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Asset quality review
03.10.2022
The Republic of Kazakhstan is currently developing market mechanisms for the disposal of distressed assets, aimed at involving distressed assets in economic turnover through the creation of institutional environment for private investors and managers in the distressed asset market, and at increasing the transparency of the transaction process through the introduction of a specialised digital platform.
In 2019, the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market completed an independent assessment of asset quality, whereby the proportion of distressed assets was estimated at 21% of bank loan portfolios.
13 banks are currently implementing their individual supervisory plans for 2020-2024 to reduce the amount of distressed assets from KZT 2.7 tln to KZT 0.9 tln. The banks are implementing these plans ahead of schedule. Banks have also introduced individual plans to reduce the current rate of problem loans to individuals this year. Banks plan to reach about 630,000 borrowers with repayment measures, including 84,700 disadvantaged borrowers.
Thus, these measures reduced the amount of distressed assets from KZT 7.7 tln to KZT 2.5 tln, or 6% of the banking system assets.
This amount of distressed assets, except for loans over 90 days overdue (KZT 997 bln), includes rescheduled loans (KZT 967 bln), recovered assets (KZT 128 bln) and assets of the bank subsidiaries for distressed asset management (KZT 366 bln).
These distressed assets are mainly secured by hard collateral (land, commercial real estate), that is to be placed into economic turnover.
For this purpose, the Head of State signed the Law of the Republic of Kazakhstan "On Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Development of Distressed Asset Market" (hereinafter - the Distressed Asset Market Development Law) on 4 July 2022, which came into effect on 4 September 2022.
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The AQR procedure (asset quality review) is one of the supervisory instruments recognised by the international expert community as the most efficient approach to assess the accuracy of processes, policies, practices and systems of a large number of banks at a time, thus ensuring consistency of approaches and methods and maximum depth, transparency and comparability of results. This type of verification has become increasingly common among international regulators in recent years. One of the main advantages of this practice is the unprecedented coverage and quality of the verification.
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