Course work
Discretionary monetary policy of the Central Bank and "policy by the rules"
In the XVIII century. A. Smith believed that the economy would govern itself, without state intervention, if it was directed by the "invisible hand" of personal gain. In such a system, the state was assigned the role of a “night watchman”. Much has changed since then, life has made its own adjustments, and today not only politicians, but also most economists believe that the state should be an active participant in economic activity.
There are three main ways in which the state influences the economy: direct intervention (for example, through the rationing of goods, regulation of prices and incomes); fiscal policy; monetary policy. Experience has shown that none of the countries that have tried to pursue a policy of direct state intervention has been able to achieve long-term success. Therefore, in market economies, state regulation is carried out through fiscal and monetary policy.
The relevance of this work lies in the fact that in the context of the consequences of the global economic crisis, it is especially important that the chosen monetary policy most effectively contribute to the achievement of the set goals - a sustainable and balanced economic growth and maintaining financial stability.
In this paper, the existing types of monetary policy of the state will be considered, theoretical justifications for each of the policies will be given, as well as their advantages and disadvantages will be assessed. Based on the studied data, an analysis and evaluation of the effectiveness of the monetary policy pursued by the Central Bank of the Russian Federation in last years, as well as the main directions of the monetary policy of the Central Bank for 2013-2015 will be assessed.
According to Samuelson's Dictionary of Terms, Nordhaus "credit - monetary policy - measures of the central bank in terms of control over the money supply, interest rates and credit conditions.
The task of monetary policy is to ensure that changes in the money supply are consistent with the main goals of economic development: increasing business activity, reducing inflation and maintaining the balance of payments.
Although monetary policy is determined by the government, its conductor is the Central Bank. It has a set of tools that are often referred to as monetary policy instruments. These instruments mainly affect either the quantity of money, mainly in the form of bank deposits, or interest rates.
Monetary policy instruments do not have to be used in isolation. On the contrary, two or more instruments are usually used at once, so that the corresponding effects mutually reinforce each other. Activities of this kind are often referred to as integrated policies.
Tools:
a) credit limits; direct regulation of the interest rate;
b) change in the required reserve ratio;
c) change in discount rate (refinancing rate);
d) operations on open market.
With the help of these tools, the Central Bank implements the goals of monetary policy. The goals of monetary policy can be grouped as follows:
Final Goals:
a) economic growth;
b) full employment;
c) price stability;
d) stable balance of payments.
Intermediate targets:
a) money supply;
b) the interest rate;
c) exchange rate.
The ultimate goals of monetary policy are being implemented as one of the directions economic policy in general, along with fiscal, currency, foreign trade, structural and other types of policy.
Often in the process of formation banking system in countries transitioning to market relations, the strengthening of the degree of independence of the Central Bank in conducting monetary policy is accompanied by the desire of the monetary authorities to achieve the final goal, while in reality they are able to control only certain intermediate nominal values.
Depending on the goals that the Central Bank implements, two types of monetary policy are distinguished: discretionary (flexible) monetary policy and monetary "policy by the rules" (rigid). There are also two types of discretionary monetary policy: stimulating and contracting.
Discretionary (flexible) policy- policy aimed at maintaining the interest rate at a certain level; can be graphically shown relative to a horizontal money supply curve at a given interest rate.
Discretionary monetary policy (flexible monetary policy)
According to the Keynesian concept, the choice of one or another type of discretionary monetary policy is determined by which of the two main causes of macroeconomic instability is the most significant at the moment: an increase in inflation or an increase in unemployment. The conflict of macroeconomic goals (Phillips curve) determines the choice between a policy of expensive money and a policy of cheap money.
Phillips curve in the short run
where p is the inflation rate, U is the unemployment rate
Expensive money policy has as its main goal the limitation of aggregate demand and the reduction of inflation. This is achieved, among other measures, primarily by raising the discount rate. The policy of expensive money reduces the availability of credit and increases its costs, which leads to a reduction in the money supply, a reduction in the demand for investment, a reduction in income, and a decrease in demand-side inflation.
Politics cheap money aimed at increasing aggregate demand and reducing unemployment. Lowering the discount rate makes credit cheap and easily accessible, which ultimately increases the money supply, increases the demand for investment, increases employment, increases household incomes, and increases aggregate demand.
The stimulating monetary policy is carried out during a recession and is aimed at "invigorating" the economy, stimulating the growth of business activity in order to combat unemployment.
The stimulating monetary policy consists in carrying out measures by the central bank to increase the money supply. Her tools are:
) lowering the reserve requirements,
) a decrease in the discount rate of interest,
) the purchase of government securities by the central bank.
The mechanism by which a change in the money supply affects the economy is called the "money transmission mechanism" or "money transmission mechanism". The monetary transmission mechanism shows how a change in the money supply (changes in the situation in the money market) affects the change in the real volume of output (the situation in the real market, i.e. the market for goods and services).
This mechanism can be represented by the following logical chain of events.
With a decrease in the discount rate (r), the demand of commercial banks for loans (Dm) increases, which they can use for lending, thereby increasing the money supply. An increase in the money supply (S m) leads to a decrease in the rate loan interest(%) (according to which commercial companies provide loans to entrepreneurs, the population). Credit becomes cheaper, which stimulates the development of production (Y).
Since the impact of stabilization policy occurs in the short term, the impact of stimulating monetary policy on the economy can be graphically depicted as follows:
Monetary transmission mechanism under stimulating monetary policy
The policy of cheap money is aimed at stimulating the growth rate of the real sector by providing cheap loans, but at the same time, an interest imbalance can lead to high inflation rates due to the appearance of excess unsecured money supply in circulation. It is this risk factor that is currently seriously threatening the United States, Western Europe, Japan and many other countries that used lower interest rates to avoid possible deflation at the peak of the financial crisis. The economies of these countries are over-pumped with unsecured liquidity, which may cause a new round of the crisis.
A contractionary monetary policy is carried out during a boom period and is aimed at reducing business activity in order to fight inflation. The contractionary monetary policy consists in the use by the central bank of measures to reduce the money supply. These include:
) increase in the norm of reserve requirements,
) an increase in the discount rate of interest,
) sale of government securities by the central bank.
This policy can be represented by the following chain of events:
With an increase in the discount rate, a process occurs that is the opposite of what we observe with a stimulating monetary policy. The increase leads to a reduction in the demand for Central Bank loans, which slows down the growth rate (or reduces) the money supply and raises the lending rate. Entrepreneurs take less "expensive" credit, which means less money is invested in the development of production.
To the benefits monetary policy can be attributed:
No internal lag.
The internal lag is the period of time between the moment of awareness economic situation in the country and the moment of taking measures to improve it. The decision to buy or sell government securities by the central bank is made quickly, and since these securities in developed countries are highly liquid, highly reliable and risk-free, there are no problems with their sale to the population and banks.
No crowding out effect.
The stimulating monetary policy (an increase in the money supply) causes a decrease in the interest rate, which leads not to crowding out, but to stimulation of investment.
Multiplier effect.
Monetary policy has a multiplier effect on the economy, and there are two multipliers. The deposit multiplier ensures the deposit expansion process, i.e. a multiplicative increase in the money supply, and an increase in autonomous spending as a result of a decrease in the interest rate in the face of an increase in the money supply multiplicatively increases the value of the total output.
The disadvantages of monetary policy are as follows:
1. Possibility of inflation.
Stimulating monetary policy, i.e. an increase in the money supply leads to inflation even in the short run, and even more so in the long run. Therefore, representatives of the Keynesian trend argue that monetary policy can only be used in case of overheating (inflationary gap) of the economy, i.e. consider the possibility of conducting only a contractionary monetary policy, and in a recession, in their opinion, stimulating fiscal rather than monetary policy should be used.
