Exhibit
99.01
“Bank Freedom Finance Kazakhstan” JSC
(formerly
known as “Bank Kassa Nova” JSC (SB of “ForteBank
JSC))
Consolidated
financial statements
For 2019 and 2018
together with independent auditor’s report
INDEPENDENT AUDITOR’S REPORT
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CONSOLIDATED FINANCIAL STATEMENTS
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|
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Consolidated statement of financial position
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1
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Consolidated statement of comprehensive income
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2
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Consolidated statement of changes in equity
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3
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Consolidated statement of cash flows
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4
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LLP «SFAI Kazakhstan»
Almaty, Dostyk av., 202, BC «Forum»
+ 7 (727) 327 68 06
E-mail: info@sfai.kz
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INDEPENDENT AUDITOR’S REPORT
Shareholders and Board of Directors of
“Bank Freedom Finance Kazakhstan” JSC
formerly known as “Bank Kassa Nova” JSC
(SB of “ForteBank” JSC)
Almaty, Kazakhstan
We have
audited the accompanying consolidated financial statements of
“Bank Freedom Finance Kazakhstan” JSC (formerly known
as “Bank Kassa Nova” JSC (SB of “ForteBank”
JSC)) and its subsidiary (the “Group”), which comprise
the consolidated balance sheets as of December 31, 2019 and 2018,
and the related statements of operations and statements of
comprehensive income, consolidated shareholders’ equity and
consolidated cash flows for the years then ended, and the related
notes to the consolidated financial statements.
Management’s responsibility for the consolidated financial
statements
Management is responsible for the preparation and fair presentation
of these consolidated financial statements in accordance with
International Financial Reporting Standards as issued by the
Accounting Standards Board; this includes the design,
implementation, and maintenance of internal control over financial
reporting relevant to the preparation and fair presentation of
consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. We conducted our audits
in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, the auditor
considers internal control over financial reporting relevant to the
entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit
procedures that are appropriate under the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit
opinion.
Opinion
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
“Bank Freedom Finance Kazakhstan” JSC (formerly known
as “Bank Kassa Nova” JSC (SB of “ForteBank”
JSC)), as of December 31, 2019 and 2018, and the related statements
of operations and statements of comprehensive income, consolidated
shareholders’ equity and consolidated cash flows for the
years then ended in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standard Board.
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«SFAI Kazakhstan» LLP
Almaty, Kazakhstan
Date: April 26, 2021
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Notes
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2019
|
2018
|
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
5
|
33,448,522
|
43,344,207
|
|
Amounts due from
other banks and other financial institutions
|
6
|
776,208
|
554,244
|
|
Loans to
customers
|
7
|
68,124,327
|
74,604,438
|
|
Investment
securities
|
8
|
3,785,045
|
1,655,460
|
|
Property and
equipment
|
9
|
6,457,813
|
6,367,860
|
|
Intangible
assets
|
10
|
1,156,968
|
1,121,630
|
|
Current corporate
income tax assets
|
12
|
–
|
133,801
|
|
Other
assets
|
11
|
2,962,341
|
2,653,440
|
|
Total
assets
|
|
116,711,224
|
130,435,080
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Financial
instruments at fair value through profit or loss
|
|
9,626
|
–
|
|
Amounts due to
banks and other financial institutions
|
13
|
9,111,519
|
10,909,578
|
|
Amounts due to
customers
|
14
|
85,802,298
|
100,532,184
|
|
Current corporate
income tax liabilities
|
12
|
209,187
|
–
|
|
Deferred corporate
income tax liabilities
|
12
|
1,277,045
|
1,121,248
|
|
Subordinated
debt
|
15
|
3,303,255
|
3,244,190
|
|
Lease
liabilities
|
3
|
226,456
|
–
|
|
Other
liabilities
|
16
|
614,052
|
475,272
|
|
Total
liabilities
|
|
100,553,438
|
116,282,472
|
|
|
|
|
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Equity
|
|
|
|
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Share
capital
|
17
|
9,356,140
|
9,356,140
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|
Revaluation reserve
for property and equipment
|
17
|
761,249
|
772,815
|
|
Fair value
reserve
|
|
–
|
(2,382)
|
|
Retained
earnings
|
|
6,040,397
|
4,026,035
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|
Total
equity
|
|
16,157,786
|
14,152,608
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Total
equity and liabilities
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116,711,224
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130,435,080
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Signed and authorised for release on behalf of the Management Board
of the Bank
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/s/ G. Akhmetova
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G.
Akhmetova
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Acting
Chairperson of the Management Board
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/s/ R.
Yergazinov
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R.
Yergazinov
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Acting
Chief Accountant
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|
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|
April
26, 2021
The accompanying notes on pages 5
to 84 are an integral part of these consolidated financial
statements.
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Notes
|
2019
|
2018
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|
|
|
|
|
|
Interest income
calculated using effective interest rate
|
18
|
13,802,072
|
13,087,666
|
|
Interest
expense
|
18
|
(7,321,798)
|
(8,065,434)
|
|
Net
interest income
|
|
6,480,274
|
5,022,232
|
|
|
|
|
|
|
Credit loss
expense
|
19
|
(1,629,260)
|
(4,263,019)
|
|
Net
interest income after credit loss expense
|
|
4,851,014
|
759,213
|
|
|
|
|
|
|
Net fee and
commission income
|
20
|
1,403,868
|
1,359,807
|
|
Net gains from
financial instruments at fair value through profit or
loss
|
|
70,612
|
73,580
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|
Net gains/(losses)
from foreign currencies
|
|
|
|
|
-
dealing
|
|
668,830
|
599,417
|
|
- translation
differences
|
|
(147,324)
|
(120,218)
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|
Gain from
government grant
|
13
|
84,061
|
2,920,290
|
|
Gain on
derecognition of subordinated debt as a result of
modification
|
15
|
–
|
1,121,665
|
|
Other
income
|
|
102,958
|
54,905
|
|
Non-interest
income
|
|
2,183,005
|
6,009,446
|
|
|
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Loss on
derecognition of financial assets measured at amortised
cost
|
7
|
(26,666)
|
(732,351)
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Personnel
expenses
|
21
|
(2,477,090)
|
(2,430,305)
|
|
Administrative and
other operating expenses
|
21
|
(1,863,329)
|
(1,696,505)
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Other
expenses
|
|
(106,196)
|
(101,233)
|
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Non-interest
expense
|
|
(4,473,281)
|
(4,960,394)
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Profit
before corporate income tax expense
|
|
2,560,738
|
1,808,265
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|
|
|
|
|
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Corporate income
tax expense
|
12
|
(557,942)
|
(388,579)
|
|
Profit
for the year
|
|
2,002,796
|
1,419,686
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
Other comprehensive income/(loss) to be reclassified to profit or
loss in subsequent periods
|
|
|
|
|
Net change in fair
value of debt instruments at fair value through other comprehensive
income
|
|
2,561
|
420
|
|
Changes in
allowance for expected credit losses of debt instruments at fair
value through other comprehensive income
|
8
|
(179)
|
(744)
|
|
Other
comprehensive income/(loss) for the year, net of corporate income
tax
|
|
2,382
|
(324)
|
|
Total
comprehensive income for the year
|
|
2,005,178
|
1,419,362
|
|
|
|
|
|
|
Basic
and diluted earnings per share (in tenge)
|
22
|
214.06
|
151.74
|
The accompanying notes on pages 5
to 84 are an integral part of these consolidated financial
statements.
The accompanying notes on pages 5
to 85 are an integral part of these consolidated financial
statements.
|
|
Notes
|
2019
|
2018
|
|
Cash flows from
operating activities
|
|
|
|
|
Interest
received
|
|
12,850,531
|
12,256,586
|
|
Interest paid
|
|
(7,352,344)
|
(8,015,868)
|
|
Fees and commissions
received
|
|
2,493,399
|
1,765,558
|
|
Fees and commissions
paid
|
|
(1,093,527)
|
(407,659)
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|
Net realised gains on transactions
with financial instruments at fair value through profit or
loss
|
|
80,238
|
73,580
|
|
Net gains from dealing in foreign
currencies
|
|
668,830
|
609,136
|
|
Other income
received
|
|
79,711
|
54,905
|
|
Personnel expenses
paid
|
|
(2,301,981)
|
(2,246,799)
|
|
Administrative and other operating
expenses paid
|
|
(1,469,945)
|
(1,359,195)
|
|
Cash flows from
operating activities before changes in operating assets and
liabilities
|
|
3,954,912
|
2,730,244
|
|
|
|
|
|
|
Net changes in
operating assets and liabilities
|
|
|
|
|
Amounts due from other banks and
other financial institutions
|
|
(222,839)
|
362,262
|
|
Loans to
customers
|
|
5,264,216
|
(9,336,353)
|
|
Other assets
|
|
27,739
|
466,397
|
|
Amounts due to banks and other
financial institutions
|
|
(1,739,015)
|
3,084,048
|
|
Amounts due to
customers
|
|
(14,499,729)
|
10,812,035
|
|
Other
liabilities
|
|
(40,874)
|
23,322
|
|
Net cash flows
(used in) / from operating activities before corporate income
tax
|
|
(7,255,590)
|
8,141,955
|
|
|
|
|
|
|
Corporate income tax
paid
|
|
(64,687)
|
–
|
|
Net cash flows
(used in) / from operating activities
|
|
(7,320,277)
|
8,141,955
|
|
|
|
|
|
|
Cash flows from
investing activities
|
|
|
|
|
Purchase of property and
equipment
|
|
(141,292)
|
(65,062)
|
|
Purchase of intangible
assets
|
|
(108,361)
|
(139,000)
|
|
Proceeds from sale of property and
equipment
|
|
–
|
9,197
|
|
Purchase of investment securities
at fair value through other comprehensive
income
|
|
(2,300,000)
|
(10,209,611)
|
|
Redemption of investment securities
at fair value through other comprehensive
income
|
|
3,987,000
|
11,193,272
|
|
Acquisition of investment
securities at amortised cost
|
|
(3,780,143)
|
–
|
|
Proceeds from redemption of
investment securities at amortised cost
|
|
–
|
300,599
|
|
Net cash used in
investing activities
|
|
(2,342,796)
|
1,089,395
|
|
|
|
|
|
|
Cash flows from
financing activities
|
|
|
|
|
Repayment of lease
liabilities
|
3
|
(100,260)
|
–
|
|
Payment of dividends on ordinary
shares
|
17
|
–
|
(457,140)
|
|
Net cash used in
financing activities
|
|
(100,260)
|
(457,140)
|
|
|
|
|
|
|
Effect of exchange rates changes on
cash and cash equivalents
|
|
(135,292)
|
3,686,329
|
|
Effect of expected credit losses on
cash and cash equivalents
|
|
2,940
|
(10,220)
|
|
Net
(decrease)/increase in cash and cash
equivalents
|
|
(9,895,685)
|
12,450,319
|
|
|
|
|
|
|
Cash and cash equivalents as at 1
January
|
|
43,344,207
|
30,893,888
|
|
Cash and cash
equivalents as at 31 December
|
5
|
33,448,522
|
43,344,207
|
|
|
|
|
|
|
Non-cash
transactions
|
|
|
|
|
Repayment of loans to customers by
repossession of collateral
|
11
|
352,199
|
1,583,356
|
The accompanying notes on pages 5
to 85 are an integral part of these consolidated financial
statements.
1.
Principal activities
These
consolidated financial statements comprise the financial statements
of “Bank Freedom Finance Kazakhstan” JSC (formerly
known as “Bank Kassa Nova” JSC (SB
“ForteBank” JSC)) (the “Bank”) and OUSA
Nova Limited Liability Partnership, a subsidiary of the Bank
(jointly, the “Group”).
The
Bank was registered on 31 July 2009 under the laws of the Republic
of Kazakhstan. The Bank operates under a general banking license
No. 1.1.260 issued by the Agency for Regulation and Supervision of
Financial Markets and Financial Organisations of the Republic of
Kazakhstan on 10 June 2011. The Bank’s activities are
regulated by the National Bank of the Republic of Kazakhstan
(“NBRK”).
The
Bank accepts deposits from the public and extends credit, transfers
payments in Kazakhstan and abroad, exchanges currencies and
provides other banking services to its commercial and retail
customers.
As at
31 December 2019, the Bank’s branch network comprises 8
branches located in the Republic of Kazakhstan (31 December
2018: 8 branches).
Registered
address of the Bank’s head office: 10 Kunayev str.,
Nur-Sultan, Republic of Kazakhstan.
The
Bank is a member of the Kazakhstan Deposit Insurance Fund
(“KDIF”). The primary goal of the KDIF is to protect
interests of depositors in the event of forcible liquidation of a
member-bank. As at 31 December 2019, depositors can receive limited
insurance coverage for deposits up to a maximum of KZT 15 million
per deposit, depending on the amount of the deposit and currency
(31 December 2018: KZT 10 million).
Starting
from November 2015, the Bank is a member of Kazakhstan Stock
Exchange foreign exchange market (“KASE”).
On 31
May 2018, the Bank established a subsidiary OUSA Nova Limited
Liability Partnership (“OUSA Nova LLP”) in accordance
with the NBRK permission to establish a subsidiary by the Bank No.
17 dated 2 May 2018. The principal activities of “OUSA
Nova” LLP are the acquisition of doubtful and bad assets of
the parent bank, sublease of real estate taken onto the balance of
the Bank.
As at
31 December 2019, the sole shareholder of the Bank, which owns 100%
of outstanding shares is “ForteBank” Joint Stock
Company (the “Parent”) (31 December 2018: “Nova
Leasing” JSC).
On 29
April 2019, “Nova Leasing” JSC and
“ForteBank” JSC signed and registered with the
authorised body an agreement for the purchase and sale of shares of
“Bank Freedom Finance Kazakhstan” JSC owned by Nova
Leasing JSC in the amount of 100% of the issued share capital of
“Bank Freedom Finance Kazakhstan” JSC.
As at
31 December 2019 the Bank was under the practical control of Mr.
B.Zh. Utemuratov, who owns 100.00% (31 December 2018: 100.00%) of
the Bank’s ordinary shares, and who is the ultimate
controlling party and has the power to direct the Bank activities
at its sole discretion and on its own account.
2.
Basis of preparation
General
These
consolidated financial statements have been prepared in accordance
with International Financial Reporting Standards
(“IFRS”).
The
consolidated financial statements have been prepared under the cost
principle except as disclosed in the accounting policies below. For
example, land and buildings within property and equipment,
securities at fair value through other comprehensive income were
measured at fair value.
These
consolidated financial statements are presented in thousands of
Kazakhstan tenge (“tenge” or “KZT”), unless
otherwise is stated.
5
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
2.
Basis of preparation (continued)
Reclassifications
The
following reclassifications were made in the consolidated statement
of financial position as at 31 December 2018 to conform with the
2019 presentation:
3.
Summary of accounting policies
Changes in accounting policies
The
Group applied for the first time certain amendments to the
standards, which are effective for annual periods beginning on or
after 1 January 2019. The Group has not early adopted any
standards, interpretations or amendments that have been issued but
are not yet effective. The nature and the impact of each amendment
is described below:
IFRS 16 Leases
IFRS 16
supersedes IAS 17 Leases,
IFRIC 4 Determining whether an
Arrangement Contains a Lease, SIC 15 Operating Leases −
Incentives and SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. The standard sets out
the principles for the recognition, measurement, presentation and
disclosure of leases and requires lessees to account for most
leases under a single on-balance sheet model.
Lessor
accounting under IFRS 16 is substantially unchanged from IAS 17.
Lessors will continue to classify leases as either operating or
finance leases using similar principles as in IAS 17. Therefore,
IFRS 16 did not have an impact for leases where the Group is the
lessor.
