for performance standards, as well as larger and more voluminous banking will make unjustified execution of these processes manually, because such a practice would require a lot of time and money. Also, in such processes the probability of errors due to the human factor. Despite the marked complexity, these rules are being introduced, and some banks are keen to keep this issue aggressively. We can say that these banks making process and implementation will not be delayed. They will be able to convince their customers, shareholders and regulators that are taking positive steps to achieve the required amount of capital, improved liquidity position and optimize risk management. Those banks that will be the norm before the others, will be able to use their position to stand out from the competition. Others, mindful of the distant 2019 (estimated) as of the deadline for the full implementation of standards can apply a more restrained approach. With the right model, you need to think about what will happen after the widespread adoption of standards of Basel III. In the best case, the rules of Basel III will require adjustment needed to the course of time this standard was transformed into a Basel IV, V Basel and so on. The reason is that the BIS seeks to solve the problems of the theory of Basel III and its practical application (as happened with the regulations of Basel I and Basel II). Regulators are already thinking about a fundamental revision of the rules on market risk and trading book. They can become the starting point for Basel IV.

Whatever approach is used by the organization, its decision must be fully integrated so that it can fully reflect the structure of the rules themselves. The ideal would be a solution to help consolidate data, perform calculations and testing, and to make statements on the capital of the organization and its liquidity risk on a single platform. Such a solution is effectively integrated with other source systems. It has a robust audit function and an impressive amount of data storage. Rapid tools to simplify the calculations weekly and even daily calculations and give out information for an integrated and comprehensive reporting to the regulator, which is precisely aligned to the requirements of local regulatory authorities. Implementation of all these features help to streamline the process by allowing risk-manager to focus on priority actions for risk management, rather than on time-consuming data extraction, verification of their quality and reporting. In the central data repository housed the most important information about the risks necessary to meet the standards of Basel III. Such a data warehouse must have the capacity to collect data and provide a complete picture of the situation on the regulatory risks at the enterprise level. End users - including a number of heads of businesses and corporate risk managers, finance staff, personnel responsible for regulatory compliance and analysts - also need to make the most of this system. This consolidated approach means that the calculation of the critical indicators of the level of capital adequacy and liquidity ratios and the ratio of equity and debt that are at the basis of the framework approach, Basel III, greatly facilitated, as well as their storage. This also means that the stress test may be carried out using the same cohesive or integrated data sets. The final step is to provide important reports for the business and for the regulator. This task will be much more demanding under Basel III. Reports of the first component, covering the capital adequacy should be provided to the appropriate state regulator in the correct format. Report for the third component, which cover similar, but not identical regions are created for the regulator, as well as a broader range of stakeholders to help adhere to the principles of transparency and building confidence in the market. With this consolidated approach can easily provide the information that the regulator may require any subsequent request for additional information. Management reports should also be provided to business structures, often daily. These reports give an idea of ??how the business is relatively established for the purposes of his business, and also form the fundamental analytical picture of the business. Thus, compliance with Basel III becomes an opportunity, not just a source of overhead. This goal is much more difficult to achieve when using the data stored in disparate systems. This increases the likelihood of errors, and time costs are rising. Consolidated, integrated, but open a data warehouse is the only way to ensure the correct risk management at the enterprise level.