2. The presence of an external lag due to the complexity and possible failures in the mechanism of monetary transmission.
The external lag is the period of time from the moment when measures are taken to stabilize the economy (the central bank makes a decision to change the value of the money supply) until the result of their impact on the economy (which is expressed in a change in the value of output) appears. The purchase and sale of government securities by the central bank is fast; the lending capacity of commercial banks is rapidly changing. However, the mechanism of monetary transmission is long and consists of several steps, each of which can fail.
· The reaction of the money market to the growth of supply depends on the type of demand curve for money. A serious drop in the interest rate will only occur if the demand curve for money is steep, i.e. if the sensitivity of the demand for money to changes in the interest rate is small. If the demand for money is very sensitive to changes in the interest rate (the money demand curve is flat), then an increase in the money supply will not lead to a significant decrease in the interest rate (graph a).
· A significant decrease in the interest rate as a result of an increase in the money supply may not lead to a serious increase in investment spending if their sensitivity to changes in the interest rate is low (investment curve is steep) (chart b).
· If investment demand is highly sensitive to interest rate movements and investment spending has increased as a result of falling interest rates, then an increase in aggregate spending may not lead to an increase in real output if the economy is at full employment (at the level of potential output), which corresponds to vertical aggregate supply curve (chart c).
Possible failures in the operation of the monetary transmission mechanism
a) money market b) investment market c) AD-AS model
Thus, a disruption in any link of the transmission mechanism can negate or significantly weaken the impact of monetary policy on the economy.
Moreover, even in the case when there are no failures in the functioning of the transmission mechanism, the presence of a significant external lag in monetary policy, i.e. lagging the impact of changes in the money supply on the economy can lead to destabilization of the economy. For example, a decision to increase the money supply, taken during a recession, may give its result when the economy has already reached a boom, which will cause an increase in inflationary processes. Conversely, the sale of government securities by the central bank to reduce business activity in an overheated economy can have an impact when the economy is in a deep recession, and this will only exacerbate the situation.
"Politics by the rules" or tight monetary policy- policy aimed at maintaining the money supply at a certain level; graphically, as an extreme case, it is presented relative to the vertical money supply curve at the level of a given indicator of the money supply.
Monetary "policy by the rules" (tight monetary policy)
Such a policy was proposed by monetarists headed by M. Friedman. For many years, Friedman argued that monetary policy should be conducted according to rules and this idea became important part monetarist doctrine.
Monetarists are convinced that monetary policy determines the level of economic activity in the country to a much greater extent than Keynesians believe. According to monetarists, the money supply is the only an important factor affecting the level of production, prices and employment.
Since the monetary velocity of money is stable in the sense that its fluctuations are small and it does not change in response to changes in the money supply, the money supply itself has a predictable effect on the level of aggregate demand.
From the point of view of the monetarists, the policy of expensive and cheap money proposed by the Keynesians is harmful and meaningless. The main cause of macroeconomic instability lies in the sphere monetary processes. Inflation, unemployment, decline in production are not typical for market system as such, but stem from the wrong monetary policy implemented by the state.
Conducting an effective financial policy in accordance with monetarist recommendations involves:
1. Rejection of arbitrary changes in tax or monetary policy for the sake of set economic and political goals. The economy, in their opinion, is an extremely complex and still insufficiently studied system, therefore government intervention aimed at eliminating various crisis phenomena causes the opposite effect, i.e. brings even more chaos;
Rejection budget policy in the Keynesian sense (as an instrument of counter-cyclical policy) and replacing it with another policy that assumes that the state will play the role of an "employee" who will plan expenses and taxes without the need to ensure economic stability;
The main tool for maintaining long-term stability should be a monetary policy based on long-term, stable growth in the money supply in accordance with the monetary rule.
Monetary rule means an annual expansion of the money supply at the same rate as the annual growth rate of real GDP. According to monetarists, the money supply should grow steadily within 3-5% per year (for the US);
Legislative establishment of a monetary rule, taking into account long-term trends in the dynamics of key economic indicators.
Friedman's defense rules can be broken down into a number of statements.
Statement 1. Monetary policy has a strong impact on the real economy in the short run. However, in the longer run, changes in the money supply affect primarily the price level.
Friedman and other monetarists believe that fluctuations in the money supply are historically one of the most important, if not the most important, sources of cyclical fluctuations in economic activity. With regard to long-term neutrality, Friedman was one of the first to argue that since prices eventually adjust to changes in the money supply, the effect of money on real variables can only be temporary.
Statement 2. Despite the strong short-term influence of money on the economy, there is little room for active use of monetary policy to try and smooth business cycles.
Friedman supported this assumption with several points.
First, it takes time for the central bank and other government agencies to collect and process information on the current state of the economy. These information lags can make it difficult for the central bank to determine whether the economy is truly in recession and whether a policy change is appropriate.
Second, there is considerable uncertainty about how strong the effect of a change in the money supply will be on the economy and how long it will take for it to occur. Friedman emphasized that there are long and variable lags between monetary policy actions and their economic results. That is, not only does monetary policy take a relatively long time to kick in, but the amount of time it takes to operate is unpredictable and may vary from case to case.
Third, the adjustment in prices and wages, though not instantaneous, is still fast enough that by the time the Fed realizes that the economy is in a recession and increases the money supply, the economy may already be moving out of recession.
Statement 3. Even if there is some room to use monetary policy to smooth business cycles, the Fed cannot expect to do so effectively.
One of the reasons Friedman did not believe in the Fed's ability to effectively manage activist monetary policy was political. He believed that, despite its supposed independence, the Fed was under short-term political pressure from the president and members of his administration. For example, the Fed may be pressured to stimulate the economy during an election year. If a right timing, expanding the money supply in an election year can increase output and employment just before voters go to the polls.
Statement 4. The Fed must choose a certain monetary aggregate and commit itself to making it grow at a constant rate from year to year.
For Friedman, the crucial step in eliminating the Fed as a source of instability was getting it to abandon its activist, or discretionary, monetary policy and commit itself—publicly and upfront—to following that rule. . Although the exact choice of the rule is not decisive, Friedman believed that the constant money growth rate rule would be a good choice for two reasons. First, the Fed has considerable influence, some control over the rate of growth of the money supply. So if the money supply growth rate deviates significantly from its target, the Fed cannot easily blame it on forces outside its control. Second, Friedman argued that a gradual increase in the money supply would lead to less cyclical fluctuations than historically applied supposedly "counter-cyclical" monetary policy. He concluded that a constant rate of growth in the money supply would provide a "stable monetary base" that would allow economic growth to continue without worrying about monetary instability.
Friedman was not in favor of a sharp transition from discretionary monetary policy to a low, constant rate of money supply growth. Instead, it provided for some transitional period during which the Fed, through phased, pre-announced steps, would gradually reduce the growth rate of the money supply. In the end, the growth rate of the chosen monetary aggregate would correspond to an inflation rate close to zero. It is important that after reaching a constant rate of growth in the money supply, the Fed would stop responding to small economic downturns by increasing the growth rate of the money supply, and would continue to pursue a policy of maintaining a fixed rate of money supply growth. However, in some of his writings, Friedman left open the possibility that in the face of serious economic crises like a depression, the monetary rule can be temporarily abandoned.
In 1975, the US Congress passed a special resolution in which it required the Federal Reserve System (FRS) to ensure long-term growth of monetary aggregates in accordance with the long-term potential of the economy to increase production. The Fed was charged with setting limits on the money supply for the coming period. In 1977, this provision was enshrined in law. And since then, the Fed has been publishing money supply targets and discount rates for the next 12 months, reviewing them every three months.