The
Group adopted IFRS 16 using the modified retrospective method of
adoption with the date of initial application of 1 January
2019. Under this method, the standard is applied retrospectively
with the cumulative effect of initially applying the standard
recognised at the date of initial application. The Group elected to
use the transition practical expedient allowing the standard to be
applied only to contracts that were previously identified as leases
applying IAS 17 and IFRIC 4 at the date of initial application. The
Group also elected to use the recognition exemptions for lease
contracts that, at the commencement date, have a lease term of 12
months or less and do not contain a purchase option
(‘short-term leases’), and lease contracts for which
the underlying asset is of low value (‘low-value
assets’).
The
effect of adoption IFRS 16 as at 1 January 2019 is as
follows:
|
|
1 January 2019
|
|
Assets
|
|
|
Property and
equipment
|
276,467
|
|
Total
assets
|
276,467
|
|
|
|
|
Liabilities
|
|
|
Lease
liabilities
|
276,467
|
|
Total
liabilities
|
276,467
|
6
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
3.
Summary of accounting policies (continued)
Changes in accounting policies (continued)
IFRS 16 Leases (continued)
(a)
Nature of the effect of adoption of IFRS 16
The
Group has lease contracts for various items of property and
equipment. Before the adoption of IFRS 16, the Group classified
each of its leases (as lessee) at the inception date as either a
finance lease or an operating lease. A lease was classified as a
finance lease if it transferred substantially all of the risks and
rewards incidental to ownership of the leased asset to the Group;
otherwise it was classified as an operating lease. Finance leases
were capitalised at the commencement of the lease at the inception
date fair value of the leased property or, if lower, at the present
value of the minimum lease payments. Lease payments were
apportioned between interest and reduction of the lease liability.
In an operating lease, the leased property was not capitalised and
the lease payments were recognised as rent expense in profit or
loss on a straight-line basis over the lease term. Any prepaid rent
and accrued rent were recognised under other assets and other
liabilities, respectively.
Upon
adoption of IFRS 16, the Group applied a single recognition and
measurement approach for all leases, except for short-term leases
and leases of low-value assets. The standard provides specific
transition requirements and practical expedients, which has been
applied by the Group.
Leases previously accounted for as operating leases
The
Group recognised right-of-use assets and lease liabilities for
those leases previously classified as operating leases, except for
short-term leases and leases of low-value assets. The right-of-use
assets for most leases were recognised based on the carrying amount
as if the standard had always been applied, apart from the use of
incremental borrowing rate at the date of initial application. In
some leases, the right-of-use assets were recognised based on the
amount equal to the lease liabilities, adjusted for any related
prepaid and accrued lease payments previously recognised. Lease
liabilities were recognised based on the present value of the
remaining lease payments, discounted using the incremental
borrowing rate at the date of initial application.
The
Group also applied the available practical expedients wherein
it:
●
Used a single
discount rate to a portfolio of leases with reasonably similar
characteristics;
●
Relied on its
assessment of whether leases are onerous immediately before the
date of initial application;
●
Excluded the
initial direct costs from the measurement of the right-of-use asset
at the date of initial application;
●
Used hindsight in
determining the lease term where the contract contains options to
extend or terminate the lease.
Based
on the foregoing, as at 1 January 2019:
●
Right-of-use assets
of KZT 276,467 thousand were recognised and included in Property
and equipment;
●
Additional lease
liabilities of KZT 276,467 thousand were recognised.
Lease
liabilities as at 1 January 2019 can be reconciled to the operating
lease commitments as at 31 December 2018 as follows:
|
Operating
lease commitments as at 31 December 2018
|
19,924
|
|
Weighted average
incremental borrowing rate as at 1 January 2019
|
11%
|
|
Discounted
operating lease commitments at 1 January 2019
|
19,751
|
|
|
|
|
Less:
|
|
|
Commitments
relating to short-term leases
|
(9,336)
|
|
Commitments
relating to leases of low-value assets
|
–
|
|
|
|
|
Add:
|
–
|
|
Commitments
relating to leases previously classified as finance
leases
|
–
|
|
Payments in
optional extension periods not recognised as at 31 December
2018
|
266,052
|
|
Lease
liabilities as at 1 January 2019
|
276,467
|
7
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Changes in accounting policies (continued)
IFRS 16 Leases (continued)
(b)
Summary of new accounting policies
Set out
below are the new accounting policies of the Group upon adoption of
IFRS 16, which have been applied from the date of initial
application:
Group as a lessee
The
Group applies a single recognition and measurement approach for all
leases, except for short-term leases and leases of low-value
assets. The Group recognises lease liabilities to make lease
payments and right-of-use assets representing the right to use the
underlying assets.
Right-of-use assets
The
Group recognises right-of-use assets at the commencement date of
the lease (i.e., the date the underlying asset is available for
use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the
commencement date of the lease, the Group recognises lease
liabilities measured at the present value of lease payments to be
made over the lease term. The lease payments include fixed payments
(including in-substance fixed payments) less any lease incentives
receivable, variable lease payments that depend on an index or a
rate, and amounts expected to be paid under residual value
guarantees. The lease payments also include the exercise price of a
purchase option reasonably certain to be exercised by the Group and
payments of penalties for terminating a lease, if the lease term
reflects the Group exercising the option to terminate. The variable
lease payments that do not depend on an index or a rate are
recognised as expense in the period on which the event or condition
that triggers the payment occurs.
In
calculating the present value of lease payments, the Group uses the
incremental borrowing rate at the lease commencement date if the
interest rate implicit in the lease is not readily determinable.
After the commencement date, the amount of lease liabilities is
increased to reflect the accretion of interest and reduced for the
lease payments made. In addition, the carrying amount of lease
liabilities is remeasured if there is a modification, a change in
the lease term, a change in the in-substance fixed lease payments
or a change in the assessment to purchase the underlying
asset.
Short-term leases and leases of low-value assets
The
Group applies the short-term lease recognition exemption to its
short-term leases (i.e., those leases that have a lease term of 12
months or less from the commencement date and do not contain a
purchase option). It also applies the lease of low-value assets
recognition exemption to leases of office equipment that are
considered of low value (i.e., below KZT 1,900 thousand).
Lease payments on short-term leases and leases of low-value assets
are recognised as expense on a straight-line basis over the lease
term.
Significant judgement in determining the lease term of contracts
with renewal options
The
Group determines the lease term as the non-cancellable term of the
lease, together with any periods covered by an option to extend the
lease if it is reasonably certain to be exercised, or any periods
covered by an option to terminate the lease, if it is reasonably
certain not to be exercised.
The
Group has the option, under some of its leases to lease the assets
for additional terms of three to five years. The Group applies
judgement in evaluating whether it is reasonably certain to
exercise the option to renew. That is, it considers all relevant
factors that create an economic incentive for it to exercise the
renewal. After the commencement date, the Group reassesses the
lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option to renew (e.g., a change
in business strategy).
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(thousands
of tenge)
3.
Summary of accounting policies (continued)
Changes in accounting policies (continued)
IFRS 16 Leases (continued)
(b)
Summary of new accounting policies (continued)
Group as a lessee (continued)
Amounts recognised in the consolidated statement of financial
position, consolidated statement of comprehensive income and
consolidated statement of cash flows
Set out
below, are the carrying amounts of the Group’s right-of-use
assets and lease liabilities and the movements during the
year:
For the
year ended 31 December 2019, the Group recognised rent expense from
short-term leases of KZT 62,632 thousand (Note 21).
Operating − Group as a lessor
Leases
in which the Group does not transfer substantially all the risks
and rewards incidental to ownership of an asset are classified as
operating leases. Rental income arising is accounted for on a
straight-line basis over the lease terms and is included in revenue
in the statement of profit or loss due to its operating nature.
Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying amount of the leased
asset and recognised over the lease term on the same basis as
rental income.
Finance − Group as a lessor
The
Group recognises lease receivables at value equal to the net
investment in the lease, starting from the date of commencement of
the lease term. Finance income is based on a pattern reflecting a
constant periodic rate of return on the net investment outstanding.
Initial direct costs are included in the initial measurement of the
lease receivables.
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatment
The
Interpretation addresses the accounting for income taxes when tax
treatments involve uncertainty that affects the application of IAS
12 Income Taxes. It does
not apply to taxes or levies outside the scope of IAS 12, nor does
it specifically include requirements relating to interest and
penalties associated with uncertain tax treatments. The
Interpretation specifically addresses the following:
●
Whether an entity
considers uncertain tax treatments separately;
●
The assumptions an
entity makes about the examination of tax treatments by taxation
authorities;
●
How an entity
determines taxable profit (tax loss), tax bases, unused tax losses,
unused tax credits and tax rates;
●
How an entity
considers changes in facts and circumstances.
The
Group determines whether to consider each uncertain tax treatment
separately or together with one or more other uncertain tax
treatments and uses the approach that better predicts the
resolution of the uncertainty.
Upon
adoption of the Interpretation, the Group considered whether it has
any uncertain tax positions, particularly those relating to
transfer pricing. The Bank’s and the subsidiaries’ tax
filings in different jurisdictions include deductions related to
transfer pricing and the taxation authorities may challenge those
tax treatments. The Group determined, based on its tax compliance
and transfer pricing study, that it is probable that its tax
treatments (including those for the subsidiaries) will be accepted
by the taxation authorities. The Interpretation did not have an
impact on the consolidated financial statements of the
Group.
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Changes in accounting policies (continued)
Amendments to IFRS 9 Prepayment Features with Negative
Compensation
Under
IFRS 9, a debt instrument can be measured at amortised cost or at
fair value through other comprehensive income, provided that the
contractual cash flows are ‘solely payments of principal and
interest on the principal amount outstanding’ (the SPPI
criterion) and the instrument is held within the appropriate
business model for that classification. The amendments to IFRS 9
clarify that a financial asset passes the SPPI criterion regardless
of an event or circumstance that causes the early termination of
the contract and irrespective of which party pays or receives
reasonable compensation for the early termination of the contract.
The amendments had no impact on the consolidated financial
statements of the Group.
Amendments to IAS 19 Plan Amendment, Curtailment or
Settlement
The
amendments to IAS 19 address the accounting when a plan amendment,
curtailment or settlement occurs during a reporting period. The
amendments specify that when a plan amendment, curtailment or
settlement occurs during the annual reporting period, an entity is
required to determine the current service cost for the remainder of
the period after the plan amendment, curtailment or settlement,
using the actuarial assumptions used to remeasure the net defined
benefit liability (asset) reflecting the benefits offered under the
plan and the plan assets after that event. An entity is also
required to determine the net interest for the remainder of the
period after the plan amendment, curtailment or settlement using
the net defined benefit liability (asset) reflecting the benefits
offered under the plan and the plan assets after that event, and
the discount rate used to remeasure that net defined benefit
liability (asset).
The
amendments had no impact on the consolidated financial statements
of the Group.
Amendments to IAS 28 Long-term Interests in Associates and Joint
Ventures
The
amendments clarify that an entity applies IFRS 9 to long-term
interests in an associate or joint venture to which the equity
method is not applied but that, in substance, form part of the net
investment in the associate or joint venture (long-term interests).
This clarification is relevant because it implies that the expected
credit loss model in IFRS 9 applies to such long-term
interests.
The
amendments also clarified that, in applying IFRS 9, an entity does
not take account of any losses of the associate or joint venture,
or any impairment losses on the net investment, recognised as
adjustments to the net investment in the associate or joint venture
that arise from applying IAS 28 Investments in Associates and Joint
Ventures. These amendments had no impact on the consolidated
financial statements as the Group does not have long term interests
in associates and joint ventures.
Annual improvements 2015-2017 cycle
IFRS 3 Business Combinations
The
amendments clarify that, when an entity obtains control of a
business that is a joint operation, it applies the requirements for
a business combination achieved in stages, including remeasuring
previously held interests in the assets and liabilities of the
joint operation at fair value. In doing so, the acquirer remeasures
its entire previously held interest in the joint
operation.
An
entity applies those amendments to business combinations for which
the acquisition date is on or after the beginning of the first
annual reporting period beginning on or after 1 January 2019, with
early application permitted.
These
amendments had no impact on the consolidated financial statements
of the Group as there is no transaction where joint control is
obtained.
IFRS 11 Joint Arrangements
An
entity that participates in, but does not have joint control of, a
joint operation might obtain joint control of the joint operation
in which the activity of the joint operation constitutes a business
as defined in IFRS 3. The amendments clarify that the previously
held interests in that joint operation are not
remeasured.
An
entity applies those amendments to transactions in which it obtains
joint control on or after the beginning of the first annual
reporting period beginning on or after 1 January 2019, with early
application permitted.
These
amendments had no impact on the consolidated financial statements
of the Group as there is no transaction where joint control is
obtained.
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Notes to the 2019 and 2018 consolidated financial
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Changes in accounting policies (continued)
Annual improvements 2015-2017 cycle (continued)
IAS 12 Income Taxes
The
amendments clarify that the income tax consequences of dividends
are linked more directly to past transactions or events that
generated distributable profits than to distributions to owners.
Therefore, an entity recognises the income tax consequences of
dividends in profit or loss, other comprehensive income or equity
according to where it originally recognised those past transactions
or events.
An
entity applies the amendments for annual reporting periods
beginning on or after 1 January 2019, with early application
permitted. When the entity first applies those amendments, it
applies them to the income tax consequences of dividends recognised
on or after the beginning of the earliest comparative
period.
Since
the Group’s current practice is in line with these
amendments, they had no impact on the consolidated financial
statements of the Group.
IAS 23 Borrowing Costs
The
amendments clarify that an entity treats as part of general
borrowings any borrowing originally made to develop a qualifying
asset when substantially all of the activities necessary to prepare
that asset for its intended use or sale are complete.
The
entity applies the amendments to borrowing costs incurred on or
after the beginning of the annual reporting period in which the
entity first applies those amendments. An entity applies the
amendments for annual reporting periods beginning on or after 1
January 2019, with early application permitted.
Since
the Group’s current practice is in line with these
amendments, they had no impact on the consolidated financial
statements of the Group.
Basis of consolidation
Subsidiaries,
which are those entities which are controlled by the Group, are
consolidated. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Specifically, the Group controls an investee if, and
only if, the Group has:
●
Power over the
investee (i.e., existing rights that give it the current ability to
direct the relevant activities of the investee);
●
Exposure, or
rights, to variable returns from its involvement with the
investee;
●
The ability to use
its power over the investee to affect its returns.
Generally,
there is a presumption that a majority of voting rights results in
control. To support this presumption and when the Group has less
than a majority of the voting or similar rights of an investee, the
Group considers all relevant facts and circumstances in assessing
whether it has power over an investee, including:
●
The contractual
arrangement(s) with the other vote holders of the
investee;
●
Rights arising from
other contractual arrangements;
●
The Group’s
voting rights and potential voting rights.
Subsidiaries
are consolidated from the date on which control is transferred to
the Group and are no longer consolidated from the date that control
ceases. All intra-group transactions, balances and unrealised gains
on transactions between group companies are eliminated in full;
unrealised losses are also eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Where
necessary, accounting policies for subsidiaries have been changed
to ensure consistency with the policies adopted by the
Group.
A
change in the ownership interest of a subsidiary, without a change
of control, is accounted for as an equity transaction. Losses are
attributed to the non-controlling interests even if that results in
a deficit balance.
If the
Group loses control over a subsidiary, it derecognises the assets
(including goodwill) and liabilities of the subsidiary, the
carrying amount of any non-controlling interests, the cumulative
translation differences, recorded in equity; recognises the fair
value of the consideration received, the fair value of any
investment retained and any surplus or deficit in profit or loss
and reclassifies the parent’s share of components previously
recognised in other comprehensive income to profit or
loss.
