Development to continue even in crisis: President of ?Kazakhstan Development Bank? JSC A. Zhakanov

ASTANA. January 13. KAZINFORM /Kenzhebolat Zholdybay/ The role of state resources in supporting and stimulating the country?s investment activity grows in global financial crisis. In this regard, the activity of ?Kazakhstan Development Bank? JSC, aimed at investment of the processing industry and infrastructure as well as attraction of private capital into priority non-primary sectors of economy, is of great importance. President of ?Kazakhstan Development Bank? JSC Zhanat Zhakanov tells about measures taken by the Bank in this direction in the interview with a Kazinform correspondent.

Zhanat Shamishevich, I would like to begin our talk with 2008 activity results. The year was without doubt difficult. Would you tell, please, about the Bank?s achievements and failures of the previous year? The year was really difficult for all banks. At the same time, the experience gained during the first crisis wave in the end of 2007 gave us an opportunity to be ready to these large-scale economic problems. Before entering the ?turbulence zone? this year we managed to reorganize our risk management system, corrected investment policy and most important, created reserve funds. Despite the difficulties the Bank attracted foreign loans worth USD 1.2 bln on advantageous terms and made credit lines agreements amounted to USD 700 mln This let us keep high rates of crediting of non-primary branches of industry and infrastructure in 2008. The assets increased up to 165%. In consequence the share of the Bank in the investment crediting of all key branches of processing industry and infrastructure sector increased at the average from 42% to 53%. We launched 12 new productions in 2008, including metal and silicon plant in Karaganda region, production of construction material in Aktobe and East Kazakhstan regions, transport and logistical center in Almaty city, rolling plant in Aktau, meat plant in Akmola region, knitwear manufacture in South Kazakhstan region. The first phase of the construction of ?North-South? power line was finished. ?North Kazakhstan ? Aktobe Region? 500 kilovolt high-voltage power line was put into operation. ?Uzen-Zhetybay? gas pipe line train was built. Despite all difficulties, the year of 2008 was successful for our bank, as the development institute. If we say about things that we did not managed to realize in full, I should mention that we have not satisfied all credit requests. It is due to almost full closure of foreign capital markets. We have examined and approved 29 new projects in the important sectors - energy, metallurgy, chemistry. Nevertheless, we were forced to suspend their financing until the provision of funding base. As an experienced and qualified specialist in your sphere, how would you comment on the baking system of our country in the current situation? How does your bank feel in global crisis? Active attraction of comparatively cheap foreign capital by the banks caused uprise of wide credit expansion in the economy of Kazakhstan in the period from 2000 to 2007. Average annual rates of growth of bank lending reached 60-70% during this period. But despite high growth rates of lending volumes, potential of commercial banks in financing of production sphere of the country was not fully realized due to such factors as significant capital intensity, long pay-off periods and slight returns of the projects in processing and infrastructure sectors. It was expected that high volumes of lending within the diversification of banks? credit portfolio would stimulate growth of bank financing of projects in non-primary sectors of industry and infrastructure, able to provide not high but stable profit in the future. But the world financial crisis of 2007 altered the situation. Problems with liquidity, appreciation of foreign loans, asset quality deterioration, reduction of credit ratings and influence of a range of other risks in the banking system led to reconsideration of credit policy in the second-tier banks. Tightening of credit policy by the second-tier banks led to the sharp decrease of bank lending volumes in the country. According to the data of the National bank of the Republic of Kazakhstan, the volume of credits accommodated by the second-tier banks was almost twice lower in 2008 than it was in 2007. Economy is particularly sensitive to the decrease of long-term credits ? important source of investments to the stock capital. The crisis of bank lending affected the most vulnerable producers of processing industry. The liquidity crisis of commercial banks affected our projects as well. Each of our clients is a client of a commercial bank, where he is provided with financing of his current activity. Commercial banks were co-creditors of many our projects. In this regard, limitation or escalation of financing cost from the part of commercial banks affected our projects as well. Many enterprises were left without floating assest. Kazakhstan Development Bank addresses these problems. But it is a complicated problem and we defined some alterations in