The choice of options for monetary policy depends largely on the causes of changes in the demand for money. For example, if the growth in the demand for money is associated with inflationary processes, then a strict policy of maintaining the money supply would be appropriate, which corresponds to a vertical or steep money supply curve. If it is necessary to isolate the dynamics of real variables from unexpected changes in the velocity of money, then a policy of maintaining the interest rate that is directly related to investment activity (horizontal or flat money supply curve) will probably be preferable.
Discussions between Keynesians and monetarists about the economic role of the state in market economy made it possible to rethink some of the most fundamental aspects of macroeconomic theory. Today, very few economists adhere to the extreme Keynesian view that "money doesn't matter" or the opposite monetarist extreme of "only money matters". Modern monetary policy uses everything positive that is in these two concepts.
Development of monetary policy as an integral part of the national macroeconomic policy carried out by the Bank of Russia. This process is organized as follows:
The Bank of Russia develops a draft MP and submits it for consideration to the National Banking Council;
The National Banking Council gives an opinion on the project;
By October 1, the Bank of Russia shall submit to the State Duma the draft Guidelines for the unified state monetary policy for the forthcoming fiscal year which must be approved by December 1st.
The main directions of the unified state monetary policy for the coming financial year contain an analysis of the state and forecast of the development of the Russian economy. The main guidelines, parameters and tools of the unified monetary policy, the implementation of the approved monetary policy is entrusted to the Bank of Russia.
credit money bank policy
In 2012, the Bank of Russia pursued its monetary policy in the context of continued uncertainty in the development of the external economic situation affecting the Russian economy, seeking to strike a balance between the risks of accelerating inflation and slowing economic growth.
In the context of the formation of a budget surplus and increased exchange rate flexibility, the main source of the increase in the money supply in 2012 was the growth in refinancing of credit institutions by the Bank of Russia,
In February 2012, the Bank of Russia jointly with the Russian Ministry of Finance carried out a number of measures to liberalize the government securities market.
When making decisions on issues interest rate policy The Bank of Russia focused on medium-term assessments of inflationary risks, the dynamics of inflationary expectations, assessments of economic growth prospects, and also took into account changes in other factors. Based on the analysis of these and other factors, the Bank of Russia in January-August 2012 did not change the direction of monetary policy - the refinancing rate and interest rates were maintained at the level set from December 26, 2011.
However, in the 3rd quarter of 2012, against the background of rising inflation and inflationary expectations, the risks of exceeding the medium-term inflation targets of the Bank of Russia increased (Appendix A). Therefore, the Bank of Russia decided to increase the refinancing rate and interest rates on its operations by 0.25 percentage points from September 14, 2012 (Appendix B).
The International Monetary Fund also advised the Bank of Russia to raise the rate. IMF analysts believe that tightening monetary policy will help not only contain price increases, but also prevent possible overheating Russian economy. However, most Russian experts did not expect the Central Bank to change rates, because raising refinancing rates to curb non-monetary inflation is ineffective, plus there are risks of a slowdown in economic growth.
In June 2013, the four-year term expires, for which the current head of the Central Bank of the Russian Federation, Sergei Ignatiev, was approved. Who will lead the post of chairman of the Central Bank is not yet known. However, on March 12, 2013, Russian President Vladimir Putin officially announced his decision to propose to parliament that his adviser Elvira Nabiullina be appointed to the position.
Russian Finance Minister and head of the National Banking Council Anton Siluanov commented on this decision of the head of state. In his opinion, with the advent of Nabiullina, monetary policy will not soften. However, the independence of the Central Bank in conducting monetary policy will be preserved.
The most important trend in February was the continuation of the trend towards accelerating inflation. February inflation amounted to almost 0.6% at the end of the month (in February 2012 - 0.4%). Thus, although the acceleration rates were not as high as in January, when they were twice as high as last year, they remain sufficient; as a result, February inflation in annual terms reached 7.3%.
Meanwhile, it is a significant inflationary background that is the main argument of the Bank of Russia in the controversy around the easing of monetary policy. On February 12, the Bank of Russia announced that it had left the refinancing rate and interest rates on key operations unchanged.
In addition to keeping interest rates at the same level, the Central Bank of the Russian Federation also unified the required reserve ratio at the level of 4.25% from March 1, regardless of the type of obligations (before March 1, the following reserve requirements were in effect, established on April 1, 2011: non-residents in the currency of the Russian Federation and foreign currency in the amount of 5.5% and 4% on all other obligations). (Appendix B).
In January 2013, there was a seasonal contraction of the broad monetary base after its expansion at the end of the year. At the end of the month, it decreased by 14.5% to 8424.8 billion rubles. In January, only required reserves increased - by 3.6%. The decrease in the amount of cash in circulation and the simultaneous growth of required reserves in January led to a reduction in the monetary base in a narrow definition (cash plus required reserves) by 8.6% to 7454.5 billion rubles.
Dynamics of the monetary base (in a narrow definition) and gold and foreign exchange (international) reserves of the Russian Federation in 2007-2013
After a twofold increase in December 2012, the excess reserves of commercial banks 1 decreased in January 2013, returning to the level of November last year. Their volume at the end of the month amounted to 970.3 billion rubles.
In the next three years, the Bank of Russia will maintain the continuity of the implemented principles of monetary policy. When formulating the principles of monetary policy for the medium term, as in previous years, the intention of the Central Bank of the Russian Federation to focus on reducing inflation is fixed and the task is to reduce the inflation rate to 5-6% in 2013 and to 4-5% in 2014-2015. At the same time, the Bank of Russia plans to complete the transition to inflation targeting by 2015. Under this regime, the priority goal of monetary policy is to ensure price stability, that is, to maintain stable low rates of price growth.
Monetary policy aimed at controlling inflation will help achieve broader economic goals, such as creating conditions for sustainable and balanced economic growth and maintaining financial stability. The implementation of the monetary policy of the Bank of Russia involves setting a target value for the change in the index consumer prices. The main goal of the Bank of Russia's monetary policy is to reduce the growth rate of consumer prices in 2013 to 5-6%, in 2014 and 2015 to 4-5%.
Decisions in the area of monetary policy will continue to be made by the Bank of Russia, as a rule, on a monthly basis.
The Central Bank of Russia presented three options for monetary policy, depending on possible price for oil. At the same time, the base scenario of the forecast is the second option, which is based on an oil price of 97 dollars per barrel. in 2013
According to the forecast of the Central Bank, the net outflow of private capital from the Russian Federation in 2013 in the amount of $35 billion, while the price of Urals oil is $73 per barrel. and 10 billion dollars at an oil price of 97 dollars per barrel. If the average annual oil price next year is $121/barrel, then, according to the forecast of the Central Bank of the Russian Federation, capital outflow in 2013 will be zero.
At the end of the current year, the Central Bank of the Russian Federation expects a net outflow of private capital from the country in the amount of $65 billion. 2012 amounted to 57.8 billion dollars.
In the medium term, an important strategic task will be to build a more effective monetary policy transmission mechanism, as well as to increase confidence in the Bank of Russia as the body responsible for price stability, which will create the basis for a better
management of inflationary expectations of economic entities.
In order to further increase the effectiveness of the interest rate policy, the Bank of Russia will continue to gradually increase the flexibility of the exchange rate mechanism in the coming three years, and by 2015 it plans to switch to a floating exchange rate, refusing to use operational benchmarks of the exchange rate policy related to the level of the exchange rate.
Ensuring financial stability will remain one of the main tasks of the Bank of Russia in the medium term.
In this paper, the main types of monetary policy were considered: discretionary monetary policy and "policy by the rules".