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Business combinations
Business
combinations are accounted for using the acquisition method. The
cost of an acquisition is measured as the aggregate of the
consideration transferred, measured at acquisition date fair value
and the amount of any non-controlling interests in the acquiree.
For each business combination, the acquirer measures the
non-controlling interests in the acquiree that are present
ownership interests either at fair value or at the proportionate
share of the acquiree’s identifiable net assets and other
components of non-controlling interests at their acquisition date
fair value. Acquisition costs incurred are expensed.
When
the Group acquires a business, it assesses the financial assets and
liabilities assumed for appropriate classification and designation
in accordance with the contractual terms, economic circumstances
and pertinent conditions as at the acquisition date. This includes
the separation of embedded derivatives in host contracts by the
acquiree.
If the
business combination is achieved in stages, the acquisition date
fair value of the acquirer’s previously held equity interest
in the acquiree is remeasured to fair value as at the acquisition
date through profit or loss.
Any
contingent consideration to be transferred by the acquirer is
recognised at fair value at the acquisition date. Subsequent
changes to the fair value of the contingent consideration which is
deemed to be an asset or liability, will be recognised in
accordance with IFRS 9 either in profit or loss or in other
comprehensive income. If the contingent consideration is classified
as equity, it shall not be remeasured until it is finally settled
within equity.
Goodwill
is initially measured at cost being the excess of the consideration
transferred over the Group’s net identifiable assets acquired
and liabilities assumed. If this consideration is lower than the
fair value of the net assets of the subsidiary acquired, the
difference is recognised in profit or loss.
After
initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash
generating units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units. Where goodwill forms part of a
cash-generating unit and part of the operation within that unit is
disposed of, the goodwill associated with the operation disposed of
is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative
values of the operation disposed of and the portion of the
cash-generating unit retained.
Fair value measurement
The
Group measures financial instruments carried at fair value through
profit or loss (FVPL) and fair value through other comprehensive
income (FVOCI) and non-financial assets such as investment
property, at fair value at each reporting date.
Fair
value is the price that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value measurement is
based on the presumption that the transaction to sell the asset or
transfer the liability takes place either:
●
In the principal
market for the asset or liability; or
●
In the absence of a
principal market, in the most advantageous market for the asset or
liability.
The
principal or the most advantageous market must be accessible by the
Group. The fair value of an asset or a liability is measured using
the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their
economic best interest. A fair value measurement of a non-financial
asset takes into account a market participant’s ability to
generate economic benefits by using the asset in its highest and
best use or by selling it to another market participant that would
use the asset in its highest and best use.
The
Group uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs. All assets
and liabilities for which fair value is measured or disclosed in
the financial statements are categorised within the fair value
hierarchy, described as follows, based on the lowest level input
that is significant to the fair value measurement as a
whole:
●
Level 1 −
quoted (unadjusted) market prices in active markets for identical
assets or liabilities;
●
Level 2 −
valuation techniques for which the lowest level input that is
significant to the fair value measurement is directly or indirectly
observable;
●
Level 3 −
valuation techniques for which the lowest level input that is
significant to the fair value measurement is
unobservable.
For
assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines whether
transfers have occurred between Levels in the hierarchy by
re-assessing categorisation (based on the lowest level input that
is significant to the fair value measurement as a whole) at the end
of each reporting period.
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Financial assets and liabilities
Initial recognition
Date of recognition
All
regular way purchases and sales of financial assets and liabilities
are recognised on the trade date i.e. the date that the Group
commits to purchase the asset or liability. Regular way purchases
or sales are purchases or sales of financial assets and liabilities
that require delivery of assets and liabilities within the period
generally established by regulation or convention in the
marketplace.
Initial measurement
The
classification of financial instruments at initial recognition
depends on their contractual terms and the business model for
managing the instruments. Financial instruments are initially
measured at their fair value and, except in the case of financial
assets and financial liabilities recorded at FVPL, transaction
costs are added to, or subtracted from, this amount.
Measurement categories of financial assets and
liabilities
The
Group classifies all of its financial assets based on the business
model for managing the assets and the asset’s contractual
terms, measured at either:
●
Amortised
cost;
●
FVOCI;
●
FVPL.
The
Group classifies and measures its derivative and trading portfolio
at FVPL. The Group may designate financial instruments at FVPL, if
so doing eliminates or significantly reduces measurement or
recognition inconsistencies.
Financial
liabilities, other than loan commitments and financial guarantees,
are measured at amortised cost or at FVPL when they are held for
trading, are derivative instruments or the fair value designation
is applied.
Amounts due from banks and other financial institutions, loans to
customers, investments securities at amortised cost
The
Group only measures amounts due from banks and other financial
institutions, loans to customers and other financial investments at
amortised cost if both of the following conditions are
met:
●
The financial asset
is held within a business model with the objective to hold
financial assets in order to collect contractual cash
flows;
●
The contractual
terms of the financial asset give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding (SPPI).
The
details of these conditions are outlined below.
Business model assessment
The
Group determines its business model at the level that best reflects
how it manages groups of financial assets to achieve its business
objective.
The
Group’s business model is not assessed on an
instrument-by-instrument basis, but at a higher level of aggregated
portfolios and is based on observable factors such as:
●
How the performance
of the business model and the financial assets held within that
business model are evaluated and reported to the entity’s key
management personnel;
●
The risks that
affect the performance of the business model (and the financial
assets held within that business model) and, in particular, the way
those risks are managed;
●
How managers of the
business are compensated (for example, whether the compensation is
based on the fair value of the assets managed or on the contractual
cash flows collected);
●
The expected
frequency, value and timing of sales are also important aspects of
the Group’s assessment.
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Financial assets and liabilities (continued)
Initial measurement (continued)
Amounts due from banks and other financial institutions, loans to
customers, investments securities at amortised cost
(continued)
Business model assessment (continued)
The
business model assessment is based on reasonably expected scenarios
without taking ‘worst case’ or ‘stress
case’ scenarios into account. If cash flows after initial
recognition are realised in a way that is different from the
Group’s original expectations, the Group does not change the
classification of the remaining financial assets held in that
business model, but incorporates such information when assessing
newly originated or newly purchased financial assets going
forward.
The SPPI test
As a
second step of its classification process the Group assesses the
contractual terms of financial asset to identify whether they meet
the SPPI test.
‘Principal’
for the purpose of this test is defined as the fair value of the
financial asset at initial recognition and may change over the life
of the financial asset (for example, if there are repayments of
principal or amortisation of the premium/discount).
The
most significant elements of interest within a lending arrangement
are typically the consideration for the time value of money and
credit risk. To make the SPPI assessment, the Group applies
judgement and considers relevant factors such as the currency in
which the financial asset is denominated, and the period for which
the interest rate is set.
In
contrast, contractual terms that introduce a more than de minimis
exposure to risks or volatility in the contractual cash flows that
are unrelated to a basic lending arrangement do not give rise to
contractual cash flows that are solely payments of principal and
interest on the amount outstanding. In such cases, the financial
asset is required to be measured at FVPL.
Debt instruments at FVOCI
The
Group measures debt instruments at FVOCI when both of the following
conditions are met:
●
The instrument is
held within a business model, the objective of which is achieved by
both collecting contractual cash flows and selling financial
assets;
●
The contractual
terms of the financial asset meet the SPPI test.
FVOCI
debt instruments are subsequently measured at fair value with gains
and losses arising due to changes in fair value recognised in other
comprehensive income. Interest revenue and foreign exchange gains
and losses are recognised in profit or loss in the same manner as
for financial assets measured at amortised cost. On derecognition,
cumulative gains or losses previously recognised in other
comprehensive income are reclassified from other comprehensive
income to profit or loss.
Expected
credit losses (ECL) for debt instruments measured at FVOCI do not
reduce the carrying amount of these financial assets in the
statement of financial position, which remains at fair value.
Instead, an amount equal to the allowance that would arise if the
assets were measured at amortised cost is recognised in other
comprehensive income as an accumulated impairment amount, with a
corresponding charge to profit or loss. The accumulated loss
recognised in other comprehensive income is recycled to the profit
and loss upon derecognition of the asset.
Financial guarantees, letters of credit and undrawn loan
commitments
The
Group issues financial guarantees, letters of credit and loan
commitments.
Financial
guarantees are initially recognised in the financial statements at
fair value, being the premium received. Subsequent to initial
recognition, the Group’s liability under each guarantee is
measured at the higher of the amount initially recognised less
cumulative amortisation recognised in the consolidated statement of
profit or loss, and an ECL provision.
Undrawn
loan commitments and letters of credits are commitments under
which, over the duration of the commitment, the Group is required
to provide a loan with pre-specified terms to the customer. Similar
to financial guarantee contracts, these contracts are in the scope
of the ECL requirements.
The
Group occasionally issues loan commitments at below market interest
rates drawdown. Such commitments are initially recognised at fair
value and subsequently measured at the higher of the amount of the
ECL allowance and the amount initially recognised less, when
appropriate, the cumulative amount of income
recognised.
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Financial assets and liabilities (continued)
Initial measurement (continued)
Performance guarantees
Performance
guarantees are contracts that provide compensation if another party
fails to perform a contractual obligation. Performance guarantees
do not transfer credit risk. The risk under performance guarantee
contracts is the possibility that the failure to perform the
contractual obligation by another party occurs. Therefore,
performance guarantees are not considered financial instruments and
thus do not fall in scope of IFRS 9.
Reclassification of financial assets and liabilities
The
Group does not reclassify its financial assets subsequent to their
initial recognition, apart from the exceptional circumstances in
which the Group changes the business model for managing financial
assets. Financial liabilities are never reclassified.
Cash and cash equivalents
Cash
and cash equivalents consist of cash on hand, amounts due from the
NBRK and amounts due from credit institutions that mature within
ninety days of the date of origination and are free from
contractual encumbrances.
Repurchase and reverse repurchase agreements and securities
lending
Sale
and repurchase agreements (“repos”) are treated as
secured financing transactions. Securities sold under sale and
repurchase agreements are retained in the consolidated statement of
financial position and, in case the transferee has the right by
contract or custom to sell or repledge them, reclassified as
securities pledged under sale and repurchase agreements. The
corresponding liability is presented within amounts due to credit
institutions or customers. Securities purchased under agreements to
resell (“reverse repo”) are recorded as amounts due
from credit institutions or loans to customers as appropriate. The
difference between sale and repurchase price is treated as interest
revenue and accrued over the life of repo agreements using the
effective interest method.
Securities
lent to counterparties are retained in the consolidated statement
of financial position. Securities borrowed are not recorded in the
consolidated statement of financial position, unless these are sold
to third parties, in which case the purchase and sale are recorded
within gains less losses from trading securities in the
consolidated statement of profit or loss. The obligation to return
them is recorded at fair value as a trading liability.
Derivative financial instruments
In the
normal course of business, the Group enters into various derivative
financial instruments including forwards and swaps in the foreign
exchange markets. Such financial instruments are held for trading
and are recorded at fair value. The fair values are estimated based
on quoted market prices or pricing models that take into account
the current market and contractual prices of the underlying
instruments and other factors. Derivatives are carried as assets
when their fair value is positive and as liabilities when it is
negative. Gains and losses resulting from these instruments are
included in the consolidated statement of comprehensive income as
net gains/(losses) from financial instruments at fair value through
profit or loss or net gains/(losses) from foreign currencies,
depending on the nature of the instrument.
Financial
assets are classified based on the business model and SPPI
assessments.
Borrowings
Borrowings
are classified as liabilities, where the substance of the
contractual arrangement results in the Group having an obligation
either to deliver cash or another financial asset to the holder, or
to satisfy the obligation other than by the exchange of a fixed
amount of cash or another financial asset for a fixed number of own
equity instruments. Such instruments include amounts due to the
NBRK, amounts due to banks and other financial institutions,
amounts due to customers, other borrowed funds and subordinated
loans. After initial recognition, borrowings are subsequently
measured at amortised cost using the effective interest method.
Gains and losses are recognised in profit or loss when the
borrowings are derecognised as well as through the amortisation
process.
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Notes to the 2019 and 2018 consolidated financial
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Offsetting of financial instruments
Financial
assets and liabilities are offset and the net amount is reported in
the consolidated statement of financial position when there is a
legally enforceable right to set off the recognised amounts and
there is an intention to settle on a net basis, or to realise the
asset and settle the liability simultaneously. The right of set-off
must not be contingent on a future event and must be legally
enforceable in all of the following circumstances:
●
The normal course
of business;
●
The event of
default; and
●
The event of
insolvency or bankruptcy of the entity and all of the
counterparties.
These
conditions are not generally met in master netting agreements, and
the related assets and liabilities are presented gross in the
consolidated statement of financial position.
Renegotiated loans
Where
possible, the Group seeks to restructure loans rather than to take
possession of collateral. This may involve extending the payment
arrangements and the agreement of new loan conditions.
The
Group derecognises a financial asset, such as a loan to a customer,
when the terms and conditions have been renegotiated to the extent
that, substantially, it becomes a new loan, with the difference
recognised as a derecognition gain or loss, to the extent that an
impairment loss has not already been recorded. The newly recognised
loans are classified as Stage 1 for ECL measurement purposes,
unless the new loan is deemed to be purchased or originated credit
impaired (POCI). When assessing whether or not to derecognise a
loan to a customer, amongst others, the Group considers the
following factors:
●
Change in currency
of the loan;
●
Change in
counterparty;
●
If the modification
is such that the instrument would no longer meet the SPPI
criterion.
If the
modification does not result in cash flows that are substantially
different, the modification does not result in derecognition. Based
on the change in cash flows discounted at the original EIR, the
Group records a modification gain or loss that is presented in a
separate line item in the consolidated statement of profit or loss,
to the extent that an impairment loss has not already been
recorded.
For
modifications not resulting in derecognition, the Group also
reassesses whether here has been a significant increase in credit
risk or whether the assets should be classified as credit-impaired.
Once an asset has been classified as credit-impaired as the result
of modification, it will remain in Stage 3 for a minimum 6-month
probation period. In order for the restructured loan to be
reclassified out of Stage 3, regular payments of more than an
insignificant amount of principal or interest have been made during
at least half of the probation period in accordance with the
modified payment schedule.
Derecognition of financial assets and liabilities
Financial assets
A
financial asset (or, where applicable a part of a financial asset
or part of a group of similar financial assets) is derecognised
where:
●
The rights to
receive cash flows from the asset have expired;
●
The Group has
transferred its rights to receive cash flows from the asset, or
retained the right to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to
a third party under a “pass-through” arrangement;
and
●
The Group either
(a) has transferred substantially all the risks and rewards of the
asset, or (b) has neither transferred nor retained substantially
all the risks and rewards of the asset, but has transferred control
of the asset.
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“Bank Freedom Finance Kazakhstan”
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Notes to the 2019 and 2018 consolidated financial
statements
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3.
Summary of accounting policies (continued)
Derecognition of financial assets and liabilities
(continued)
Financial assets (continued)
Where
the Group has transferred its rights to receive cash flows from an
asset and has neither transferred nor retained substantially all
the risks and rewards of the asset nor transferred control of the
asset, the asset is recognised to the extent of the Group’s
continuing involvement in the asset. Continuing involvement that
takes the form of a guarantee over the transferred asset is
measured at the lower of the original carrying amount of the asset
and the maximum amount of consideration that the Group could be
required to repay.
Where
continuing involvement takes the form of a written and/or purchased
option (including a cash-settled option or similar provision) on
the transferred asset, the extent of the Group’s continuing
involvement is the amount of the transferred asset that the Group
may repurchase, except that in the case of a written put option
(including a cash-settled option or similar provision) on an asset
measured at fair value, the extent of the Group’s continuing
involvement is limited to the lower of the fair value of the
transferred asset and the option exercise price.
