Funding of Deposit Insurance System Kazakhstani case Discussant: Bakhyt Mazhenova General Director...

Funding ofFunding ofDepositDeposit Insurance SystemInsurance System

Kazakhstani caseKazakhstani case

Discussant:Bakhyt MazhenovaGeneral DirectorJSC «Kazakhstan DepositInsurance Fund»

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Kazakhstan Deposit Kazakhstan Deposit Insurance FundInsurance Fund

22 Forecasting approach

11 KDIF’ contingency funding

33 Alternative sources of funding

ContentsContents

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KDIF contingency fundingKDIF contingency funding

KDIF’ fund deficit


Additional premiums

Additional premiums

Member banks Member banks

Pay-out to depositors

Pay-out to depositors


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KDIF contingency funding KDIF contingency funding (cont-n)(cont-n)KDIF’ fund

deficit


Extraordinary premiums

Extraordinary premiums

Member banks Member banks

LoanLoan

Central BankCentral Bank

RepaymentRepayment


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Funding key issues:Funding key issues:

What banks are tending to fail?

How much additional funds KDIF needs?

How to plan possible costs in order to pay reimbursement to depositors fully?


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Banks’ distribution by risks, premiums and coverage Banks’ distribution by risks, premiums and coverage amountsamounts

Rating of banks

Number of banks

Banks

(%%)Premiums in ‘000 KZT

Premiums

(%%)

Coverage amount in ‘000

KZT

Coverage amount

(%%)

A 1 3% 556.66 0.08% 351 513.00 0.11%

B 2 6% 1 936.67 0.27% 721 250.00 0.23%

C 13 39% 549 813.59 75.95% 247 488 170.00 78.17%

D 15 45% 126 076.67 17.42% 54 277 588.00 17.14%

D≤ 85 1 3% 45 467.59 6.28% 13 617 025.00 4.30%

E 1 3% 42.11 0.01% 159 935.00 0.05%

Total 33 100% 723 893.29 100.00% 316 615 451.00 100.00%


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Illustration of banks’ distributionIllustration of banks’ distribution


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KDIF in accordance with the “Law on mandatory deposits insurance” has a right to borrow from the National Bank of Kazakhstan (the central bank).

National Bank of Kazakhstan has no obligation to provide the loan.


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Alternative sources of Alternative sources of fundingfunding

Credit derivatives

Reassurance of risks

Issue of bonds


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Advantages and disadvantages of alternative sources

Advantages DisadvantagesLower Credit Default Swap’s (CDS) costs in foreign financial market comparing to the costs of the money supply in the domestic market.

Inability to define an occurrence time of risk event.

Quick access to the required funds after risk event occurrence.

Absence of credit ratings or their low level of infirm banks.

Less operating costs comparing to the costs of other alternative sources of funding.

Idle costs on CDS in the case of no occurrence of risk event.

Future trends to operate in the foreign financial markets.

Credit derivatives


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Advantages and disadvantages of alternative sources (cont-n)

Advantages Disadvantages

Reinsurance via local insurance companies

Direct reinsurance at foreign insurance companies is under ban.

Local insurance companies do not operate with financial risks of local entities

Reassurance of risks


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Advantages and disadvantages of alternative sources (cont-n)

Advantages DisadvantagesAccess to the significant funds in the domestic financial market

There is no mandate of KDIF to issue bonds.

Yields on KDIF’ bonds should be high enough to be interesting for financial market.

Absence of repayment mechanism. Insufficient banks resolution process do not make sure reimbursing bonds from recoveries.

Issue of bonds


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Raising the Bar:Raising the Bar:

May be the time to develop IADI standards has come?


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Thank you for Thank you for your attentionyour attention!!

Funding of Deposit Insurance System Kazakhstani case Discussant: Bakhyt Mazhenova General Director...

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