The choice of options for monetary policy depends largely on the causes of changes in the demand for money. For example, if the growth in demand for money is associated with inflationary processes, then a strict policy of maintaining the money supply at a certain level would be appropriate. If it is necessary to isolate the dynamics of real variables from unexpected changes in the velocity of money, then the policy of maintaining the interest rate at a certain level will be preferable.
Today, however, very few economists adhere to the concept of any of the policies in its purest form. Modern monetary policy uses everything positive that is in these two concepts.
As for the monetary policy of Russia, today, due to the increase in inflation rates, the Central Bank of the Russian Federation is focused on tightening the monetary policy by raising the refinancing rate to 8.25%, and we should not expect its softening. The main intention of the Central Bank of the Russian Federation is to focus on reducing inflation and by 2015 complete the transition to an inflation targeting regime. Under this regime, the priority goal is to ensure price stability, that is, to maintain consistently low rates of price growth.
1. Central Bank of the Russian Federation, official website: //www.cbr.ru/
. "The main directions of the unified state monetary policy for 2013 and the period of 2014 and 2015", report of the Central Bank of the Russian Federation
http://www.cbr.ru/today/publications_reports/on_2013 (2014-2015).pdf
3. "The main directions of the unified state monetary policy for 2012 and the period of 2013 and 2014", report of the Central Bank of the Russian Federation
http://www.cbr.ru/today/publications_reports/on_2012 (2013-2014).pdf
4. E.T. Gaidar
Monthly Review "Economic Development of Russia", No. 3 2013://www.iep.ru/files/text/RED/Russian_Economic_Developments_03_2013.pdf
Center for Situational Analysis and Forecasting CEMI RAS
“Monitoring. Results of 2012. Monetary Policy Indicators of the Central Bank of the Russian Federation”://data.cemi.rssi.ru/GRAF/center/monitorings/monetary.htm
Abel E., Bernanke B. Macroeconomics, 2010
7. Samuelson P, Nordhaus V. "Dictionary of terms" Economics. M., 1999
Instruments of monetary policy pursued by the Central Bank of the country.
Goals and instruments of monetary policy.
Monetary policy of the state consists in changing the money supply (the amount of money in circulation) in order to change demand, the price level in the national economy, the volume of national production and employment.
The main objectives of monetary policy are:
1. + Stimulation of credit and money issues during economic stagnation (policy of cheap money);
2.– Credit containment and money issue with inflation (policy of dear money).
The change in the money supply is carried out mainly not by increasing or reducing the issue of cash, but by influencing the volume of commercial lending.
Monetary Policy carried out by regulating the money supply in circulation.
Operate three the main tools that allow the Central Bank to influence the money supply in the country:
1. Change in reserve norms: the bank keeps part of the money in the account of the Central Bank.
2. Carrying out operations of buying and selling government securities on the open market. The purchase of government securities by the Central Bank increases the money supply in the country, and the sale reduces it.
3. Setting the discount rate (refinancing rate). The rate at which the Central Bank lends to other banks. Such loans do not require mandatory reservations. The low rate allows the bank to lend to the people, also at low rates. And vice versa.
advantage efficiency of its impact on the economy.
disadvantages Ineffective during deep depression
Cheap money policy is carried out with a decrease in the value of real GDP and an increase in unemployment, it is aimed at increasing the level of economic activity and employment by expanding lending to business entities. This is possible with cheaper loans, i.е. lowering their interest rates
Expensive money policy The Central Bank sells government securities, increases reserve norms and refinancing rates. As a result of the reduction in the amount of money in economic turnover, interest rates on loans are rising, and the number of people who want to take out expensive loans will decrease significantly.
| Cheap money policy | Expensive money policy |
| Problem: recession, unemployment | Problem: inflation |
| The Central Bank should buy securities, lower the required reserve ratio or the discount rate | The Central Bank must sell securities, increase the reserve requirement or raise the discount rate |
| Money supply rises | The money supply is shrinking |
| Interest rate goes down | Interest rate rises |
| Investment costs rise | Investment costs are falling |
| Real NNP increases by an amount that is a multiple of the increase in investment | Real NNP is reduced by an amount that is a multiple of the decrease in investment |
| Unemployment is declining | Inflation is declining |
43. Commercial bank: concept, types, functions.
Bank- an economic institution involved in attracting and allocating financial resources. Commercial banks representative sob. main "nerve" centers monetary system. Modern commercial bank yavl. credit and financial institution of a universal nature. In the early stages of the development of banking, commercial banks served mainly trade, credited transportation, storage and other operations related to Comrade. exchange.
Functions of commercial banks - it is first of all accumulation of termless deposits(maintenance of current accounts) and payment of checks issued to these banks, as well as lending entrepreneurs. These credit institutions also carry out settlements and organize the payment turnover on the scale of the entire national economy. On the basis of their operations, credit money arises (checks, bank bills). At the turn of the 80-90s. began the active introduction of commercial banks in different countries into the insurance business. As a result, customers of commercial banks can use the services of the widest range.
Commercial banks can be classified:
1. By form of ownership. Depending on the ownership of capital, there are:
State banks if the capital commercial bank belongs to the state. There are two types of state banks - central banks, which carry out their operations and policies in accordance with the requirements of the economy, not aiming to make a profit. State commercial banks provide services to sectors of the economy, lending to which is unprofitable for private capital, ensuring the implementation of the state policy in the field of lending to the economy, influencing investment, intermediary and settlement operations.
Joint stock banks- the most common form of ownership of banks at the moment. The equity capital of such banks is formed through the sale of shares. There are open joint stock companies (JSC) and closed joint stock companies (CJSC). In the first case, shares are sold to everyone, in the second case, they are distributed only among the founders or other, predetermined circle of persons. The main founding document of joint-stock banks is the Charter.
Cooperative (share) banks, the capital of which is formed through the sale of shares. Rarely seen in practice.
Municipal banks - formed at the expense of municipal property or under the management of the city.
Mixed banks, when the bank's equity pools different forms property.
joint banks, or banks with the participation of foreign capital, if their authorized capital is owned by foreign participants or branches of banks in other countries. For example, in Russia in 2008 there were 202 banks with foreign capital.
In accordance with federal law No. 395-1 "On banks and banking activities" banks in Russia can be created as a limited or additional liability company, joint-stock company(open or closed).
2. By nature economic activity distinguish between issuing, commercial, specialized banking institutions. The issuing bank issues banknotes, respectively, the role of the issuing bank is central bank countries. Commercial banks are credit organizations that provide credit and settlement services to industrial, commercial and other enterprises and organizations, the population. Specialized banking institutions are engaged in lending to a specific type of activity (for example, mortgage, investment, savings, industry and other banks).
3. According to the terms of loans issued, short-term banks - issue loans for up to three years, and long-term loans - issue long-term loans (over three years, for example, mortgages).
4. On an economic basis, they distinguish depending on the industry served - industrial, commercial, agricultural banks.
5. By territory, banks are divided into local (regional), federal, republican and international.
6. Large, medium and small banks are distinguished by size.
7. According to the volume and variety of operations, banks are divided into universal (perform all types of operations) and specialized (mortgage, investment, innovative, savings and other banks). The list of performed operations is determined by the license.
8. By the presence of a branch network, banks are distinguished with branches and without branches. For example, according to the results of 2008, there were 809 branches of the Savings Bank of Russia in the Russian Federation - an extensive branch network itself.
Despite the existing various types of commercial banks, they all have bodies that manage their activities.
Bank loans - not only popular, but also sometimes an indispensable resource for maintaining financial activities both ordinary citizens and entire organizations. Loans have their advantages and disadvantages, which you need to familiarize yourself with before proceeding with the loan. And if the option of lending for a number of reasons did not fit, then it is worth considering alternative types of obtaining funds, we will also talk about them. So what are the advantages and what are the disadvantages?