Write-off
Financial
assets are written off either partially or in their entirety only
when the Group has stopped pursuing the recovery. If the amount to
be written off is greater than the accumulated loss allowance, the
difference is first treated as an addition to the allowance that is
then applied against the gross carrying amount. Any subsequent
recoveries are credited to credit loss expense. A write-off
constitutes a derecognition event.
Financial liabilities
A
financial liability is derecognised when the obligation under the
liability is discharged or cancelled or expires.
Where
an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or
modification is treated as a derecognition of the original
liability and the recognition of a new liability, and the
difference in the respective carrying amounts is recognised in
profit or loss.
Taxation
The
current income tax expense is calculated in accordance with the
regulations of the Republic of Kazakhstan.
Deferred
tax assets and liabilities are calculated in respect of temporary
differences using the liability method. Deferred income taxes are
provided for all temporary differences arising between the tax
bases of assets and liabilities and their carrying values for
financial reporting purposes, except where the deferred income tax
arises from the initial recognition of goodwill or of an asset or
liability in a transaction that is not a business combination and,
at the time of the transaction, affects neither the accounting
profit nor taxable profit or loss.
A
deferred tax asset is recorded only to the extent that it is
probable that taxable profit will be available against which the
deductible temporary differences can be utilised. Deferred tax
assets and liabilities are measured at tax rates that are expected
to apply to the period when the asset is realised or the liability
is settled, based on tax rates that have been enacted or
substantively enacted at the reporting date.
Deferred
income tax is provided on temporary differences arising on
investments in subsidiaries, associates and joint ventures, except
where the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will
not reverse in the foreseeable future.
Republic
of Kazakhstan also has various operating taxes, that are assessed
on the Group’s activities. These taxes are included as a
component of other operating expenses.
Property and equipment
Property
and equipment are carried at cost, excluding the costs of
day-to-day servicing, less accumulated depreciation and any
accumulated impairment. Such cost includes the cost of replacing
part of equipment when that cost is incurred if the recognition
criteria are met.
The
carrying values of property and equipment are reviewed for
impairment when events or changes in circumstances indicate that
the carrying value may not be recoverable.
17
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Notes to the 2019 and 2018 consolidated financial
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Property and equipment (continued)
Following
initial recognition at cost, buildings are carried at a revalued
amount, which is the fair value at the date of the revaluation less
any subsequent accumulated depreciation and subsequent accumulated
impairment losses. Valuations are performed frequently enough to
ensure that the fair value of a revalued asset does not differ
materially from its carrying amount.
Accumulated
depreciation as at the revaluation date is eliminated against the
gross carrying amount of the asset and the net amount is restated
to the revalued amount of the asset. Any revaluation surplus is
credited to the revaluation reserve for property and equipment
included in other comprehensive income, except to the extent that
it reverses a revaluation decrease of the same asset previously
recognised in profit or loss, in which case the increase is
recognised in profit or loss. A revaluation deficit is recognised
in profit or loss, except that a deficit directly offsetting a
previous surplus on the same asset is directly offset against the
surplus in the revaluation reserve for property and
equipment.
An
annual transfer from the revaluation reserve for property and
equipment to retained earnings is made for the difference between
depreciation based on the revalued carrying amount of the assets
and depreciation based on the assets original cost. Upon disposal,
any revaluation reserve relating to the particular asset being sold
is transferred to retained earnings.
Depreciation
of an asset begins when it is available for use. Depreciation is
calculated on a straight-line basis over the following estimated
useful lives:
|
|
Years
|
|
|
|
|
Buildings and
constructions
|
25-65
|
|
Furniture and
office equipment
|
5-12.5
|
|
Computer
hardware
|
5-9
|
|
Motor
vehicles
|
10
|
|
Leasehold
improvements
|
1-5
|
The
asset’s residual values, useful lives and methods are
reviewed, and adjusted as appropriate, at each financial
year-end.
Costs
related to repairs and renewals are charged when incurred and
included in other operating expenses, unless they qualify for
capitalisation.
Intangible assets
Intangible
assets include computer software and licenses.
Intangible
assets acquired separately are measured on initial recognition at
cost. The cost of intangible assets acquired in a business
combination is fair value as at the date of acquisition. Following
initial recognition, intangible assets are carried at cost less any
accumulated amortisation and any accumulated impairment losses. The
useful lives of intangible assets are assessed to be either finite
or indefinite. Intangible assets with finite lives are amortised
over the useful economic lives of 1 to 45 years and assessed for
impairment whenever there is an indication that the intangible
asset may be impaired. Amortisation periods and methods for
intangible assets with indefinite useful lives are reviewed at
least at each financial year-end.
Provisions
Provisions
are recognised when the Group has a present legal or constructive
obligation as a result of past events, and it is probable that an
outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate of the amount of
obligation can be made.
Retirement and other employee benefit obligations
The
Group does not have any pension arrangements separate from the
State pension system of the Republic of Kazakhstan, which requires
current contributions by the employer calculated as a percentage of
current gross salary payments; such expense is charged in the
period the related salaries are earned. In addition, the Group has
no significant post-employment benefits.
Share capital
Share capital
Ordinary
shares and non-redeemable preference shares with discretionary
dividends are both classified as equity. External costs directly
attributable to the issue of new shares, other than on a business
combination, are shown as a deduction from the proceeds in equity.
Any excess of the fair value of consideration received over the par
value of shares issued is recognised as additional paid-in
capital.
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Notes to the 2019 and 2018 consolidated financial
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(thousands of tenge)
3.
Summary of accounting policies (continued)
Share capital (continued)
Dividends
Dividends
are recognised as a liability and deducted from equity at the
reporting date only if they are declared before or on the reporting
date. Dividends are disclosed when they are proposed before the
reporting date or proposed or declared after the reporting date but
before the consolidated financial statements are authorised for
issue.
Contingencies
Contingent
liabilities are not recognised in the consolidated statement of
financial position but are disclosed unless the possibility of any
outflow in settlement is remote. A contingent asset is not
recognised in the consolidated statement of financial position but
disclosed when an inflow of economic benefits is
probable.
Recognition of income and expenses
Revenue
is recognised to the extent that it is probable that the economic
benefits will flow to the Group and the revenue can be reliably
measured. The following specific recognition criteria must also be
met before revenue is recognised:
Interest and similar revenue and expense
The
Group calculates interest revenue on debt financial assets measured
at amortised cost or at FVOCI by applying the effective interest
rate (EIR) to the gross carrying amount of financial assets other
than credit-impaired assets. EIR is the rate that exactly discounts
estimated future cash payments or receipts through the expected
life of the financial instrument or a shorter period, where
appropriate, to the net carrying amount of the financial asset or
financial liability. The calculation takes into account all
contractual terms of the financial instrument (for example,
prepayment options) and includes any fees or incremental costs that
are directly attributable to the instrument and are an integral
part of the effective interest rate, but not future credit losses.
The carrying amount of the financial asset or financial liability
is adjusted if the Group revises its estimates of payments or
receipts. The adjusted carrying amount is calculated based on the
original effective interest rate and the change in carrying amount
is recorded as interest revenue or expense.
When a
financial asset becomes credit-impaired, the Group calculates
interest revenue by applying the effective interest rate to the net
amortised cost of the financial asset. If the financial assets
cures and is no longer credit-impaired, the Group reverts to
calculating interest revenue on a gross basis.
For
POCI financial assets, the Group calculates interest revenue by
calculating the credit-adjusted EIR and applying that rate to the
amortised cost of the asset. The credit-adjusted EIR is the
interest rate that, at original recognition, discounts the
estimated future cash flows (including credit losses) to the
amortised cost of the POCI assets.
Interest
revenue on all financial assets at FVPL is recognised using the
contractual interest rate in “Other interest revenue”
in the consolidated statement of comprehensive income.
Fee and commission income
The
Group earns fee and commission income from a diverse range of
services it provides to its customers. Fee income can be divided
into the following two categories:
Fee income earned from services that are provided over a certain
period of time
Fees
earned for the provision of services over a period of time are
accrued over that period as respective performance obligations are
satisfied. These fees include commission income and asset
management, custody and other management and advisory fees. Loan
commitment fees for loans that are likely to be drawn down and
other credit related fees are deferred (together with any
incremental costs) and recognised as an adjustment to the effective
interest rate on the loan.
Fee income from providing transaction services
Fees
arising from negotiating or participating in the negotiation of a
transaction for a third party − such as where the
Group’s performance obligation is the arrangement of the
acquisition of shares or other securities or the purchase or sale
of businesses − are recognised on completion of the
underlying transaction. Fees or components of fees that are linked
to certain performance obligations are recognised after fulfilling
the corresponding criteria. When the contract provides for a
variable consideration, fee and commission income is only
recognised to the extent that it is probable that a significant
reversal in the amount of cumulative revenue recognised will not
occur until the uncertainty associated with the variable
consideration is subsequently resolved.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
3.
Summary of accounting policies (continued)
Foreign currency translation
The
consolidated financial statements are presented in thousands of
tenge, which is the Group’s functional and presentation
currency. Transactions in foreign currencies are initially recorded
in the functional currency, converted at the rate of exchange
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are retranslated at
the functional currency rate of exchange ruling at the reporting
date. Gains and losses resulting from the translation of foreign
currency transactions are recognised in the consolidated statement
of profit or loss as “Net gains/(losses) from foreign
currencies”. Non-monetary items that are measured in terms of
historical cost in a foreign currency are translated using the
exchange rates as at the dates of the initial transactions.
Non-monetary items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
was determined.
Differences
between the contractual exchange rate of a transaction in a foreign
currency and the NBRK exchange rate on the date of the transaction
are included in gains less losses from dealing in foreign
currencies. The official NBRK exchange rates at 31 December 2019
and 31 December 2018, were 382.59 tenge and 384.20 tenge to 1 US
Dollar, respectively.
Standards issued but not yet effective
The new
and amended standards and interpretations that are issued, but not
yet effective, up to the date of issuance of the Group’s
financial statements are disclosed below. The Group intends to
adopt these new and amended standards and interpretations, if
applicable, when they become effective.
IFRS 17 Insurance Contracts
In May
2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a
comprehensive new accounting standard for insurance contracts
covering recognition and measurement, presentation and disclosure.
Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (IFRS 4) that was
issued in 2005. IFRS 17 applies to all types of insurance contracts
(i.e., life, non-life, direct insurance and re-insurance),
regardless of the type of entities that issue them, as well as to
certain guarantees and financial instruments with discretionary
participation features.
A few
scope exceptions will apply. The overall objective of IFRS 17 is to
provide an accounting model for insurance contracts that is more
useful and consistent for insurers. In contrast to the requirements
in IFRS 4, which are largely based on grandfathering previous local
accounting policies, IFRS 17 provides a comprehensive model for
insurance contracts, covering all relevant accounting aspects. The
core of IFRS 17 is the general model, supplemented by:
●
A specific
adaptation for contracts with direct participation features (the
variable fee approach);
●
A simplified
approach (the premium allocation approach) mainly for
short-duration contracts.
IFRS 17
is effective for reporting periods beginning on or after 1 January
2021, with comparative figures required. Early application is
permitted, provided the entity also applies IFRS 9 and IFRS 15 on
or before the date it first applies IFRS 17. In 2019, the
Group will continue to assess the potential effect of IFRS 17 on
its consolidated financial statements.
Amendments to IFRS 3: Definition of a Business
In
October 2018, the IASB issued amendments to the definition of a
business in IFRS 3 Business
Combinations to help entities determine whether an acquired
set of activities and assets is a business or not. They clarify the
minimum requirements for a business, remove the assessment of
whether market participants are capable of replacing any missing
elements, add guidance to help entities assess whether an acquired
process is substantive, narrow the definitions of a business and of
outputs, and introduce an optional fair value concentration test.
New illustrative examples were provided along with the
amendments.
Since
the amendments apply prospectively to transactions or other events
that occur on or after the date of first application, the Group
will not be affected by these amendments on the date of
transition.
Amendments to IAS 1 and IAS 8: Definition of Material
In
October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements
and IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors to align the
definition of ‘material’ across the standards and to
clarify certain aspects of the definition. The new definition
states that, ‘Information is material if omitting, misstating
or obscuring it could reasonably be expected to influence decisions
that the primary users of general purpose financial statements make
on the basis of those financial statements, which provide financial
information about a specific reporting entity.’
The
amendments to the definition of material are not expected to have a
significant impact on the Group’s consolidated financial
statements.
20
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands
of tenge)
3.
Summary of accounting policies (continued)
Standards issued but not yet effective (continued)
Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and
IFRS 7
Interest
Rate Benchmark Reform Amendments to IFRS 9, IAS 39 and IFRS 7
includes a number of reliefs, which apply to all hedging
relationships that are directly affected by interest rate benchmark
reform. A hedging relationship is affected if the reform gives rise
to uncertainties about the timing and or amount of benchmark-based
cash flows of the hedged item or the hedging instrument. As a
result of interest rate benchmark reform, there may be
uncertainties about the timing and or amount of benchmark-based
cash flows of the hedged item or the hedging instrument during the
period before the replacement of an existing interest rate
benchmark with an alternative nearly risk-free interest rate (an
RFR). This may lead to uncertainty whether a forecast transaction
is highly probable and whether prospectively the hedging
relationship is expected to be highly effective.
The
amendments come into effect from 1 January 2020, but entities may
choose to apply them earlier. The amendments are not expected to
have a significant impact on the Group’s consolidated
financial statements.
4.
Significant accounting judgments and estimates
Estimation uncertainty
In the
process of applying the Group’s accounting policies,
management has used its judgments and made estimates in determining
the amounts recognised in the consolidated financial statements.
The most significant use of judgments and estimates are as
follows:
Fair values of financial instruments
Where
the fair values of financial assets and financial liabilities
recorded in the consolidated statement of financial position cannot
be derived from active markets, they are determined using a variety
of valuation techniques that include the use of mathematical
models. The input to these models is taken from observable markets
where possible, but where this is not feasible, a degree of
judgment is required in establishing fair values. Additional
details are provided in Note
25.
Expected credit losses on financial assets
The
measurement of impairment losses under IFRS 9 across all categories
of financial assets requires judgement, in particular, the
estimation of the amount and timing of future cash flows and
collateral values when determining ECL and the assessment of a
significant increase in credit risk. These estimates are driven by
a number of factors, changes in which can result in different
levels of allowances. The Group’s ECL calculations are
outputs of complex models with a number of underlying assumptions
regarding the choice of variable inputs and their
interdependencies. Elements of the ECL models that are considered
accounting judgements and estimates include:
●
The Group’s
internal credit grading model, which assigns PDs to the individual
grades;
●
The Group’s
criteria for assessing if there has been a significant increase in
credit risk and so allowances for financial assets should be
measured on a LTECL basis and the qualitative
assessment;
●
The segmentation of
financial assets when their ECL is assessed on a collective
basis;
●
Development of ECL
models, including the various formulae and the choice of
inputs;
●
Determination of
associations between macroeconomic scenarios and, economic inputs,
such as unemployment levels and collateral values, and the effect
on PDs, EADs and LGDs;
●
Selection of
forecast macroeconomic scenarios.
Taxation
The
Republic of Kazakhstan currently has a single Tax Code that
regulates main taxation matters. The existing taxes include value
added tax, corporate income tax, social and other taxes.
Implementing regulations are often unclear or non-existent and
insignificant amount of precedents has been established. Often,
differing opinions regarding legal interpretation exist both among
and within government ministries and organisations; thus creating
uncertainties and areas of conflict. Tax declarations, together
with other legal compliance areas (as examples, customs and
currency control matters) are subject to review and investigation
by a number of authorities, which are enabled by law to impose
severe fines, penalties and interest charges. These facts create
tax risks in the Republic of Kazakhstan substantially more
significant than typically found in countries with more developed
tax systems.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
4.