the legislative base of our activity for the future. As for the Development Bank itself, due to its specifics it was protected from a number of risks threatening to almost all commercial banks. Particularly, we do not finance projects of housing construction, programs of mortgage and consumer lending. In whole, preventing the competition with commercial banks, we tried to focus on large projects in industry and infrastructure, leaving aside highly profitable commercial projects. Finally, unlike the commercial banks, the Development Bank does not fall under the risk of population deposits? outflow in case of delayed character of liquidity crisis. Our 2008 results confirm that in the global crisis the Bank kept its stability and provided financing of the most important investment projects. Besides, we rendered essential assistance to commercial banks through refinancing of the part of loans for investment projects. We compensated liquidity to 7 banks by 17 projects with total budget of USD 340 mln in 2008. The crisis revealed the significant role of the Kazakhstan Development Bank in the financial and economic system. The Kazakhstan Development Bank was established during prosperous period of our economy in 2001 in pursuant to the Decree of our President N.A. Nazarbayev. Then the country felt no lack of skeptical and critical utterances from the part of businessmen. In the beginning we used to take the risks and started large investment projects the major part of which passed to commercial banks later. Today we see quite opposite tendency: clients tend to come back to the Kazakhstan Development Bank. Being financially and politically neutral the Kazakhstan Development Bank continues to support business community. Now it is obvious that the establishment of the Kazakhstan Bank Development as one of the form of the state-private partnership was a far-sighted and wise decision. In conditions of a break of the world credit machinery, it is hard to overestimate the role of the Kazakh Development Bank as an accelerator of the real economy. What is a level of the Bank?s participation in financing of infrastructural projects in Kazakhstan? As is known, main inflow of investments to the non-primary sector of economy depends on provision with productive, transport, communication and energy infrastructure. Besides, the world practice shows, that implementation of projects on creation and modernization of the country?s infrastructure is one of more effective instruments of support of economic activity and ensuring employment in the crisis. Therefore, a big part of funds of the Kazakh Development Bank is invested to financing of strategic infrastructural projects in Kazakhstan. There are many projects of the strategic importance among infrastructural projects, which are implemented with the participation of the Kazakh Development Bank. First of all, these are projects of extension of the Aktau Sea International Trade Port, construction of power lines ?North-South? and ?North Kazakhstan-Aktobe oblast?, building of Moinakskaya hydro-electric power station in Almaty oblast and etc. What are prospective directions in the activity of the Development Bank of Kazakhstan? Our stockholder ? National Welfare Fund ?SamrukKazyna? ? defines all main directions of activity of the Development Bank of Kazakhstan. And the upcoming period our activity will be directed to implementation of a plan of the Government?s anti-recessionary actions. The Fund has a strong management team, and all decisions are taken strategically. The Bank is involved in many investment projects of the Holding and follow the top priorities. In the framework of the Government?s program, about USD 1 bln will be allocated for implementation of innovative, industrial and infrastructural projects of ?SamrukKazyna? Fund. Besides, USD 3bln of foreign direct investment will be attracted for it as well. In these conditions we will overview our position and focus on important priority projects. Alongside with state financing we will continue attracting foreign resources, including those within the SCO Interbank Association. We have established good business contacts with Vnesheconombank of Russia, Chinese Development Bank, China Exim Bank and other partners. At present we are working over syndication of commercial loans. We will also continue refinancing of commercial banks? loans. The main Bank requirement to the refinanced projects is their compliance with the industrial and investment priorities of the Kazakhstan Development Bank. Since the Bank pursues the policy of socially responsible investing the projects on production of alcohol, tobacco products, weapons, narcotic and explosive substances will not be refinanced. The total sum of a loan should make not less than USD 5 mln for the term of five years. We consider the current crisis as a challenge in development. It is the period of testing and certain re-estimation. But we are confident that Kazakhstan?s economy will become more mature and experienced due to this hard period. Our economy will develop even through this crisis. We will bend every effort for its development.