The main positive aspects of bank loans:
Of course, the main advantage of loans is the widely advertised ability to immediately receive what cash can not yet buy. And when planning major purchases, such as the purchase of real estate or a car, loans are really indispensable. In this case, they replace the long-term accumulation of funds (which, for a number of reasons, is not always successful).
Surprisingly, but loans are not highly dependent on inflation. This factor affects more the ability of citizens to save money, and the repayment of an already taken loan becomes easier. Indirectly, the growth of inflation should have a positive effect on the decision of a private person to take out a loan.
An alternative to a bank loan are private loans and leasing G. Private loans - is the provision of funds by one individual to another. There are fewer paperwork here, but there is a high risk of facing gray schemes and higher interest rates.
The essence of such a concept as leasing - in a finance lease of an item that continues to be owned by the owner. And as a result of lending and the acquisition of an object, an organization or a citizen becomes its full owner, and not a tenant. However, the loan is accompanied by an encumbrance in the form of payment of the debt established under the loan agreement. Besides, bank loans have some other disadvantages, which should be discussed in more detail.
The following are considered negative aspects when applying for and using a bank loan:
All types of bank loans are combined top three disadvantages:
Those wishing to take a loan in foreign currency and at the same time save money, it is better to find out all the nuances of the exchange rate in advance. Such loans are rarely profitable, rather, on the contrary: with frequent fluctuations exchange rates it may turn out that the amount of debt will increase many times over, and with it the interest will increase.
Particularly uncomfortable, according to borrowers, is the need for collateral when applying for a loan. For the bank, the pledge becomes a security for the payment of debt obligations in full. However, for the borrower, collateral is fraught with a whole list of potential risks. The fact is that:
When paying off a loan, the borrower overpays significantly compared to the amount taken from the bank. Of course, this is beneficial to the bank, but not to the person being credited.
Overpayment on loans issued by banks may exceed the amount of the principal debt so carefully consider the need for a loan.
For organizations, credit has undeniable benefits:
For permanent borrowers banks provide preferential terms re-lending. Raising a loan usually takes 14 to 60 days, which is much faster than raising funds through shares or finding investors.
Among shortcomings bank loans for a legal entity can be noted:
It is more profitable for legal entities to build their business on their own funds, because credit finance must not only be repaid, but also repaid serious interest. However, it is borrowed money that is the basis for the functioning of most organizations and individual entrepreneurs.
Credit funds in modern world account for 10 to 50% of all funds raised. With some negative aspects of the lending market, only this option is able to provide a quick solution to financial problems for both citizens and organizations. And if you plan the payment schedule correctly, then there will be no problems with the return of funds.
In contact with
Bank credit policy- the program and direction of the credit institution in the field of loans to legal entities and individuals. The credit policy is based on an acceptable risk-return ratio for the operations carried out by a financial institution.
Factors affecting credit policy
The credit policy of the bank is determined on the basis of macroeconomic external and microeconomic internal factors.
Its macroeconomic components are the general economic situation in the country; political stability; stage business cycle, which the state passes; the level of inflation and interest rates; state of the national currency; competition in banking. In general, these are factors that a credit institution cannot influence on its own.
A special place is occupied legal issues. Thus, regulators can have a significant impact on the credit policy of the banking system by issuing directives, changing interest rates, the amount of required reserves, etc.
The microeconomic factors influencing credit policy include, first of all, the resource base, the cost of attracting financial resources, client base; bank specialization; liquidity of a credit institution. Not the last role is played by the qualifications of the staff, their readiness to work with various categories of borrowers.
Goals and objectives of credit policy
The main goal of the bank's credit policy is to maximize profits with minimum level risk. Based on the possible ratio of these components, as well as available resources, the credit institution determines the current tasks:
Credit policy in work with legal entities
As a rule, the credit policy of banks when working with legal entities is aimed at developing long-term relationships with borrowers. At the same time, determined criteria for selecting clients for cooperation are the basis. The following requirements are usually presented: transparency of the company's income generation schemes, stability and profitability of the business, successful experience in various economic conditions, the availability of equity capital, the ability to provide security.
When interacting with small businesses and individual entrepreneurs not the last role is played by the personality of the leader, his reputation and credit history.
Credit policy for individuals
Based on the credit policy, bank employees build their work with retail clients, choose one or another scoring model, and develop loan products.
At the same time, based on the credit policy, the bank can focus on such segments as retail lending in retail chains (POS lending), car loans when interacting with dealers, providing mortgage loans, etc.
The credit policy determines the requirements for borrowers: age, minimum work experience, income level and other indicators.
In addition, it affects the proposed banking products: secured or unsecured, earmarked or unearmarked loans, loan terms, etc.
Based on the credit policy, the bank determines interest rates that correspond to the risk of a particular borrower. At the same time, the credit policy of different banks can vary greatly. Yes, some financial institutions focus primarily on providing loans at points of sale - for example, Home Credit Bank, Russian Standard, etc. Alfa-Bank is also noticeable in this market. A number of credit organizations are actively involved in express lending: OTP Bank, National Bank "Trust", etc.
The interest on these types of loans is higher, but the banks take on higher risks.
Other credit institutions, on the contrary, focus mainly on clients with large account balances. So, for example, subsidiaries of foreign credit organizations often act - Citibank, Raiffeisenbank, etc.
Implementation of the bank's credit policy
The developed credit policy of the bank is the general main directions of activity. Its further implementation consists in drawing up appropriate instructions and other documents regulating the conduct of certain operations, defining the criteria for assessing customers and the stages of interaction with them.
Credit policy is not something once and for all determined in the bank. It should be revised in the light of changing economic conditions.
The strategy and tactics of the Bank in the field of obtaining and granting loans are carried out in accordance with credit policy Bank and internal regulations on the procedure for conducting credit operations.
Organization lending activities in the Bank is carried out by the credit department and the credit committee in accordance with the Regulations on the credit department and the credit committee. The Board of Directors of the Bank exercises control over the activities of the credit committee.
In pursuance of the Decree of the President of the Republic of Kazakhstan dated July 7, 1997 No. 3589 "On priorities and regional programs to support the development of small businesses in the Republic of Kazakhstan", loans are allocated to small and medium-sized businesses. At the same time, the Bank takes into account the economic and social significance of business projects, their profitability, security and liquidity.
The task of the Bank is to develop the business of clients by joint efforts.
In 2000 - the first half of 2001, such sectors of the economy as banking, restaurants, hotels, retail and wholesale trade were financed. The implementation of lending projects is economically conditioned by the fact that the invested funds began to work and generate income in the shortest possible time.
A distinctive feature of the Bank's activities is the development leasing operations. The Bank actively uses financial leasing when lending to its clients and has a targeted program. Lessees can be persons engaged in entrepreneurial activities. Leasing operations are one of the most effective methods for updating the material and technical base and are widely used in non-CIS countries. Leasing is a long-term lease of property with subsequent proportional repurchase by residual value. By acquiring property through leasing, we significantly save working capital by directing it to the most relevant, in our opinion, investment objects.
Procedure for registration of leasing transactions:
To carry out leasing operations, an educational institution must have a current account with Valut-Tranzit Bank;
The educational institution independently determines the necessary equipment and issues an invoice from the "Supplier" of equipment to the "Valut - Transit Bank";
The Bank draws up a sale and purchase agreement with the "Supplier" of equipment;
A leasing agreement is concluded with the subsequent purchase of property between the Educational Institution - the lessee and the Bank - the lessor;
After the expiration of the lease agreement, the equipment remains the property of the Educational Institution.