Significant accounting judgments and estimates
(continued)
Estimation uncertainty (continued)
Taxation (continued)
Management
believes that the Group is in compliance with the tax laws of the
Republic of Kazakhstan regulating its operations. However, the risk
remains that relevant authorities could take differing positions
with regard to interpretive tax issues.
Assessment
of recoverability of deferred corporate income tax assets requires
to use subjective judgements by the Group’s management around
the likely timing and the level of future taxable profit together
with the tax planning strategy.
The
management believes that deferred corporate income tax assets as at
31 December 2019 are recorded to the extent that it is probable
that future taxable profits will be available to cover temporary
differences, unused tax losses and unused tax benefits, and
deferred corporate income tax assets are reduced to the extent that
it is not probable that taxable profit will be available against
which the deductible temporary differences can be
utilised.
5.
Cash and cash equivalents
Cash
and cash equivalents comprise:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Cash on
hand
|
4,198,884
|
6,248,186
|
|
Cash on current
accounts with the NBRK rated at BBB-
|
17,477,932
|
30,385,765
|
|
Cash on current
bank accounts, other banks:
|
|
|
|
- rated from
A− to A+
|
88,619
|
105,236
|
|
- rated from
BBB− to BBB+
|
6
|
–
|
|
- rated from
BB− to BB+
|
362,898
|
548,776
|
|
- rated below
B+
|
912,521
|
762,690
|
|
- not
rated
|
404,086
|
293,206
|
|
Accounts receivable
under reverse repurchase agreements with contractual maturity of 90
days or less
|
7,501,994
|
–
|
|
Time deposits with
the NBRK rated at BBB- with contractual maturity of 90 days or
less
|
2,500,573
|
5,003,438
|
|
Time deposits with
other banks rated from BBB− to BBB+ with contractual maturity
of 90 days or less
|
8,274
|
7,130
|
|
Cash
and cash equivalents before ECL allowance
|
33,455,787
|
43,354,427
|
|
|
|
|
|
ECL
allowance
|
(7,265)
|
(10,220)
|
|
Cash
and cash equivalents
|
33,448,522
|
43,344,207
|
The
credit ratings are presented by reference to the credit ratings of
Standard & Poor’s credit rating agency or analogues of
similar international agencies.
As at
31 December 2019, the Group entered into reverse repurchase
agreements at the Kazakhstan Stock Exchange. The subject of
these agreements are the government bonds with the fair value of
KZT 7,731,958 thousand as at 31 December 2019.
Minimum reserve requirements
In
accordance with regulations issued by the NBRK, minimum reserve
requirements are calculated as a percent of specified banks
liabilities. Banks are required to comply with these requirements
by maintaining average reserve assets (national currency cash and
amounts on current accounts with NBRK) equal or in excess of the
average minimum requirements. As at 31 December 2019, minimum
reserve requirements of the Bank amount to KZT 970,663 thousand (31
December 2018: KZT 1,570,380 thousand).
Concentration of cash and cash equivalents
As at
31 December 2019 and 31 December 2018, the Group has accounts with
one bank which balances exceeded 10% of total cash and cash
equivalents. The aggregate balances of amounts due from this
counterparty as at 31 December 2019 and 31 December 2018 were KZT
19,978,505 thousand and KZT 35,389,203 thousand,
respectively.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
5.
Cash and cash equivalents (continued)
Concentration of cash and cash equivalents (continued)
All
balances of cash and cash equivalents are allocated to Stage 1 for
ECL measurement purpose. An analysis of changes in the ECL
allowances during the year is as follows:
|
ECL allowance as at 1 January 2019
|
(10,220)
|
|
Net change in the allowance for the year
(Note
19)
|
2,941
|
|
Foreign
exchange adjustments
|
14
|
|
ECL allowance as at 31 December 2019
|
(7,265)
|
|
ECL allowance as at 1 January 2018
|
(5,708)
|
|
Net change in the allowance for the year
(Note
19)
|
(3,855)
|
|
Foreign
exchange adjustments
|
(657)
|
|
ECL allowance as at 31 December 2018
|
(10,220)
|
6.
Amounts due from other banks and other financial
institutions
Amounts
due from other banks and other financial institutions
comprise:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Funds provided as
collateral with other banks:
|
|
|
|
- rated from AA- to
AA+
|
131,430
|
83,250
|
|
- rated from A- to
A+
|
270,849
|
271,134
|
|
- not
rated
|
375,000
|
200,000
|
|
Amounts
due from other banks and other financial institutions before ECL
allowance
|
777,279
|
554,384
|
|
|
|
|
|
ECL
allowance
|
(1,071)
|
(140)
|
|
Amounts
due from other banks and other financial institutions
|
776,208
|
554,244
|
The
credit ratings are presented by reference to the credit ratings of
Standard & Poor’s credit rating agency or analogues of
similar international agencies.
As at
31 December 2019, funds provided as collateral included a security
deposit of a participant of MasterCard system in the amount of KZT
270,849 thousand (31 December 2018: KZT 271,134 thousand) and a
security deposit of a participant of Visa International system in
the amount of KZT 131,430 thousand (31 December 2018: KZT 83,250
thousand) and deposit placed as collateral of the Group’s
liabilities to the KASE in the amount of KZT 375,000 thousand (31
December 2018: KZT 200,000 thousand).
Concentration of amounts due from other banks and other financial
institutions
As at
31 December 2019 and 31 December 2018, the Group has amounts due
from three financial institutions which balances exceed 10% of
total due from financial institutions. The aggregate balances of
amounts due from these counterparties as at 31 December 2019 were
KZT 776,208 thousand (31 December 2018: KZT 554,244
thousand).
All
balances of amounts due from other banks and other financial
institutions are allocated to Stage 1 for ECL measurement purposes.
An analysis of changes in the ECL allowances during the year is as
follows:
|
|
Stage 1
|
Total
|
|
|
|
|
|
ECL
allowance as at 1 January 2019
|
(140)
|
(140)
|
|
Net change in the
allowance for the year (Note
19)
|
(933)
|
(933)
|
|
Foreign exchange
adjustments
|
2
|
2
|
|
ECL
allowance as at 31 December 2019
|
(1,071)
|
(1,071)
|
23
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
|
|
Stage 1
|
Total
|
|
|
|
|
|
ECL
allowance as at 1 January 2018
|
(107)
|
(107)
|
|
Net change in the
allowance for the year (Note
19)
|
(9)
|
(9)
|
|
Foreign exchange
adjustments
|
(24)
|
(24)
|
|
ECL
allowance as at 31 December 2018
|
(140)
|
(140)
|
7.
Loans to customers
As at
31 December 2019, loans to customers comprise:
24
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
As at
31 December 2018, loans to customers comprise:
The
Group changed the classification of loans to customers as at 31
December 2018 in the consolidated financial statements to agree
with the requirements of the Parent.
25
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans
Information
on the quality of individually significant loans at 31 December
2019 is presented in the table below:
|
|
31 December 2019
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loans less ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
significant loans issued to small and medium
businesses
|
|
|
|
|
|
- not
overdue
|
12,257,867
|
(2,137)
|
12,255,730
|
0.0%
|
|
- overdue for less
than 30 days
|
293,650
|
–
|
293,650
|
0.0%
|
|
Stage
1 loans
|
12,551,517
|
(2,137)
|
12,549,380
|
0.0%
|
|
|
|
|
|
|
|
Stage
2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
1,683,901
|
(201,140)
|
1,482,761
|
11.9%
|
|
- overdue for less
than 30 days
|
509,267
|
–
|
509,267
|
0.0%
|
|
- overdue for less
than 90 days
|
822,305
|
–
|
822,305
|
0.0%
|
|
- overdue for 90
days to 180 days
|
55,621
|
–
|
55,621
|
0.0%
|
|
- overdue for 180
days to 360 days
|
51,284
|
(51,284)
|
–
|
100.0%
|
|
- overdue for more
than 360 days
|
2,117,730
|
(1,583,917)
|
533,813
|
74.8%
|
|
Stage
2 and Stage 3 loans
|
5,240,108
|
(1,836,341)
|
3,403,767
|
35.0%
|
|
|
|
|
|
|
|
POCI
|
–
|
–
|
–
|
–
|
|
Total
individually significant loans issued to small and medium
businesses
|
17,791,625
|
(1,838,478)
|
15,953,147
|
10.3%
|
26
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
27
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Information
on the quality of individually significant loans at 31 December
2018 is presented in the table below:
|
|
31 December 2018
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loans less ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
significant loans issued to small and medium
businesses
|
|
|
|
|
|
- not
overdue
|
15,998,597
|
(2,547)
|
15,996,050
|
0.0%
|
|
- overdue for less
than 30 days
|
392,649
|
(7,389)
|
385,260
|
1.9%
|
|
Stage
1 loans
|
16,391,246
|
(9,936)
|
16,381,310
|
0.1%
|
|
|
|
|
|
|
|
Stage
2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
3,712,805
|
(138,106)
|
3,574,699
|
3.7%
|
|
- overdue for less
than 30 days
|
1,086,232
|
–
|
1,086,232
|
0.0%
|
|
- overdue for less
than 90 days
|
58,016
|
–
|
58,016
|
0.0%
|
|
- overdue for 90
days to 180 days
|
–
|
–
|
–
|
–
|
|
- overdue for 180
days to 360 days
|
405,307
|
(66,888)
|
338,419
|
16.5%
|
|
- overdue for more
than 360 days
|
1,337,875
|
(689,008)
|
648,867
|
51.5%
|
|
Stage
2 and Stage 3 loans
|
6,600,235
|
(894,002)
|
5,706,233
|
13.5%
|
|
|
|
|
|
|
|
POCI
|
–
|
–
|
–
|
–
|
|
Total
individually significant loans issued to small and medium
businesses
|
22,991,481
|
(903,938)
|
22,087,543
|
3.9%
|
28
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
29
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
|
|
31 December 2018
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loans less ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
significant other loans secured by collateral
|
|
|
|
|
|
- not
overdue
|
1,789,480
|
–
|
1,789,480
|
0.0%
|
|
- overdue for less
than 30 days
|
96,644
|
–
|
96,644
|
0.0%
|
|
Stage
1 loans
|
1,886,124
|
–
|
1,886,124
|
0.0%
|
|
|
|
|
|
|
|
Stage
2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
180,975
|
–
|
180,975
|
0.0%
|
|
- overdue for less
than 30 days
|
286,725
|
–
|
286,725
|
0.0%
|
|
- overdue for less
than 90 days
|
327,793
|
–
|
327,793
|
0.0%
|
|
- overdue for 90
days to 180 days
|
–
|
–
|
–
|
–
|
|
- overdue for 180
days to 360 days
|
58,238
|
–
|
58,238
|
0.0%
|
|
- overdue for more
than 360 days
|
69,284
|
–
|
69,284
|
0.0%
|
|
Stage
2 and Stage 3 loans
|
923,015
|
–
|
923,015
|
0.0%
|
|
|
|
|
|
|
|
POCI
|
150,846
|
(32)
|
150,814
|
0.0%
|
|
Total
individually significant other loans secured by
collateral
|
2,959,985
|
(32)
|
2,959,953
|
0.0%
|
30
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance
Analysis
of movements in ECL allowance of individually significant loans for
the year ended 31 December 2019 are as follows:
31
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
32
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
33
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
Analysis
of movements in ECL allowance of individually significant loans for
the year ended 31 December 2018 are as follows:
34
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
35
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
36
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually significant loans (continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
37
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
The
following table provides information on the credit quality of
individually insignificant loans collectively assessed for
impairment as at 31 December 2019:
|
|
31 December 2019
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loansless ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
insignificant loans issued to small and medium
businesses
|
|
|
|
|
|
- not
overdue
|
8,258,145
|
(4,042)
|
8,254,103
|
0.0%
|
|
- overdue for less
than 30 days
|
477,740
|
(6,367)
|
471,373
|
1.3%
|
|
Stage 1 loans
|
8,735,885
|
(10,409)
|
8,725,476
|
0.1%
|
|
|
|
|
|
|
|
Stage 2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
364,155
|
(1,448)
|
362,707
|
0.4%
|
|
- overdue for less
than 30 days
|
124,942
|
(62)
|
124,880
|
0.0%
|
|
- overdue for less
than 90 days
|
739,329
|
(22,074)
|
717,255
|
3.0%
|
|
- overdue for 90
days to 360 days
|
84,150
|
(228)
|
83,922
|
0.3%
|
|
- overdue for 180
days to 360 days
|
375,063
|
(41,285)
|
333,778
|
11.0%
|
|
- overdue for more
than 360 days
|
195,479
|
(111,075)
|
84,404
|
56.8%
|
|
Stage 2 and Stage 3 loans
|
1,883,118
|
(176,172)
|
1,706,946
|
9.4%
|
|
|
|
|
|
|
|
POCI
|
–
|
–
|
–
|
–
|
|
Total
individually insignificant loans issued to small and medium
businesses
|
10,619,003
|
(186,581)
|
10,432,422
|
1.8%
|
|
|
31 December 2019
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loans less ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
insignificant mortgage loans
|
|
|
|
|
|
- not
overdue
|
1,417,344
|
(220)
|
1,417,124
|
0.0%
|
|
- overdue for less
than 30 days
|
3,428
|
(84)
|
3,344
|
2.5%
|
|
Stage 1 loans
|
1,420,772
|
(304)
|
1,420,468
|
0.0%
|
|
|
|
|
|
|
|
Stage 2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
154,837
|
–
|
154,837
|
0.0%
|
|
- overdue for less
than 30 days
|
581
|
–
|
581
|
0.0%
|
|
- overdue for less
than 90 days
|
42,260
|
–
|
42,260
|
0.0%
|
|
- overdue for 90
days to 360 days
|
66,681
|
(15,396)
|
51,285
|
23.1%
|
|
- overdue for 180
days to 360 days
|
53,797
|
(9,747)
|
44,050
|
18.1%
|
|
- overdue for more
than 360 days
|
46,197
|
(31,897)
|
14,300
|
69.0%
|
|
Stage 2 and Stage 3 loans
|
364,353
|
(57,040)
|
307,313
|
15.7%
|
|
|
|
|
|
|
|
POCI
|
766,002
|
–
|
766,002
|
0.0%
|
|
Total
individually insignificant mortgage loans
|
2,551,127
|
(57,344)
|
2,493,783
|
2.2%
|
38
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
39
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
|
|
31 December 2019
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loans less ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
insignificant other loans secured by collateral
|
|
|
|
|
|
- not
overdue
|
27,818,295
|
(4,486)
|
27,813,809
|
0.0%
|
|
- overdue for less
than 30 days
|
1,557,125
|
(2,135)
|
1,554,990
|
0.1%
|
|
Stage 1 loans
|
29,375,420
|
(6,621)
|
29,368,799
|
0.0%
|
|
|
|
|
|
|
|
Stage 2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
430,809
|
(5,214)
|
425,595
|
1.2%
|
|
- overdue for less
than 30 days
|
111,046
|
–
|
111,046
|
0.0%
|
|
- overdue for less
than 90 days
|
1,809,443
|
(1,333)
|
1,808,110
|
0.1%
|
|
- overdue for 90
days to 360 days
|
589,157
|
(6,043)
|
583,114
|
1.0%
|
|
- overdue for 180
days to 360 days
|
708,771
|
