The Agency has presented the results of the 2023 regular AQR
The Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market (hereinafter, the Agency) has published the results of the regular asset quality reviews (AQR) of the banking sector for 2023. The report provides a detailed analysis of the current level of credit risk based on the AQR results.
The regular AQR is a key tool of risk-oriented supervision aimed at assessing the level of credit risk and adequacy of banks' reserves in accordance with international standards and best practices.
Following the instructions of the Head of State, the Agency has fully integrated the AQR toolkit into the supervisory process, and since 2022, the regular AQR has been conducted on an annual basis.
The regular AQR performs a thorough analysis of banks' loan portfolios, financial performance of the borrowers, and historical statistics of credit risk parameters. Loans are categorized by portfolios with similar risk characteristics. Borrowers with large debt amounts are individually analyzed using a rating model, while other loans are analyzed collectively using a statistical challenger model.
As a result, the Agency assesses the additional level of reserves for each bank and adjusts their capital adequacy level. These results are used in the continuous supervisory process and as a starting point for supervisory stress-testing, where the stability of banks is analyzed under hypothetical negative macroeconomic scenarios.
In 2023, the Agency conducted the regular AQR on 11 leading banks, whose assets account for 84% of the banking system. The analyzed debt reached ₸20.9 trillion, increasing by 37.1% year-on-year basis. The main part of the debt is represented by unsecured consumer loans (₸6.9 trillion), as well as portfolios of loans for large business (₸3.1 trillion), small business (₸2.6 trillion), and investment projects (₸2.6 trillion).
The individual assessment perimeter was expanded to 1,677 large borrowers and 657 co-borrowers and guarantors. 24 million loans totaling
₸13.0 trillion were analyzed on a collective basis.
The results of the regular AQR showed that the level of capital adequacy, in the whole system as of January 1, 2023 significantly exceeds the regulatory minimum and amounts to 15.1%.
The difference in reserve estimates between banks and the regular AQR amounted to ₸451.2 billion. The share of credit-impaired debt (stage 3) increased by ₸574.5 billion from 10.7% to 13.5%. Compared to the 2022 estimate, the share of stage 3 decreased by 1.3 p.p.
Compared to the AQR 2022, the largest increase in additional provisions is observed in the portfolio of loans to large businesses (+₸68.6 billion). This is mainly due to a small number of large borrowers in stage 3. Despite a significant increase in the portfolio of loans issued for the acquisition and construction of real estate, the size of additional provisions for this portfolio decreased by ₸4.0 billion, reflecting a decrease in the share of stage 3 in this portfolio. There are no significant changes in the portfolio of investment loans compared to the results of 2022.
The portfolio of loans to medium-sized businesses increased more than 3 times compared to AQR 2022. At the same time, the increase in additional provisions amounted to 14.8%. In contrast, the outstanding portfolio of loans to small businesses in the AQR perimeter decreased by ₸314.9 billion, or 11.0%. At the same time, additional provisions increased in amount by ₸4.8 billion, or 6.8%.
The increase in additional provisions for the auto loan and unsecured consumer loan portfolios compared to AQR 2022 is due to both growth in these portfolios, by 58.2% and 39.9%, respectively, and improved accuracy in calculating probabilities of default for these portfolios.
In general, there is an improvement in the quality of the loan portfolio due to the overall growth of the portfolio, as well as an improvement in the financial condition of borrowers in some of the portfolios.
Detailed results of the regular AQR 2023 are presented in the report by portfolio, valuation method, industry, and risk metrics and compared to the results of the last year's AQR.
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