In the event of temporary financial difficulties, Valut - Transit Bank offers to use short-term loan- overdraft.
Used by the Bank and factoring - financing the supply of goods with deferred payment. The use of factoring leads to a significant increase in the number of customers, working capital and an increase in sales.
Since the end of 1996, the Bank actively contributed to the development of the pawnshop movement in Kazakhstan on the basis of partnerships with Valut-Tranzit Pawnshop and to this day the Bank continues to cooperate with Valut-Tranzit Pawnshop LLP.
The Bank pursues a similar lending policy with other legal entities. This policy is designed for long-term cooperation and is aimed at the development of borrowers, which subsequently excludes the non-repayment of borrowed funds.
"Valut - Transit Bank" offers its assistance and quality new program concessional lending to students, applicants and pupils, as well as effective leasing operations.
Preferential lending "Currency - Transit Bank" - really profitable proposition more than 80 educational institutions of Kazakhstan became interested in the conditions of which and took advantage. The main advantage lies in the receipt of funds for tuition fees from students who have received loans from the Currency - Transit Pawnshop. At the same time, the student draws up a loan secured by his own property at a preferential interest rate and is independently responsible for its return. Consequently, educational institutions are not guarantors, are not guarantors and mortgagors.
Moreover, educational institutions are increasing the number of potential, solvent students and the volume of their own working capital.
The procedure for obtaining concessional loans:
Educational institutions conclude an agreement on joint activities with "Valut - Transit Bank" and "Valut - Transit Lombard" and open a bank account;
Educational institutions send debtors and applicants who are not able to pay for their studies in "Currency - Transit Lombard";
A student or his parents, secured by their own property, draw up a loan, the interest rate of which is much lower than ordinary pawn loans;
The loan amount is transferred to the settlement account of educational institutions in the "Currency - Transit Bank";
Educational institutions use the received money at their discretion.
Participation in a joint project of concessional lending gives educational institution the right to repeatedly use the Bank's leasing services.
The Bank's activities are built on the basis of self-sufficiency and the desire to increase the level of profitability of operations.
The Bank has the right to carry out lending activities in all sectors of the economy and in all regions of the Republic of Kazakhstan.
For placement on the credit market, the Bank can use both its own money and attracted as deposits of corporations, organizations, institutions and the public, as well as loans and deposits received in the domestic and international financial markets.
Directions and priorities of the credit policy are determined by the Bank independently.
The Bank can carry out commercial and investment lending, as well as perform agency functions for the targeted placement of funds state budget and other credit resources banking institutions, corporations and international financial institutions on the terms determined by agency contracts or agreements.
FROM Taking into account the Bank's development strategy, the current economic situation in the country and the most likely directions for its change, the priorities of the Bank's credit policy are to invest credit resources in the following sectors of the economy:
a) in the field of commercial short-term lending:
1) industry, energy, communications, transport, production of consumer goods;
2) healthcare;
3) trade;
4) production and processing of agricultural products;
5) provision of services to the population;
6) development of small and medium business;
7) provision of short interbank loans;
b) in the field of documentary credit operations:
1) provision of guarantees and acceptance of guarantees of counterparty banks, opening letters of credit and confirmation of issued letters of credit by partner banks;
2) avalization of bills of exchange of clients;
3) acceptance of customers' bills of exchange in accounting;
c) in the area investment lending:
1) phased implementation: short-term and relatively small projects development of production of consumer goods; medium-term projects on the scale of industries to develop the production of products with enhanced consumer properties; medium- and long-term intersectoral projects for the development of production of products that meet international quality standards. In this direction, both individual and joint lending with other banks (syndication) is possible investment projects medium- and long-term nature in order to share risks.
2) the following are established as investment lending priorities: projects with short terms payback; projects to create and modernize the production of products with a capacious and reliable sales market, stable supplies of raw materials and components; projects using financial leasing of equipment; projects for the creation of new, as well as the modernization and reconstruction of existing import-substituting industries in light, food, flour and cereals, printing, pharmaceutical and a number of other industries, including small and medium business projects; projects proposed for financing by the Government of Kazakhstan and international organizations. Of these, in priority order, the possibilities of lending to profitable projects on a syndicated basis by Kazakhstani and foreign investment banks in good standing, with credit risk hedging.
Having the ability to maneuver credit resources throughout the country, the Bank does not set regional priorities in its credit policy.
Due to the rather rapid pace of change in the situation in the sectors of the economy, the Bank, as necessary, adjusts its marketing strategy to clarify and more clearly define the system of target markets and sectors of the economy in the field of lending.
Credit risk limits per borrower, group of companies linked between:
a) maximum size risk per borrower, including:
1) special relationship with the bank - 11%;
2) other borrowers - 25%;
3) blank loans - 11%;
b) the total amount of risk to borrowers associated with a special relationship with the bank - 100%.
The established limits for a group of two or more borrowers are calculated in aggregate as per one borrower if one of them has the ability to control or exercise significant influence over the other party in making financial and business decisions.
The level of credit risk associated with counterparty banks determines the size of the limit allocated for transactions with it. The purpose of setting the limit is to minimize the risk of non-repayment (inaccurate execution) by counterparties (issuers) of their obligations to the bank or obligations under transactions guaranteed by the bank. Risk levels are calculated using procedures financial analysis, procedures for subsequent monitoring of the financial condition, existing credit history, correspondent relations, status and behavior in the banking market.
Depending on the nature of the loan, the following lending deadlines are set:
a) the nature of the loan:
1) for replenishment of working capital of enterprises - up to 1.5 years of enterprises;
2) consumer credit individuals - up to 5 years;
3) loan to the employees of the Bank - up to 5 years;
4) for the issuance of wages - up to 2 months;
5) investment financing- up to 2 years;
b) interbank loan:
1) short-term - up to 1 year;
2) medium-term - from 1 year to 3 years;
3) long-term - from 3 years and above
4) pawnshop credit - up to 1 month.
5) leasing - up to 5 years;
c) within credit lines - in accordance with the terms of this credit line.
In order to reduce possible asset liquidity risks, the Bank diversifies credit risks by industry with a division of types and types of credit transactions within a particular segment.
Given the possibility of changes in the development of individual sectors of the economy ( public funding, opening targeted foreign credit lines, etc.), the Bank conducts a quarterly analysis of the loan portfolio for the concentration of loan investments by industry and other areas of business. Based on the results of the analysis, the prerogatives are determined and the Credit Committee sets limits for certain industries, taking into account the forecast of expansion or narrowing of some direction.
Basic requirements for borrowers:
1) fulfillment by the counterparty bank of all requirements regulating the activities of banks in the territory of Kazakhstan, Russia and other CIS countries;
2) compliance of the financial condition of the counterparty bank with the requirements of the internal regulations;
3) positive credit history - the timeliness of repayment of previously issued interbank loans and accrued interest on them, the absence of overdue debt on interbank loans and interest;
b) legal entities:
1) positive reputation of the borrower;
2) positive credit history;
3) the absence of file cabinet No. 2 or the written consent of the creditor to defer the claim for the period of validity of the loan agreement with the Bank;
4) stable financial position and solvency of the Client;
5) the manufactured products or services of the Client must be in demand in the market (liquidity, solvency), thereby ensuring stable sales and cash flow;
6) provision of liquid collateral;
c) individuals.
The Bank lends to individuals in accordance with internal regulations for various types of lending to the population.
Consideration by the Bank of loan applications of individuals, resolution of issues related to issuance or prolongation of terms, assessment and analysis of collateral, as well as resolution of other issues is carried out in strict accordance with internal regulations and compliance with all requirements and procedures of this policy.
Lending to bank employees and officials is carried out in accordance with the internal regulations.