(34,037)
|
674,734
|
4.8%
|
|
- overdue for more
than 360 days
|
1,372,161
|
(520,823)
|
851,338
|
38.0%
|
|
Stage 2 and Stage 3 loans
|
5,021,387
|
(567,450)
|
4,453,937
|
11.3%
|
|
|
|
|
|
|
|
POCI
|
804,756
|
(13)
|
804,743
|
0.0%
|
|
Total
individually insignificant other loans secured by
collateral
|
35,201,563
|
(574,084)
|
34,627,479
|
1.6%
|
40
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
The
following table provides information on the credit quality of
individually insignificant loans collectively assessed for
impairment as at 31 December 2018:
|
|
31 December 2018
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loans less ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
insignificant loans issued to small and medium
businesses
|
|
|
|
|
|
- not
overdue
|
9,325,272
|
(1,159)
|
9,324,113
|
0.0%
|
|
- overdue for less
than 30 days
|
191,690
|
(3,605)
|
188,085
|
1.9%
|
|
Stage 1 loans
|
9,516,962
|
(4,764)
|
9,512,198
|
0.1%
|
|
|
|
|
|
|
|
Stage 2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
585,844
|
(9,699)
|
576,145
|
1.7%
|
|
- overdue for less
than 30 days
|
105,717
|
–
|
105,717
|
0.0%
|
|
- overdue for less
than 90 days
|
196,784
|
(1)
|
196,783
|
0.0%
|
|
- overdue for 90
days to 360 days
|
79,056
|
(188)
|
78,868
|
0.2%
|
|
- overdue for 180
days to 360 days
|
80,864
|
(13,937)
|
66,927
|
17.2%
|
|
- overdue for more
than 360 days
|
259,350
|
(72,588)
|
186,762
|
28.0%
|
|
Stage 2 and Stage 3 loans
|
1,307,615
|
(96,413)
|
1,211,202
|
7.4%
|
|
|
|
|
|
|
|
POCI
|
–
|
–
|
–
|
–
|
|
Total
individually insignificant loans issued to small and medium
businesses
|
10,824,577
|
(101,177)
|
10,723,400
|
0.9%
|
|
|
31 December 2018
|
|||
|
|
Loans before ECL allowance
|
ECL allowance
|
Loansl ess ECL allowance
|
ECL allowance to gross loans before ECL allowance, (%)
|
|
Individually
insignificant mortgage loans
|
|
|
|
|
|
- not
overdue
|
1,967,280
|
(558)
|
1,966,722
|
0.0%
|
|
- overdue for less
than 30 days
|
41,186
|
(1,562)
|
39,624
|
3.8%
|
|
Stage 1 loans
|
2,008,466
|
(2,120)
|
2,006,346
|
0.1%
|
|
|
|
|
|
|
|
Stage 2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
358,192
|
(4,995)
|
353,197
|
1.4%
|
|
- overdue for less
than 30 days
|
3,665
|
–
|
3,665
|
0.0%
|
|
- overdue for less
than 90 days
|
55,814
|
–
|
55,814
|
0.0%
|
|
- overdue for 90
days to 360 days
|
11,568
|
–
|
11,568
|
0.0%
|
|
- overdue for 180
days to 360 days
|
9,518
|
(3,557)
|
5,961
|
37.4%
|
|
- overdue for more
than 360 days
|
166,663
|
(71,241)
|
95,422
|
42.7%
|
|
Stage 2 and Stage 3 loans
|
605,420
|
(79,793)
|
525,627
|
13.2%
|
|
|
|
|
|
|
|
POCI
|
842,617
|
(10)
|
842,607
|
0.0%
|
|
Total
individually insignificant mortgage loans
|
3,456,503
|
(81,923)
|
3,374,580
|
2.4%
|
41
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
42
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
|
|
31 December 2018
|
|||
|
|
Loansbefore ECLallowance
|
ECL allowance
|
Loansless ECLallowance
|
ECL allowanceto gross loansbefore ECLallowance, (%)
|
|
Individually
insignificant other loans secured by collateral
|
|
|
|
|
|
- not
overdue
|
25,704,595
|
(3,708)
|
25,700,887
|
0.0%
|
|
- overdue for less
than 30 days
|
1,166,014
|
(130)
|
1,165,884
|
0.0%
|
|
Stage 1 loans
|
26,870,609
|
(3,838)
|
26,866,771
|
0.0%
|
|
|
|
|
|
|
|
Stage 2 and Stage 3 loans
|
|
|
|
|
|
- not
overdue
|
924,567
|
(4,817)
|
919,750
|
0.5%
|
|
- overdue for less
than 30 days
|
283,993
|
(134)
|
283,859
|
0.0%
|
|
- overdue for less
than 90 days
|
893,655
|
(22,426)
|
871,229
|
2.5%
|
|
- overdue for 90
days to 360 days
|
340,383
|
–
|
340,383
|
0.0%
|
|
- overdue for 180
days to 360 days
|
442,287
|
(6,782)
|
435,505
|
1.5%
|
|
- overdue for more
than 360 days
|
1,062,420
|
(187,468)
|
874,952
|
17.6%
|
|
Stage 2 and Stage 3 loans
|
3,947,305
|
(221,627)
|
3,725,678
|
5.6%
|
|
|
|
|
|
|
|
POCI
|
986,857
|
(361)
|
986,496
|
0.0%
|
|
Total
individually insignificant other loans secured by
collateral
|
31,804,771
|
(225,826)
|
31,578,945
|
0.7%
|
43
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance
Analysis
of movements in gross carrying amount and ECL allowance of
individually insignificant loans for the year ended
31 December 2019 are as follows:
44
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
45
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
46
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
47
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
48
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
Analysis
of movements in ECL allowance of individually insignificant loans
for the year ended 31 December 2018 are as follows:
49
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
50
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
51
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
52
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
53
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Quality of individually insignificant loans
(continued)
Analysis of changes in gross carrying value and corresponding ECL
allowance (continued)
Analysis of collateral and other enhancements
The
amount and type of collateral required depends on an assessment of
the credit risk of the counterparty. Guidelines are implemented
regarding the acceptability of types of collateral and valuation
parameters.
Management
monitors the market value of collateral and requests additional
collateral in accordance with the underlying agreement during its
review of the adequacy of the ECL allowance.
The
main types of collateral obtained are as follows:
●
For small and
medium businesses lending – collateral of real estate
properties, production equipment, inventory and trade
receivables;
●
For retail lending,
mortgages over residential properties – collateral of
transport, cash and cash equivalents and guarantees of third
parties. Management monitors the market value of collateral,
requests additional collateral in accordance with the underlying
agreement, and monitors the market value of collateral obtained
during its review of the adequacy of the ECL
allowance.
54
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Analysis of collateral and other enhancements
(continued)
In
absence of collateral or other credit enhancements, ECL in respect
of Stage 3 loans to customers as at 31 December 2019 and 2018 would
have been higher by:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Car
loans
|
3,042,659
|
4,617,741
|
|
Loans issued to
small and medium-sized businesses
|
191,803
|
415,957
|
|
Consumer
loans
|
–
|
119,736
|
|
Mortgages
|
–
|
–
|
|
Credit
cards
|
2,407
|
6,910
|
|
Other loans secured
by collateral
|
4,408,189
|
3,888,822
|
|
|
7,645,058
|
9,049,166
|
Repossessed collateral
It is
the Bank’s policy to dispose of repossessed properties in an
orderly fashion. The proceeds are used to reduce or repay the
outstanding claim. In general, the Bank does not occupy repossessed
properties for business use. The carrying value of the assets
repossessed during the period and held as at the reporting date is
as follows:
|
|
2019
|
2018
|
|
|
|
|
|
Buildings and
land
|
1,696,831
|
1,958,289
|
|
Total
repossessed collateral
|
1,696,831
|
1,958,289
|
Concentration of loans to customers
Loans
were issued primarily to customers located within the Republic of
Kazakhstan operating in the following economic
sectors:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Individuals
|
43,345,908
|
43,055,256
|
|
Trade
of consumer goods
|
8,952,934
|
9,964,374
|
|
Services
|
6,049,526
|
9,218,377
|
|
Real
estate transactions and rent
|
5,240,497
|
5,948,362
|
|
Industrial
constructions
|
1,966,673
|
1,806,009
|
|
Medicine,
science and education
|
1,248,787
|
1,822,537
|
|
Financial
services
|
1,128,957
|
381,178
|
|
Transport
and logistics services
|
958,895
|
1,630,844
|
|
Production
and sale of cars, machinery and equipment
|
903,853
|
982,864
|
|
Extraction
and processing of mineral resources, metal and chemical
industry
|
726,254
|
736,528
|
|
Civil
engineering
|
681,931
|
812,487
|
|
Agriculture
|
274,040
|
181,417
|
|
Manufacturing
sector
|
228,184
|
361,252
|
|
Telecommunication
|
130,296
|
89,086
|
|
Other
|
11,948
|
12,088
|
|
|
71,848,683
|
77,002,659
|
|
|
|
|
|
ECL
allowance
|
(3,724,356)
|
(2,398,221)
|
|
|
68,124,327
|
74,604,438
|
As at
31 December 2019 and 2018, the Group has no borrowers or groups of
related borrowers whose loan balances exceed 10% of total loans to
customers.
55
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
7.
Loans to customers (continued)
Restructured and modified loans
The
Group derecognises a financial asset, such as a loan to a customer,
when the terms and conditions have been renegotiated to the extent
that, substantially, it becomes a new loan, with the difference
recognised as a derecognition gain or loss, to the extent that an
impairment loss has not already been recorded. The newly recognised
loans are classified as Stage 1 for ECL measurement purposes,
unless the new loan is deemed to be POCI. If the modification does
not result in cash flows that are substantially different, the
modification does not result in derecognition. Based on the change
in cash flows discounted at the original EIR, the Group records a
modification gain or loss to the extent that an impairment loss has
not already been recorded.
As at
31 December 2019, POCI loans to customers of the Bank comprise
loans recognised by the Bank as a result of revising the terms of
loan agreements as part of the state program to refinance mortgage
loans. Loss on derecognition of modified loans recorded in the
consolidated statement of comprehensive income for 2019 amounted to
KZT 26,666 thousand (for 2018: KZT 732,351
thousand).
The
table below includes Stage 2 and 3 assets that were modified during
the period, with the related modification loss suffered by the
Group.
|
|
2019
|
2018
|
|
Loans to
customers modified during the period
|
|
|
|
Amortised cost before
modification
|
5,397,281
|
2,847,196
|
|
Net loss on modification of loans
to customers not resulting in derecognition
|
(87,862)
|
(95,080)
|
8.
Investment securities
Investment
securities comprise:
An
analysis of changes in the ECL allowance in relation to investment
securities at amortised cost for the years ended 31 December
2019 and 2018 is as follows:
An
analysis of changes in the ECL allowance in relation to investment
securities at FVOCI for the years ended 31 December 2019 and 2018
is as follows:
|
Debt securities measured at FVOCI
|
2019
|
2018
|
|
|
|
|
|
ECL allowance as
at 1 January
|
(179)
|
(923)
|
|
Net change in the allowance for the
year (Note
19)
|
179
|
744
|
|
At 31
December
|
–
|
(179)
|
As at
31 December 2019 and 2018, investment securities are allocated to
Stage 1 for ECL measurement purposes.
9.
Property and equipment
Movement
in property and equipment is presented as follows:
The
Group used independent appraiser services to determine the fair
value of land, buildings and constructions that are in ownership of
the Group in October of 2016. Fair value was determined by
reference to market-based evidence. More details about the fair
value of land, buildings and constructions are disclosed in
Note 25.
If the
land, buildings and constructions were accounted for at historical
cost, their net book value would be at 31 December:
|
|
2019
|
2018
|
|
|
|
|
|
Cost
|
5,007,157
|
5,007,157
|
|
Accumulated
depreciation
|
(490,132)
|
(417,541)
|
|
Net
book value
|
4,517,025
|
4,589,616
|
Cost of
fully depreciated assets that are in use by the Group as at 31
December 2019 amounts to KZT 419,748 thousand (31 December
2018: KZT 360,203 thousand).
57
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
10.
Intangible assets
The
movements in intangible assets were as follows:
11.
Other assets
Other
assets comprise:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Other
receivables
|
536,626
|
295,208
|
|
ECL
allowance
|
(34,562)
|
(12,578)
|
|
Other
financial assets
|
502,064
|
282,630
|
|
|
|
|
|
Inventories
|
1,713,650
|
1,969,582
|
|
Prepaid
expenses
|
485,264
|
163,780
|
|
Taxes
prepaid other than corporate income tax
|
140,116
|
113,629
|
|
Prepayment
for property and equipment and intangible assets
|
77,950
|
36,767
|
|
Other
|
43,297
|
87,052
|
|
Total
other non-financial assets
|
2,460,277
|
2,370,810
|
|
Other
assets
|
2,962,341
|
2,653,440
|
As at
31 December 2019, included in inventory is collateralised property
received by the Group for repayment of loans to customers in the
total amount of KZT 1,696,831 thousand (31 December 2018: KZT
1,958,289 thousand).
In
2019, the Group repossessed pledged collateral against repayment of
borrowers’ debts in the amount of
KZT 352,199 thousand (in 2018: KZT 1,583,356 thousand)
and sold the repossessed collateral with a total carrying amount of
KZT 577,693 thousand (in 2018: KZT 728,965 thousand), including
those sold without instalment payment in the amount of KZT 10,485
thousand (in 2018: KZT 93,230 thousand), property with a carrying
amount of KZT 533,768 thousand sold on instalment payment terms (in
2018: KZT 530,372 thousand), and returned the repossessed
collateral to borrowers with a carrying amount of KZT 33,440
thousand as part of the program to refinance mortgage loans to
customers (in 2018: KZT 105,363 thousand). In 2019, the Group
conducted an analysis for impairment of inventory and recognised a
loss in the amount of KZT 35,964 thousand.
58
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
11.
Other assets (continued)
An
analysis of changes in the ECLs for other financial assets for the
year ended 31 December 2019 is as follows:
|
|
Stage 1
|
Stage 3
|
Total
|
|
|
|
|
|
|
ECL allowance as at 1 January 2019
|
(12,578)
|
–
|
(12,578)
|
|
Transfers
to Stage 3
|
10,724
|
(10,724)
|
–
|
|
Net change in the allowance for the year
(Note
19)
|
–
|
(22,026)
|
(22,026)
|
|
Foreign
exchange adjustments
|
42
|
–
|
42
|
|
ECL allowance as at 31 December 2019
|
(1,812)
|
(32,750)
|
(34,562)
|
An
analysis of changes in the ECLs for other financial assets for the
year ended 31 December 2018 is as follows:
|
|
Stage 1
|
Stage 3
|
Total
|
|
|
|
|
|
|
ECL allowance as at 1 January 2018
|
(797)
|
–
|
(797)
|
|
Net change in the allowance for the year
(Note
19)
|
(11,467)
|
–
|
(11,467)
|
|
Foreign
exchange adjustments
|
(314)
|
–
|
(314)
|
|
ECL
allowance as at 31 December 2019
|
(12,578)
|
–
|
(12,578)
|
12.
Taxation
The
corporate income tax expenses comprise:
The
Republic of Kazakhstan was only one tax jurisdiction in which the
Group’s income is taxable. In accordance with tax legislation
the applied corporate income tax rate is 20% in 2019 and
2018.
