Risk Challenges 2014: New Legislative Limitations in Kazakhstan
The LLP “First Credit Bureau” of Kazakhstan (1CB/PKB) with the support of the Association of Financiers of Kazakhstan recently hosted an event in Almaty dedicated to discussing the introduction of legal restrictions on the leverage ratio (KDN) and limiting growth of unsecured lending, which entered into force in Kazakhstan from 1 April 2014. The relevance of the event was confirmed by the interest of more than one hundred representatives from the banks, the National Bank of Kazakhstan, financial institutions and the business media.
Amongst the speakers, representatives from Creditinfo Group, First Credit Bureau, International Centre of Economic Literacy joined senior spokespersons from a number of influential banks such as Kaspi Bank, Sberbank, Kazkommertsbank, Nurbank, the National Bank of Republic of Kazakhstan, as well as more than 100 prominent industry specialists who attended this event held in Almaty.
Topics discussed included international approaches to risk assessment, international experience of DTI implementation and alternative tools for creditworthiness assessment, financial literacy research and analytical research on default level and DTI correlation. Discussions were held forecasting developments in the credit market in Kazakhstan within the new legislative limitations.
During the presentations, international experts in the credit market with experience in EU countries, USA, UK and Russia agreed that to forecast a borrower’s default likelihood, using tools with behavioral components is more effective than the use of analogues of the debt ratio load.
According to the new legislation of the National Bank of Kazakhstan Board, № 292, the maximum amount of the monthly payment to repay an unsecured loan should not exceed 50% of the borrower’s income. The Debt Ratio will be calculated only for borrowers with incomes less than two times the average income.
The NBK has also taken steps to limit the growth rate on unsecured loans by setting limits of a maximum of 30% per year for each bank (the decision of the Board of the National Bank of the Republic of Kazakhstan № 294).
In turn, LLP “First Credit Bureau” (1CB/PKB) has conducted a study on the basis of their own and other official data. The results confirmed that in Kazakhstan, as well as in other countries, the most efficient tools to use when forecasting whether a borrower will default on payments, are based on the behavior of the borrower when servicing a loan (credit borrower discipline).
Behavioral scoring, a statistical model, gives a quantitative estimate of the probability of default of the borrower, based on an assessment of the borrower’s credit history. For example, how often or how many days the borrower has delayed payment or defaulted on payment.
Ruslan Omarov, Chief Executive Officer of LLP “First Credit Bureau” (1CB/PKB) stated,
“ We were very proud to provide this platform for the industry to have open discussions on this important change that will have a fundamental impact on lending in Kazakhstan”.
The 1CB/PKB behavioral scoring model was developed in 2013 by the Creditinfo Group, based on the statistics of Kazakhstan compared to international standards. The unique advantage of the 1CB/PKB behavioral scoring is that it uses credit borrower histories with analysis of data from all the banks from which the borrower has taken a loan.
In relation to the retail lending market in Kazakhstan, according to research, 1CB/PKB showed that fixed loan growth in 2013 is fundamentally due to a high demand for credit on products from those born in the 1980s. During this period, the birth rate in Kazakhstan was relatively high, and peak fertility rates were recorded in 1987. In general this can be accredited to the generation born in the 80s, reaching an age when, as a rule, they are starting to have families of their own, and as such are experiencing an increase in their personal financial needs, consequently, there has been a demand for retail lending
LLP “First Credit Bureau” (1CB/PKB) was established 2 September 2004 with the seven major banks of the Republic of Kazakhstan, Kazakhstan’s largest financial institution and the CreditInfo Group. 1CB/PKB – the First Credit Bureau in Kazakhstan, performs centralized collection, storage and processing of information, as well as the formation of credit and the issuance of credit reports. In addition, the services provided by 1CB/PKB include a wide range of complementary products for banks and the public. 1CB/PKB information providers include more than sixty organizations in Kazakhstan, which enables them to form a significant database, boasting more than 6 million credit histories and containing information on more than 21.4 million credit contracts.
Creditinfo is a leading worldwide service provider of credit information and credit risk management solutions, including tools for decision making, models and software. Creditinfo Group, established in 1997, has been among the fastest growing companies in its field. It is often the preferred partner of local Credit Bureaus having been shortlisted and awarded several tenders supported by the World Bank, IFC, Millenium Challenge Corporation and other international organizations.
The most recent ones are in Tanzania (Central Bank), Sudan (Central Bank), Cape Verde (Chamber of Commerce), Afghanistan (Central Bank) and Senegal. Creditinfo’s strength is the establishment of credit bureaus in emerging credit markets and hosting, managing and providing credit and credit related data to customers, either directly or through our partner agreements.