The loan price is formed depending on the prevailing market interest rates offered by other financial institutions, on the refinancing rate National Bank Kazakhstan, market interest rates for government securities depends on the timing of the loans. The price is also formed based on the economic value of the bank's assets and liabilities, on the prevailing interest margin in general for all operations conducted by the Bank, the maturity of the loan, the level of credit risk, the nature of the loan collateral, the content of the project being financed, and other factors.
The remuneration (interest) rate can be fixed and floating, which is stipulated in the terms and conditions loan agreement. Floating rates may be revised by the Bank during the term of the loan, depending on changes in the credit market and other factors. Fixed rates remain unchanged throughout the term of the loan agreement.
A necessary step in determining the price of a loan is the assessment of credit, interest rate, currency and industry risks.
Credit or default risk can be defined as the lender's uncertainty that the debtor will be able and intend to meet its obligations in accordance with the terms and conditions of the loan agreement. This condition can be caused by:
The inability of the debtor to generate adequate future cash flow due to unforeseen adverse changes in the business, economic or political environment in which the borrower operates;
Uncertainty about the future value and quality (liquidity and saleability on the market) of collateral for a loan;
The emergence of doubts about the business reputation of the borrower.
The main criteria for assessing credit risk are:
a) the reputation of the borrower: the timeliness and completeness of the borrower's performance of its obligations. The appraisal process consists of a personal interview, background checks both personal (based on recommendations provided by the borrower, especially in the case of personal loans or loans to partnerships) and business (checking the borrower's creditors, suppliers and customers). Information shall be provided in written form whenever possible; in the event that there is only oral, notes are made by the loan officer, which are filed with other documentation on the loan, indicating the source and time of receipt of information;
b) borrower's options:
1) the ability of the borrower to receive money for all its operations (the total inflow of money received by the borrower during entrepreneurial activity during the period of its activity) or for a specific project (loan for a separate project);
2) the borrower's ability to manage cash;
c) assessment of the borrower's creditworthiness: based on a thorough study of the company's balance sheet, report on financial activities, the financial stability, solvency of the client is determined, the liquidity of the balance sheet is assessed;
d) borrower's capital: the borrower's capital base and his determination to use his own capital in the project for which he is applying for a loan. The borrower must be able to share the risk of the project with the lending bank and be willing to do so by providing a reasonable portion of its share capital, i.e. the borrower must be bound by obligations.
e) terms: the current state and overview of the local, regional and national economy, as well as the industry of the borrower. Different economic conditions and forecasts for different industries often require different lending criteria in different phases of the business cycle.
f) collateral: reliable collateral in the form of collateral or guarantee may influence the final decision when one or more of the criteria is not positive.
Currency risk is associated with the uncertainty of the future movement of the price of the national currency in relation to foreign ones. It affects borrowers, lenders, investors and traders who transact in currencies other than their home currency.
Industry risk:
a) industry risk is related to the degree of volatility in the activities of the industry in economic and financial terms. The greater the volatility of the industry, the greater the degree of risk. This takes into account:
1) activities of alternative industries for a given period of time;
2) whether industries that have developed well in the past continue to operate successfully at the present time (compared to the economy as a whole);
3) whether there is constancy of results within the industry;
b) the intra-industry competitive environment is an additional source of information about the strength and viability of firms in a given industry relative to firms in other industries and is therefore an indicator of risk. The characteristics of this environment include:
1) the degree of fierceness of price and non-price competition;
2) ease or difficulty of entering the industry (and sometimes exit);
3) the existence or lack of close and cost-competitive substitutes;
4) market power of buyers;
5) market power of suppliers;
6) political and social environment.
Country risk is the risk that the current or future political or economic conditions in a country will change to the extent that they may affect the ability of the country, firms and other borrowers to meet external debt obligations.
Country risk is subdivided into:
Political;
Macroeconomic;
Financial;
Social;
Spontaneous.
Interest rate risk is the risk that average cost attracted funds of the bank, at the expense of which the loan is issued, may exceed the average interest rate on loans provided.
The remuneration (interest) is accrued according to the accrual method and collected from the Borrower in accordance with the terms of the loan agreement. Rates and terms of repayment of remuneration (interest) on loans, commissions on guarantees and letters of credit are established in each case separately, by decision Credit Committee or the board of the bank.
In accordance with the principles of management credit risks The Bank independently determines the currency of the loan. As a rule, the Bank grants loans in national currency, in the national currency with fixation of the currency equivalent at the rate of the National Bank of the Republic of Kazakhstan, or at the rate of the Interbank Currency Exchange, in foreign currency.
The lending process is associated with the action of numerous risk factors that can lead to late repayment of the loan, which will worsen the position of the bank. Therefore, the bank pays special attention to studying the creditworthiness of the borrower and assessing the risks associated with this loan. The main purpose of studying creditworthiness is to determine the ability and willingness of the borrower to repay the loan in accordance with the terms of the contract. The bank not only assesses the creditworthiness of the client on a certain date, but also predicts its financial stability in the future. Analysis of the borrower's creditworthiness begins with an analysis of the sources of loan repayment.
With the development of market relations, the need arose for a fundamentally new approach to determining the solvency and financial stability of an enterprise, taking into account foreign experience, which is facilitated, in particular, by the introduction of new forms balance sheet. The accepted grouping of articles allows for a fairly deep analysis of creditworthiness.
The analysis of the information base about the client should include a comprehensive assessment of information about the client received from business partners, data from reports of specialized agencies, analysis of financial statements, personal impressions of the banker during the conversation with the client. This comprehensive assessment data is compiled into an expert opinion. Based on the financial statements, financial indicators are calculated that characterize the past and current financial position of the borrower and the development trend. In practice credit analysis the following indicators apply:
absolute liquidity ratio;
Quick liquidity ratio;
current liquidity ratio;
Coverage ratio;
Turnover of all assets;
Turnover of fixed capital;
Accounts receivable turnover;
Accounts payable turnover;
Profit rate;
Inventory turnover.
In addition to financial analysis, data on the company's managers, marketing research (information about competitors, market conditions, and others) are entered into the expert opinion, and as a result, a conclusion is made about the borrower's financial situation.
The creditworthiness of the borrower is determined in the same way, both for domestic lending and for external lending.
The purpose of the analysis of individual borrowers is to assess the risk associated with lending to individuals, that is, whether this individual make timely interest and other payments. In different countries and even different banks, there are significant differences in the analysis methodology, the factors that make up the reputation of an individual were diverse, they can be conditionally grouped according to the principle of belonging to a certain field of human activity:
Social: age, marital status, number of dependents;
Professional: education, profession, qualifications, occupation, duration of work in one place;
Property: what property is available;
Special: reflects the relationship of the borrower with the servicing bank.
The Bank also continuously monitors you this loan(guarantee, letter of credit) and makes prompt decisions regarding the development and repayment of the loan, timely identifying the appearance problem loans(guarantees, letters of credit).
The Bank's subdivisions responsible for issuing loans maintain a credit file for each borrower.
Doing and storage of credit files should be entrusted to the responsible employee of the bank, who is responsible for ensuring the completeness of documents in the bank's credit files and their safety.
Each credit file must have a separate list of documents contained in the credit file, must be bound and numbered in chronological order.