The
reconciliation between the corporate income tax expense in the
accompanying consolidated financial statements and profit before
corporate income tax multiplied by the statutory tax rate for the
periods ended 31 December is as follows:
|
|
2019
|
2018
|
|
|
|
|
|
Profit
before corporate income tax expense
|
2,560,738
|
1,808,265
|
|
Statutory tax
rate
|
20%
|
20%
|
|
Theoretical
corporate income tax expense at the statutory rate
|
512,148
|
361,653
|
|
|
|
|
|
Non-deductible
interest expenses on preferred shares
|
16,000
|
16,000
|
|
Non-deductible
administrative expenses
|
24,860
|
7,281
|
|
Other permanent
differences
|
4,934
|
3,645
|
|
Corporate
income tax expense
|
557,942
|
388,579
|
As at
31 December 2019, current corporate income tax liabilities
comprised KZT 209,187 thousand (31 December 2018: current corporate
income tax assets comprised KZT 133,801 thousand).
59
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
12.
Taxation (continued)
Deferred
corporate income tax assets and liabilities, and their movement for
respective years comprised the following at
31 December:
In
accordance with the effective tax legislation of the Republic of
Kazakhstan, tax losses are carried forward for a period of ten
years.
13.
Amounts due to banks and other financial institutions
Amounts
due from banks and other financial institutions
comprise:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Loans and deposits
from governmental organisations
|
7,933,858
|
7,868,144
|
|
Loans from
international financial institutions
|
1,177,661
|
3,041,434
|
|
Amounts
due to banks and other financial institutions
|
9,111,519
|
10,909,578
|
As at
31 December 2019, loans and deposits from governmental institutions
included loans from Entrepreneurship Development Fund
“Damu” JSC in the amount of KZT 5,721,225 thousand (31
December 2018: KZT 6,572,886 thousand) as part of the state program
for supporting small and medium businesses by the banking sector,
as well as deposits in the amount of KZT 2,212,633 thousand
received from Kazakhstan Sustainability Fund JSC as part of the
state program to refinance mortgage loans to customers (31 December
2018: KZT 1,295,258 thousand). Deposits attracted by the Group from
Kazakhstan Sustainability Fund JSC are expressed in tenge, have a
nominal interest rate of 0.1% per annum and are repayable in 2038.
The funds were received at below-market interest rates to recover
losses from refinancing mortgage loans to customers on non-market
terms. The fair value of deposits at initial recognition was
determined by the Group using market rates from 13.0% to 13.5% per
annum (in 2018: 14.5% per annum). The difference between the
nominal and fair value of deposits at initial recognition in the
amount of KZT 84,061 thousand (in 2018: KZT 2,920,290 thousand) was
recorded by the Group as “Gain from government grant”
in the consolidated statement of comprehensive income. The loans
attracted from Entrepreneurship Development Fund “Damu”
JSC are denominated in tenge, bear interest rates of 3.0% to 9.58%
per annum and mature in 2022-2023.
As at
31 December 2019, loans from international financial institutions
comprise loans received from the European Bank for Reconstruction
and Development in the amount of KZT 1,177,661 thousand
(31 December 2018: KZT 3,041,434 thousand). The
loans are denominated in KZT, bear interest rate of 7.95% per annum
and mature in 2020.
60
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
14.
Amounts due to customers
Amounts
due to customers comprise:
|
|
31 December
2019
|
31 December
2018
|
|
Current
accounts and demand deposits
|
|
|
|
- Retail
customers
|
2,435,282
|
1,748,597
|
|
- Corporate
customers
|
16,458,064
|
16,466,053
|
|
|
|
|
|
Time
deposits
|
|
|
|
- Retail
customers
|
33,629,202
|
30,072,092
|
|
- Corporate
customers
|
30,225,503
|
47,750,214
|
|
|
|
|
|
Guarantee
deposits
|
|
|
|
- Retail
customers
|
1,659,251
|
3,654,509
|
|
-
Corporate customers
|
1,394,996
|
840,719
|
|
|
85,802,298
|
100,532,184
|
|
|
|
|
|
Held as security
against loans to customers
|
1,441,500
|
3,488,715
|
|
Held as security
against guarantees (Note
23)
|
1,612,747
|
1,006,513
|
Below
is the breakdown of due to customers by industry
sectors:
As at
31 December 2019, the Group had ten major clients, which accounted
for 26% of the gross balance of current accounts and deposits of
clients (31 December 2018: 32%). The total aggregate amount due to
such customers as at 31 December 2019 was KZT 22,395,695 thousand
(31 December 2018: KZT 31,975,505 thousand).
In
accordance with the Kazakh Civil Code, the Bank is obliged to repay
such deposits upon demand of a depositor. According to the current
conditions for accepting deposits, in cases where the term deposit
is returned to the depositor upon request before the expiration of
the term, the deposit interest is paid for the actual period of
placing the deposit.
61
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
15.
Subordinated debt
Subordinated
debt comprises:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Long-term loans
|
2,263,255
|
2,204,190
|
|
Debt component of preferred
shares
|
1,040,000
|
1,040,000
|
|
Subordinated
debt
|
3,303,255
|
3,244,190
|
Details
on long-term subordinated loans received are provided
below:
|
Creditor
|
|
Borro-wing currency
|
Nominal interest rate
|
|
Date
of issue
|
|
Maturity
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Development
LLP
|
|
Tenge
|
7.00%
|
|
20
June2011
|
|
24
July2033
|
837,009
|
823,084
|
|
Maglink Limited
|
|
US
Dollar
|
3.00%
|
|
28
June2011
|
|
20
June2033
|
364,364
|
352,490
|
|
Global Development
LLP
|
|
Tenge
|
7.00%
|
|
23
June2011
|
|
24
July2033
|
29,448
|
28,949
|
|
Global Development
LLP
|
|
Tenge
|
7.00%
|
|
29 August2016
|
|
24 July2033
|
1,032,434
|
999,667
|
|
|
|
|
|
|
|
|
2,263,255
|
2,204,190
|
|
In
December 2010 the Bank placed 1,000,000 preferred shares at the
placement value of KZT 1,000 per share. These preferred shares do
not have any voting rights unless payment of preferred dividends
has been delayed for three months and carry a cumulative dividend
of a minimum of 8% per annum, but not less than dividends on
ordinary shares.
In
accordance with IAS 32, if the non-redeemable preferred share
establishes a contractual right to a dividend, it contains a
financial liability in respect of the dividends, whereby the net
present value of the obligation to distribute dividends is shown as
a liability and the balance of the issue proceeds as equity. In
2019 and 2018, the dividend expense on preferred shares amounted to
KZT 80,000 thousand and was classified as interest expense in
accordance with IAS 32.
On 10
October 2018, the terms of the subordinated loan from Maglink
Limited were revised and the interest rate was reduced from 4.00%
to 3.00% per annum. On 20 December 2018, the terms of subordinated
loans from Global Development LLP were revised and the interest
rate was reduced from 8.75%-10.00% to 7.00% per annum. These
significant changes in the terms of the financial liabilities have
led to derecognition of the original liability and recognition of a
new liability with difference in the carrying value of liabilities
recognised in the total amount of KZT 1,121,665 thousand in profit
or loss.
The
fair value of modified loans at initial recognition was determined
by the Bank using market interest rates of 10.77% per annum for the
loan in US Dollars and 14.28% for loans denominated in
tenge.
16.
Other liabilities
Other
liabilities comprise:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Payables to
suppliers
|
74,332
|
72,172
|
|
Other financial
liabilities
|
55,655
|
52,022
|
|
Other financial
liabilities
|
129,987
|
124,194
|
|
|
|
|
|
Accrued expenses on
premiums
|
443,279
|
247,850
|
|
Accrued expenses for unused
vacations
|
19,964
|
33,546
|
|
Other taxes payable other than
corporate income tax
|
7,343
|
9,761
|
|
Fees and commissions of future
periods on issued guarantees
|
13,255
|
43,512
|
|
Provisions
|
–
|
16,247
|
|
Other non-financial
liabilities
|
224
|
162
|
|
Other
non-financial liabilities
|
484,065
|
351,078
|
|
Other
liabilities
|
614,052
|
475,272
|
62
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
17.
Equity
As at
31 December 2019 and 2018, the Bank has 13,500,000 authorised
ordinary shares. As at 31 December 2019 and 2018, outstanding
ordinary shares in the amount of 9,356,140 shares were fully paid
by the Shareholder at the price of placement of
KZT 1 thousand per one ordinary share.
There
were no dividends declared or paid on common shares in
2019.
Subject
to the decision of the sole shareholder dated 10 August 2018, the
Bank declared and paid dividends on ordinary shares for the year
ended 31 December 2017, in the amount of KZT 457,140
thousand.
The
carrying amount of one ordinary share calculated in accordance with
the methodology indicated in the Listing Rules of Kazakhstan Stock
Exchange as at 31 December 2019 and 2018 is presented
below:
|
|
31 December 2019
|
31 December 2018
|
||||
|
Type of shares
|
Number of outstanding shares
|
Net assets (thousands of tenge)
|
Book value per share (tenge)
|
Number of outstanding shares
|
Net assets (thousands of tenge)
|
Book value per share (tenge)
|
|
|
|
|
|
|
|
|
|
Ordinary
|
9,356,140
|
15,000,818
|
1,603.31
|
9,356,140
|
13,030,978
|
1,392.77
|
Revaluation reserve for property and equipment
The
revaluation reserve for property and equipment is used to record
increases in the fair value of land and buildings and decreases to
the extent that such decrease relates to an increase on the same
asset previously recognised in equity.
As at
31 December 2019, the Group’s property and equipment
revaluation reserve is KZT 761,249 thousand (31 December 2018:
KZT 772,815 thousand).
18.
Interest income and interest expense
Interest
income and interest expense comprise:
|
|
2019
|
2018
|
|
|
|
|
|
Interest
income calculated using effective interest rate
|
|
|
|
Loans
to customers
|
13,312,631
|
12,374,311
|
|
Cash
and cash equivalents
|
302,991
|
370,199
|
|
Amounts
due from other banks and other financial institutions
|
5,682
|
133,949
|
|
Investment
securities
|
|
|
|
-
measured at FVOCI
|
84,284
|
170,820
|
|
-
measured at amortised cost
|
28,418
|
9,226
|
|
Other
assets
|
68,066
|
29,161
|
|
Interest
income
|
13,802,072
|
13,087,666
|
|
|
|
|
|
Interest
expense calculated using effective interest rate
|
|
|
|
Amounts due to
customers
|
(6,069,985)
|
(7,171,670)
|
|
Amounts due to
banks and other financial institutions
|
(844,207)
|
(551,890)
|
|
Subordinated
loan
|
(369,566)
|
(341,874)
|
|
Other interest
expense
|
(3,447)
|
–
|
|
|
(7,287,205)
|
(8,065,434)
|
|
|
|
|
|
Lease liabilities
(Note 3)
|
(34,593)
|
–
|
|
Interest
expense
|
(7,321,798)
|
(8,065,434)
|
|
Net
interest income
|
6,480,274
|
5,022,232
|
In
2019, interest income on loans to customer comprises a loss from
modification not resulting in derecognition in the amount of KZT
87,862 thousand (in 2018: KZT 95,080 thousand) (Note 7).
63
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
19.
Credit loss expense
Credit
loss expense on financial instruments for the year period ended 31
December 2019 comprises the following:
|
|
Notes
|
Stage 1
|
Stage 2
|
Stage 3
|
POCI
|
Total
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
5
|
2,941
|
–
|
–
|
–
|
2,941
|
|
Amounts
due from other banks and other financial institutions
|
6
|
(933)
|
–
|
–
|
–
|
(933)
|
|
Loans
to customers at amortised cost
|
7
|
77,672
|
(156,648)
|
(1,522,050)
|
150
|
(1,600,876)
|
|
Debt
securities at amortised cost
|
8
|
(8,545)
|
–
|
–
|
–
|
(8,545)
|
|
Debt
securities at FVOCI
|
8
|
179
|
–
|
–
|
–
|
179
|
|
Other
financial assets
|
11
|
–
|
–
|
(22,026)
|
–
|
(22,026)
|
|
Credit
loss expense
|
|
71,314
|
(156,648)
|
(1,544,076)
|
150
|
(1,629,260)
|
Credit
loss expense on financial instruments for the year period ended 31
December 2018 comprises the following:
|
|
Notes
|
Stage 1
|
Stage 2
|
Stage 3
|
POCI
|
Total
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
5
|
(3,855)
|
–
|
–
|
–
|
(3,855)
|
|
Amounts
due from other banks and other financial institutions
|
6
|
(9)
|
–
|
–
|
–
|
(9)
|
|
Loans
to customers at amortised cost
|
7
|
(152,858)
|
74,691
|
(4,170,101)
|
(403)
|
(4,248,671)
|
|
Debt
securities at amortised cost
|
|
239
|
–
|
–
|
–
|
239
|
|
Debt
securities at FVOCI
|
8
|
744
|
–
|
–
|
–
|
744
|
|
Other
financial assets
|
11
|
(11,467)
|
–
|
–
|
–
|
(11,467)
|
|
Credit
loss expense
|
|
(167,206)
|
74,691
|
(4,170,101)
|
(403)
|
(4,263,019)
|
20.
Net fee and commission income
Net fee
and commission income comprises:
|
|
2019
|
2018
|
|
|
|
|
|
Payment
cards
|
789,708
|
203,309
|
|
Cash
transactions
|
783,876
|
790,892
|
|
Settlement
transactions
|
409,186
|
372,986
|
|
Guarantees
issued
|
296,474
|
180,289
|
|
Opening and
maintenance of customer accounts
|
87,322
|
88,697
|
|
Foreign currency
transactions
|
65,706
|
55,092
|
|
Other
|
65,123
|
76,063
|
|
Fee
and commission income
|
2,497,395
|
1,767,328
|
|
|
|
|
|
Transactions on
customers card accounts
|
(974,970)
|
(305,826)
|
|
Settlement
transactions
|
(78,630)
|
(67,313)
|
|
Transactions with
securities
|
(4,330)
|
(97)
|
|
Foreign currency
transactions
|
–
|
(1,361)
|
|
Other
|
(35,597)
|
(32,924)
|
|
Fee
and commission expense
|
(1,093,527)
|
(407,521)
|
|
Net
fee and commission income
|
1,403,868
|
1,359,807
|
64
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
21.
Personnel and administrative and other operating
expenses
Personnel
and administrative and other operating expenses
comprise:
|
|
2019
|
2018
|
|
|
|
|
|
Salaries and
bonuses
|
2,291,966
|
2,240,613
|
|
Social security
contributions
|
185,124
|
189,692
|
|
Personnel
expenses
|
2,477,090
|
2,430,305
|
|
|
|
|
|
Depreciation and
amortisation (Notes 9,
10)
|
397,135
|
296,439
|
|
Technical support
and software
|
227,214
|
208,559
|
|
Taxes other than
corporate income tax
|
214,304
|
207,061
|
|
Membership
fees
|
152,472
|
146,613
|
|
Expenses for
professional services
|
130,847
|
99,944
|
|
Security
|
98,638
|
100,943
|
|
Advertising and
marketing services
|
98,032
|
102,695
|
|
Communication and
information services
|
69,155
|
67,236
|
|
Repair and
maintenance
|
69,131
|
42,418
|
|
Rent
expenses
|
62,632
|
169,918
|
|
Utilities
|
51,488
|
58,599
|
|
Impairment of
inventory
|
38,575
|
–
|
|
Plastic cards
issuance expenses
|
28,177
|
23,098
|
|
Business trip
expenses
|
27,577
|
20,962
|
|
Office
supplies
|
15,540
|
13,558
|
|
Transport
|
4,654
|
4,347
|
|
Charity
|
3,575
|
300
|
|
Entertainment
|
2,883
|
3,455
|
|
Fines and
penalties
|
1,389
|
488
|
|
Loss on disposal of
property and equipment
|
–
|
1,753
|
|
Other
|
169,911
|
128,119
|
|
Administrative
and other operating expenses
|
1,863,329
|
1,696,505
|
22.
