CONSERVATION PROCEDURE FOR TIER TWO BANKS
(Magazine Banks of Kazakhstan, issue #9, 2007)
Azhimetov N.N.
(Specialist of Section for organization of temporary administration’s activity and
liquidation committees of Department for organization of liquidation procedures of
Department of liquidation of financial organizations of Agency of the Republic of
Kazakhstan on regulation and supervision of financial market and financial
organizations)
Understanding the importance and priority of stable development of
financial system in Republic of Kazakhstan the Agency of the Republic of
Kazakhstan on regulation and supervision of financial market and financial
organizations (hereinafter Agency) places as one of the basic tasks of further
development – provision of financial stability of banking system.
For the purpose of strengthening and enhancement of financial position and
improving the banks’ work quality, by authorized body (Agency) the number of
administrative, legal, financial, organizational-technical and other actions is carried
out towards banks, which represents conservation.
Regime of conservation is applied in case of systematic (during 3 serial
months) nonfullfillment of sufficiency coefficient of own capital or on the basis of
the clause 48 of Kazakhstan’s law “On banks and banking activity in Republic of
Kazakhstan” (further Law of RK) and implemented for the money of the bank
itself.
Application of conservation mode supposes the appointment by Agency a
temporary administration.
The tasks of temporary administration are conservation or re-establishment
of bank’s ability to timely and completely fulfill their liabilities, to remove
available deficiencies in work and violations of Kazakhstan’s legislation and
internal documents of the bank.
During the period of conservation the temporary administration puts on hold
some operations, but carries out financial, legal and other actions for recovery of
the bank.
All actions on conservation are done directly at the expenses of the bank.
For example, the Decree of the Agency № 307 as of 09.11.2004, for the
purpose financial bank’s recovery conservation was implemented in JC “Nauryz
Bank Kazakhstan”.
The Agency appointed temporary administration. The authorities for
management of the bank came to the temporary administration.
The temporary administration of JC “Nauryz Bank Kazakhstan” on the basis
of clause № 65 of Law of RK made decision to suspend from 09.11.2004 debit
operations from bank accounts of the clients.
This limitation acted for the entire period of conservation.
For the reason of lack of potential investors, showing the intention to
participate in bank’s capitalization, confirmed by necessary documents and real
actions and taking into account, that conservation did not lead to recovery of its
financial position and improving the work’s quality, the license to conduct
operations (stipulated by banking laws in national and foreign currency) was
withdrawn in accordance with the decision of the Board of the Agency № 172 as
of 02.06.2005.
The temporary administration, appointed for the period of up 1 year has the
following rights:
1. Independently to make decisions on all issues of bank’s activity, including
approval of the plan of basic actions during the conservation’s period;
2. When it is necessary to completely or partly suspend the liabilities of the
bank on accepted deposits for the period of conservation;
3. When it is necessary to cancel signed by bank contracts, which anticipate
investment of bank’s money, or unilaterally to make changes and additions,
including changes of rates, tariffs and validity;
4. To sign any agreements, documents on behalf of the bank and to bring a
lawsuit’s requirements on behalf of and in the interests of the bank.
5. To issue the orders, including the dismissal, to downgrade in position or
temporary remove from the post, distributing the duties between the employees;
6. To conduct the reckoning of mutual requirements for the reason of
matching of creditor and debtor in one personality.
The conservation’s plan must anticipate the following:
1. Inventory of al assets of the bank and the property, accounted off-balance,
including collateralized property and title documents of them; determination of
actual balance and off-balance accounts (during the conservation of the bank); also
inventory of own assets and liabilities;
2. Definition of optimum structure of management and number of
employees;
3. Definition of purposefulness of earlier signed agreements by the bank,
connected to its activity and to take actions on cancel the contracts, not
corresponding to the interests of the bank;
4. Performing of actions on capitalization of the bank by making decision on
increasing of number of authorized shares (on issue of other securities) and their
placement at organized market of securities in accordance with acting legislation of
Republic of Kazakhstan;
5. Improving the quality of assets by conducting the work on recovery of
overdue loan and accounts receivable, on cession of rights of requirements on
agreements of banking loan and other assets, not presenting the value for the bank,
stopping of carrying out of any financing, increasing of amounts of ready assets;
6. Increasing of profitableness of the bank by establishing the control over
conducting of expenses’ operations, review of existing tariffs, rates of reward,
commission fee on banking operations, expenses for the salaries, general
maintenance expenses and rates for depreciation deductions;
7. Assessment of risk management system in the bank and implementation
of actions for their improvement;
8. Other actions, directed for recovery of financial position of the bank.
In due time by authorized body the temporary administration (temporary
manager) of the bank must conduct necessary actions in accordance with the plan
of conservation and provide a report on completed work to authorized body.
The manager and members of temporary administration (temporary
administrator) carry the responsibility, established by acting legislation for the
damage.
The conservation of the bank will stop upon established by decision of
authorized body deadline of conservation or making decision by authorized body
on pre-term completion on conservation.
Stoppage of conservation of a Bank [(including pre-term conservation) for
due to recovery of its financial position and improving of work quality] will lead to
cancel of all limitations related to this bank, provided by authorized body or
temporary administration.
In case if the conservation of the bank did not lead to recovery of its
financial position and improving of its work quality, then the authorized body is
authorized to imply sanctions, foreseen by banking legislation of Kazakhstan, in
the way of deprivation of bank’s license to fulfill banking operations. For example,
applied from 03.11.2004 mode of conservation to JCS “Nauryz Bank Kazakhstan”
and prolonged three times did not lead to desired results. All attempts to keep the
bank finished with failure. After familiarization with real situation in JSC, it was
revealed, that considerable expenses are required and because there were no real
proposals from investor did not come, then the liquidation of JCS “Nauryz Bank
Kazakhstan” became inevitable.
In modern conditions of Kazakhstan’s development, the existing banking
system and every bank individually represent by itself big importance, the value
for economy, state and the people: if a bank is experiencing some difficulties, then
it is necessary to undertake all possible actions for the bank to recover it and
eliminate (within the frames of the Law) violations of the requirements of existing
legislation, hindering its normal work. If the selling of the bank to strategic
investor is quite possible and most attractive, then restoration and increasing of
liquidity gives the value of independent assignment.
Creditors’ committee