For blank loans, the credit file is sufficient to have the basic documentation required when granting any loan. The main documentation corresponds to the following list:
a) an application signed by the borrower, containing an indication of the purpose of using the loan and a description of the property that can be provided as collateral for the repayment of the loan, indicating the book value:
1) the decision of the authorized body of the borrower - a legal entity to obtain a loan;
2) decision of the authorized body of the mortgagor - legal entity to provide the subject of pledge to secure the fulfillment of the obligations of the borrower;
b) duly certified copies of the constituent documents of the borrower, if he is legal entity;
c) a notarized card with samples of signatures and a seal of a legal entity, and a power of attorney on behalf of the borrower to a person authorized to sign the contract bank loan on behalf of the borrower;
d) the original of the concluded bank loan agreement:
1) business plan of the borrower or feasibility study of the loan;
2) financial statements for the last reporting date prior to the date of application, signed by the borrower - legal entity, and the financial statements of the borrower - legal entity for the last reporting year with a copy attached tax return, as well as the conclusion of the bank, containing an assessment of the creditworthiness of the borrower - a legal entity;
e) the conclusion of the bank, containing an assessment of the possibility of the borrower to achieve the goals and objectives defined in its business plan;
f) the decision of the relevant body of the bank to approve the issuance of a loan in terms of terms and other conditions;
g) documents confirming the purpose of using the loan;
h) information about open bank accounts in other banks and on the presence of the borrower's debt on bank loans;
i) a copy of the document prescribed form issued by the authorized body, confirming the fact of passing state registration or re-registration for individual entrepreneurs;
j) a document of the established form, issued by the authority tax service confirming the fact of the client's tax registration.
If the borrower is an agent of another person for obtaining this loan in full or some part of it, then a copy of the document certifying the borrower's authority as an agent, which indicates the loan amount and the purpose of using it by the actual recipient, must be attached to the dossier.
When providing loans to small businesses in the amount of not more than ten million tenge, the following list of documentation is required:
An application signed by the borrower, containing an indication of the purpose of using the loan;
Copies of the borrower's constituent documents (for a legal entity) or an identity document (for an individual);
Signature card, seal imprint (for legal entities);
The original of the concluded bank loan agreement;
Feasibility study of the loan;
Financial statements as of the day of application, signed by the borrower - a legal entity;
A copy of the document of the established form, issued by the authorized body, confirming the fact of state registration or re-registration for individual entrepreneurs;
A document of the established form, issued by the tax authority, confirming the fact of the client's tax registration.
For loans provided with the condition of securing the fulfillment of the borrower's obligations in the form of collateral movable property, in addition to the main documentation, the loan file is accompanied by a pledge agreement, information about the subject of pledge and methods for determining its value.
In cases stipulated by the legislation of the Republic of Kazakhstan, the pledge agreement must contain a mark on its registration with the relevant authorized state bodies.
The dossier on loans allocated for the purchase of movable property, which, in accordance with the pledge agreement after becoming the property of the borrower, became the subject of pledge, must contain documents confirming the purchase price of this property and the amount for which it is insured.
If the loan is issued for use by the borrower in the field of construction, including reconstruction or other building improvements real estate, then the dossier is attached design and estimate documentation on the planned work and verification reports prepared by the bank, or a certificate of acceptance by the borrower, confirming the completion of the work for which the loan was allocated.
For a loan, the fulfillment of an obligation on which is secured only by a guarantee or guarantee, the following additional documents are attached to the credit file:
a) a contract of guarantee or guarantee;
1) decision of the authorized body of the guarantor or guarantor of a legal entity to issue a guarantee or surety to the creditor bank to secure the fulfillment of the obligations of the borrower;
b) notarized documents confirming the person's authority to sign a guarantee agreement on behalf of the guarantor or a guarantee agreement on behalf of the guarantor;
c) financial statements of the guarantor or guarantor, which is a legal entity, as of the last reporting date preceding the issuance of a loan, or a certificate confirming the income of the guarantor or guarantor, which is an individual.
The information contained in credit files is an internal, chronological and comprehensive record of all relationships between the bank and the client. The content of the credit file goes beyond purely credit relationships and affects the registration of all types of activities between counterparties. The comprehensive nature of such information is necessary to determine the profitability or riskiness of the state of the entire complex of relationships. Taking into account the confidentiality of information, the access of bank employees to credit files is limited.
For To replenish the dossier, the employee responsible for the project uses information received from the borrower as reports, during personal conversations with the company's managers, contacts with its suppliers, from other banks and financial organizations, and the media.
Subdivisions monitoring disbursed loans are obliged to provide the employee responsible for the project with complete information on the progress of the disbursed loan and bear equal responsibility with him for the timely adoption of measures to overcome emerging critical situations on disbursed loans.
In the event of signs of a downgrading of the borrower's class and an increase in the risk on the loan, the employee responsible for monitoring the loan is obliged to notify the Bank's management and organize work to overcome the problems that have arisen. Recommended actions that may be taken by the Bank's lending unit are as follows:
A meeting is held with the borrower to find out the reasons for the occurrence of a critical situation;
The financial condition of the borrower is checked, if necessary - with an on-site visit;
The client's problems are analyzed with the identification of the main cause of the critical situation (problems of this industry, the position of the enterprise in the industry, loss of competitiveness and markets, temporary deterioration of the financial condition or financial collapse, and so on);
An assessment is made of the severity of the problem in order to overcome it (it is possible or impossible to correct the situation);
In the process of credit rehabilitation, attention is focused on the structure of the balance sheet and the composition of cash flow. Assets are checked in detail and it is established which should be liquidated or at least reduced in size;
Development of measures to rescue a problem loan (measures to change the structure of the borrower's debt, additional security and loan guarantees, consulting services for financial recovery and reduction of the borrower's expenses, termination of regular loan payments, and so on).
If it is impossible to correct the critical situation from the issued loan and the maturity of its repayment, the Bank makes claims and performs other legal actions provided for by the legislation of the Republic of Kazakhstan.
Classification of the loan portfolio is carried out on the basis of the Regulation "On the classification of bank assets and contingent liabilities and the calculation of provisions on them by second-tier banks of the Republic of Kazakhstan" (Resolution of the Board of the National Bank of the Republic of Kazakhstan dated May 23, 1997 No. 218), Addenda to it, as well as using Bank's own methods.
The primary classification of the loan portfolio is based on the classification of borrowers and the level of risk at the time of granting loans. Additional classification of loans and analysis of the loan portfolio is carried out on a monthly basis by the relevant divisions of the Bank based on the generalization and analysis of incoming information about financial condition borrowers and implementation of credited projects. Based on the results of the analysis, the classification of loans can be changed, and measures are taken to improve the quality of the loan portfolio.
Together with the current control over the state of the loan portfolio, the Bank conducts its own audit (at least once a year) of the loans granted in order to establish:
Conditions and procedures for storing credit documentation;
Job states credit departments on monitoring of issued loans;
Compliance of the work of the Bank's credit divisions with the requirements of the Regulations on Internal Credit Policy;
Conditions and structures of the loan portfolio;
The correctness and completeness of the formation of provisions (reserves) to cover losses from credit activities and contingent liabilities;
correct classification of loans, guarantees, letters of credit;
Timeliness of withdrawal of loans and accrued interest to accounts for accounting for overdue debts.
According to the results audits a report is prepared and submitted to the management of the Bank.
The procedure for the formation of provisions (reserves) to cover losses from credit activities is determined by the Regulation "On the classification of bank assets and contingent liabilities and the calculation of provisions for them by second-tier banks of the Republic of Kazakhstan" (Resolution of the Board of the National Bank of the Republic of Kazakhstan dated May 23, 1997 No. 218).
The debt on the loan and the accrued interest or interest is written off both for the balance sheet and off-balance sheet accounting in accordance with the above regulatory legal acts NBRK and internal documents of the bank.
Every bank has its drawbacks. So JSC "Valut - Transit Bank" has its drawbacks. They are:
Analysis of the creditworthiness of the borrower;
Banking risks;
These shortcomings will be discussed below.
All changes in the Bank's Internal Credit Policy are subject to approval by the Bank's Board of Directors.
