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Funding of Deposit Insurance System Kazakhstani case Discussant: Bakhyt Mazhenova General Director JSC «Kazakhstan Deposit Insurance Fund»

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Presentation on theme: "Funding of Deposit Insurance System Kazakhstani case Discussant: Bakhyt Mazhenova General Director JSC «Kazakhstan Deposit Insurance Fund»"— Presentation transcript:

1 Funding of Deposit Insurance System Kazakhstani case Discussant: Bakhyt Mazhenova General Director JSC «Kazakhstan Deposit Insurance Fund»

2 2 Kazakhstan Deposit Insurance Fund 2 Forecasting approach 1 KDIF’ contingency funding 3 Alternative sources of funding Contents

3 3 KDIF contingency funding KDIF’ fund deficit Additional premiums Member banks Pay-out to depositors Kazakhstan Deposit Insurance Fund

4 4 KDIF contingency funding (cont-n) KDIF’ fund deficit Extraordinary premiums Member banks Loan Central Bank Repayment Kazakhstan Deposit Insurance Fund

5 5 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? Kazakhstan Deposit Insurance Fund

6 6 Banks’ distribution by risks, premiums and coverage amounts Rating of banks Number of banks Banks (%) Premiums in ‘000 KZT Premiums (%) Coverage amount in ‘000 KZT Coverage amount (%) A13% % % B26% % % C1339% % % D1545% % % D≤ 8513% % % E13% % % Total33100% % % Kazakhstan Deposit Insurance Fund

7 7 Illustration of banks’ distribution Kazakhstan Deposit Insurance Fund

8 8  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. Kazakhstan Deposit Insurance Fund

9 9 Alternative sources of funding  Credit derivatives  Reassurance of risks  Issue of bonds Kazakhstan Deposit Insurance Fund

10 10 Advantages and disadvantages of alternative sources AdvantagesDisadvantages Lower 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 Kazakhstan Deposit Insurance Fund

11 11 Advantages and disadvantages of alternative sources (cont-n) AdvantagesDisadvantages 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 Kazakhstan Deposit Insurance Fund

12 12 Advantages and disadvantages of alternative sources (cont-n) AdvantagesDisadvantages Access 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 Kazakhstan Deposit Insurance Fund

13 13 Raising the Bar: May be the time to develop IADI standards has come? Kazakhstan Deposit Insurance Fund

14 14 Thank you for your attention!


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