Earnings per share
Basic
earnings per share is calculated by dividing the net profit for the
period attributable to ordinary shareholders by the weighted
average number of participating shares outstanding during the
period.
The
following reflects the income and share data used in the basic and
diluted earnings per share computations:
|
|
2019
|
2018
|
|
|
|
|
|
Net profit for the
year attributable to the shareholder of the Group
|
2,002,796
|
1,419,686
|
|
Weighted average
number of ordinary shares for basic and diluted earnings per share
computation
|
9,356,140
|
9,356,140
|
|
Basic and diluted
earnings per share (in tenge)
|
214.06
|
151.74
|
As at
31 December 2019 and 2018, the Group did not have any financial
instruments diluting earnings per share.
23.
Commitments and contingencies
Operating environment
Kazakhstan
continues economic reforms and development of its legal, tax and
regulatory frameworks as required by a market economy. The future
stability of the Kazakh economy is largely dependent upon these
reforms and developments and the effectiveness of economic,
financial and monetary measures undertaken by the
government.
Interest
rates in tenge remain high in 2019, which resulted in a reduced
access to capital, a higher cost of capital, and increase in
uncertainty regarding economic growth, which could negatively
affect the Group’s future financial position, results of
operations and business prospects. Management believes it is taking
appropriate measures to support the sustainability of the
Group’s business in the current circumstances.
65
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
23.
Commitments and contingencies (continued)
Legal
The
Group is subject to various potential legal proceedings related to
business operations. The Group believes that the ultimate
liability, if any, arising from such actions or complaints will not
have a material adverse effect on the financial position or results
of operations of the Group.
The
Group assesses the likelihood of material liabilities arising from
individual circumstances and makes provision in its consolidated
financial statements only where it is probable that events giving
rise to the liability will occur and the amount of the liability
can be reasonably estimated. No provision has been made in these
consolidated financial statements for any of the above described
contingent liabilities.
Taxation
The tax
environment in the Republic of Kazakhstan is subject to change and
inconsistent application and interpretations. Discrepancies in the
interpretation of Kazakhstan laws and regulations of the Group and
Kazakhstan authorised bodies may result in additional charge of
taxes, fines and penalties.
Kazakhstan
legislation and tax practices are continually evolving and are
therefore subject to varying interpretations and frequent changes
that may be retroactive. In certain cases, in order to determine
the tax base, tax legislation refers to the provisions of IFRS,
whereas the interpretation of the respective provisions of IFRS by
the Kazakh tax authorities may differ from accounting policies,
judgements and estimates applied by the management in preparation
of these consolidated financial statements, which may result in
additional tax liabilities for the Group. The tax authorities may
perform a retrospective tax audit during five years after the
ending of the tax year.
The
Group’s management believes that its interpretations of the
relevant legislation are acceptable and the Group’s tax
position is justified.
Commitments and contingencies
The
Group’s commitments and contingencies comprised the
following:
|
|
31 December
2019
|
31 December
2018
|
|
Credit
related commitments
|
|
|
|
Guarantees
issued
|
6,084,259
|
5,284,063
|
|
Undrawn credit
lines
|
2,705,380
|
5,009,781
|
|
|
8,789,639
|
10,293,844
|
|
Operating
lease commitments
|
|
|
|
Not later than 1
year
|
–
|
16,901
|
|
From 1 to 5
years
|
–
|
3,023
|
|
|
–
|
19,924
|
|
|
|
|
|
Capital expenditure
commitments
|
16,711
|
32,867
|
|
Commitments
and contingencies before deducting collateral
|
8,806,350
|
10,346,635
|
|
|
|
|
|
Less amounts due to
customers held as security against guarantees (Note 14)
|
(1,612,747)
|
(1,006,513)
|
|
Commitments
and contingencies
|
7,193,603
|
9,340,122
|
The
total amount of contractual commitments on undrawn credit lines and
guarantees does not necessarily represent future cash requirements,
as these financial instruments may expire or terminate without
being funded. The loan commitment agreements stipulate the right of
the Group to unilaterally withdraw from the agreement should any
conditions unfavourable to the Group arise, including deterioration
of the borrower’s financial condition.
24.
Risk management
Introduction
Risk
management is inherent in the bank activities and is an essential
element of the Group’s operations. The major risks faced by
the Group are those related to market risk, credit risk, liquidity
risk and operational risks.
The
Group’s risk management policies aim to identify, analyse and
manage the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor continuously risk levels and adherence
to limits. Risk management policies and procedures are reviewed
regularly to reflect changes in market conditions, bank products
and services offered and emerging best practice.
66
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Risk management structure
Board of Directors
The
Board of Directors has overall responsibility for the oversight of
the risk management framework, overseeing the management of key
risks and reviewing its risk management policies and procedures as
well as approving significantly large exposures.
Management Board
The
Management Board is responsible for monitoring and implementation
of risk mitigation measures and making sure that the Group operates
within the established risk parameters. Moreover, the Head of Risk
Management Department is responsible for the overall risk
management and ensuring the implementation of common principles and
methods for identifying, measuring, managing and reporting both
financial and non-financial risks. He reports directly to the
Chairman of the Management Board and indirectly to the Board of
Directors.
Risk Committees
Credit,
market and liquidity risks, both at the portfolio and transactional
levels are managed and controlled through a system of Credit
Committees and an Asset and Liability Management Committee
(“ALCO”). For improving the efficiency of
decision-making process, the Group has established a hierarchy of
credit committees depending on the type and amount of risk
exposure.
Credit risk department
Both
external and internal risk factors are identified and managed
throughout the Group. Particular attention is given to identifying
the full range of risk factors and determining the level of
assurance over current risk mitigation procedures. Apart from the
standard credit and market risk analysis, the Risk Management
Department monitors financial and non-financial risks by holding
regular meetings with operational units in order to obtain expert
judgments in their respective areas of expertise.
Bank Treasury
Group
Treasury is responsible for managing the Group’s assets and
liabilities and the overall financial structure. It is also
primarily responsible for the funding and liquidity risks of the
Group.
Internal audit
Risk
management processes throughout the Group are audited annually by
the internal audit group that examines both the adequacy of the
procedures and the Group’s compliance with the procedures.
Internal Audit discusses the results of all assessments with
management, and reports its findings and recommendations to the
Board of Directors.
Risk measurement and reporting systems
The
Group’s risks are measured using a method which reflects both
the expected loss likely to arise in normal circumstances and
unexpected losses, which are an estimate of the ultimate actual
loss based on statistical models. The models make use of
probabilities derived from historical experience, adjusted to
reflect the economic environment. The Group also runs worst case
scenarios that would arise in the event that extreme events which
are unlikely to occur do, in fact, occur.
Monitoring
and controlling risks is primarily performed based on limits
established by the Group. These limits reflect the business
strategy and market environment of the Group as well as the level
of risk that the Group is willing to accept, with additional
emphasis on selected industries. In addition, the Group monitors
and measures the overall risk bearing capacity in relation to the
aggregate risk exposure across all risk types and
activities.
Information
compiled from all the businesses is examined and processed in order
to analyse, control and identify early risks. This information is
presented and explained to the Management Board, the Risk
Committees, and the head of each business division. The report
includes aggregate credit exposure, credit metric forecasts, hold
limit exceptions, liquidity ratios and risk profile changes. Senior
management assesses the appropriateness of the allowance for credit
losses on a quarterly basis. The Board of Directors receives a
comprehensive risk report once a quarter which is designed to
provide all the necessary information to assess and conclude on the
risks of the Group.
For all
levels throughout the Group, specifically tailored risk reports are
prepared and distributed in order to ensure that all business
divisions have access to extensive, necessary and up-to-date
information.
A daily
briefing is given to the Management Board and all other relevant
employees of the Group on the utilisation of market limits,
proprietary investments and liquidity, plus any other risk
developments.
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Notes to the 2019 and 2018 consolidated financial
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|
(thousands of tenge)
24.
Risk management (continued)
Risk management structure (continued)
Risk mitigation
As part
of its overall risk management, the Group uses derivatives and
other instruments to manage exposures resulting from changes in
foreign currencies, credit risks, and exposures arising from
forecast transactions.
The
Group actively uses collateral to reduce its credit
risk.
Excessive risk concentration
Concentrations
arise when a number of counterparties are engaged in similar
business activities, or activities in the same geographic region,
or have similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by changes in
economic, political or other conditions. Concentrations indicate
the relative sensitivity of the Group’s performance to
developments affecting a particular industry or geographical
location.
In
order to avoid excessive concentrations of risks, the Group’s
policies and procedures include specific guidelines to focus on
maintaining a diversified portfolio.
Credit risk
Credit
risk is the risk that the Group will incur a loss because its
customers, clients or counterparties failed to discharge their
contractual obligations. The Group manages and controls credit risk
by setting limits on the amount of risk it is willing to accept for
individual counterparties and for geographical and industry
concentrations, and by monitoring exposures in relation to such
limits.
The
Group has established a credit quality review process to provide
early identification of possible changes in the creditworthiness of
counterparties, including regular collateral revisions. The credit
quality review process allows the Group to assess the potential
loss as a result of the risks to which it is exposed and take
corrective action.
Credit-related commitments risks
The
Group makes available to its customers guarantees which may require
that the Group make payments on their behalf. Such payments are
collected from customers based on the terms of the letter of
credit. They expose the Group to similar risks to loans and these
are mitigated by the same control processes and
policies.
The
maximum exposure to credit risk for the components of the
consolidated statement of financial position, before the effect of
mitigation through the use of master netting and collateral
agreements, is best represented by their carrying
amounts.
Where
financial instruments are recorded at fair value, the carrying
value represents the current credit risk exposure but not the
maximum risk exposure that could arise in the future as a result of
changes in values.
For
more detail on the maximum exposure to credit risk for each class
of financial instrument, references shall be made to the specific
notes. The effect of collateral and other risk mitigation
techniques is shown in Note
7.
Impairment assessment
The
Group calculates ECL based on several probability-weighted
scenarios to measure the expected cash shortfalls, discounted at an
approximation to the EIR. A cash shortfall is the difference
between the cash flows that are due to an entity in accordance with
the contract and the cash flows that the entity expects to receive.
The mechanics of the ECL calculations are outlined below and the
key elements are as follows:
|
PD
|
The
Probability of Default (PD) is an estimate of the likelihood of
default over a given time horizon. A default may only happen at a
certain time over the assessed period, if the facility has not been
previously derecognised and is still in the portfolio.
|
|
EAD
|
The
Exposure at Default (EAD) is an estimate of the exposure at a
future default date, taking into account expected changes in the
exposure after the reporting date, including repayments of
principal and interest, whether scheduled by contract or otherwise,
expected drawdowns on committed facilities, and accrued interest
from missed payments.
|
|
LGD
|
The
Loss Given Default (LGD) is an estimate of the loss arising in the
case where a default occurs at a given time. It is based on the
difference between the contractual cash flows due and those that
the lender would expect to receive, including from the realisation
of any collateral. It is usually expressed as a percentage of the
EAD.
|
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Credit risk (continued)
Impairment assessment (continued)
The ECL
allowance is based on the credit losses expected to arise over the
life of the asset (the lifetime expected credit loss or LTECL),
unless there has been no significant increase in credit risk since
origination, in which case, the allowance is based on the 12
months’ expected credit loss (12mECL). The 12mECL is the
portion of LTECL that represent the ECLs that result from default
events on a financial instrument that are possible within the 12
months after the reporting date. Both LTECL and 12mECL are
calculated on either an individual basis or a collective basis,
depending on the nature of the underlying portfolio of financial
instruments.
The
Group has established a policy to perform an assessment, at the end
of each reporting period, of whether a financial instrument’s
credit risk has increased significantly since initial recognition,
by considering the change in the risk of default occurring over the
remaining life of the financial instrument. Based on the above
process, the Group groups its loans into Stage 1, Stage 2, Stage 3
and POCI, as described below:
|
Stage
1:
|
When
loans are first recognised, the Group recognises an allowance based
on 12mECL.
|
|
Stage
2:
|
When
a loan has shown a significant increase in credit risk since
origination, the Group records an allowance for the
LTECL.
|
|
Stage
3:
|
Loans
considered credit-impaired. The Group records an allowance for the
LTECL.
|
|
POCI:
|
Purchased
or originated credit impaired (POCI) assets are financial assets
that are credit impaired on initial recognition. POCI assets are
recorded at fair value at original recognition and interest revenue
is subsequently recognised based on a credit-adjusted EIR. ECL are
only recognised or released to the extent that there is a
subsequent change in the lifetime expected credit
losses.
|
Definition of default and cure
The
Group considers a financial instrument defaulted and therefore
Stage 3 (credit-impaired) for ECL calculations in all cases when
the borrower becomes 60 days past due on its contractual
payments.
As a
part of a qualitative assessment of whether a customer is in
default, the Group also considers a variety of instances that may
indicate unlikeliness to pay. When such events occur, the Group
carefully considers whether the event should result in treating the
customer as defaulted and therefore assessed as Stage 3 for ECL
calculations or whether Stage 2 is appropriate. Such events
include:
●
Death of the
borrower (co-borrower);
●
The debtor (or any
legal entity within the debtor’s group) filing for bankruptcy
application/protection;
●
The debt was
restructured due to deterioration of financial condition of the
borrower once or more over the last 12 months with due account
for the criteria for credit quality cure;
●
Decision of the
authorised body to assign a default status to a financial
asset.
It is
the Group’s policy to consider a financial instrument as
‘cured’ and therefore re-classified out of Stage 3 when
none of the default criteria have been present at the reporting
date subject to a reduction of the debt on this financial
instrument as a result of the repayment of its portion, as well as
in the case of restructuring, the borrower made at least three
consequent contractual payments as appropriate. The decision
whether to classify an asset as Stage 2 or Stage 1 once cured
depends on whether this indicates there has been a significant
increase in credit risk compared to initial
recognition.
Treasury and interbank relationships
The
Group’s treasury and interbank relationships and
counterparties comprise financial services institutions, banks,
broker-dealers, exchanges and clearing-houses. For these
relationships, the Group’s Risk Management Department
analyses publicly available information such as external ratings of
international rating agencies, which serve as the basis for certain
ECL.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Credit risk (continued)
Lending to small and medium-sized businesses
In case
of lending to small and medium-sized businesses, the
borrowers’ assessment is carried out by an employee of the
Risk Management Department who is responsible for credit risks.
Credit risk assessment is based on the Ranking Policy, which
involves assigning a credit rating to a Borrower according to the
following principles for determining and evaluating credit risks
assumed by the Bank:
|
Rating
|
Rating requirements / criteria
|
|
|
|
|
A
|
Not overdue by more
than 15 days;
The borrower (Group
of related persons) is not registered in the offshore
zone.
|
|
B
|
Overdue from 15 to
30 days;
The borrower (Group
of related persons) is not registered in the offshore
zone.
|
|
C
|
Overdue by more
than 30 days with any type of collateral;
The collateral is
farther than 80 km from the regional center or city of national
significance.
|
|
D
|
Overdue from 60 to
90 days with any type of collateral.
|
|
E
|
Overdue by more
than 90 days with any type of collateral;
Borrower
defaulted;
The borrower (Group
of related persons) is registered in the offshore
zone.
|
Retail lending
Retail
lending includes unsecured loans to individuals, credit cards,
overdrafts and loans secured by real estate. Evaluation of
unsecured products is carried out using an automated scoring system
based on qualitative and quantitative indicators. The main
indicators used in the models are as follows: length of employment
at the last job, credit history, frequency of pension
contributions, education, marital status, as well as the ratio of
the amount of the contribution on the expected loan to the average
monthly income of the client. Evaluation of products secured by
real estate is carried out by determining the level of solvency and
the ratio of the loan to the collateral value of the
collateral.
Exposure at default
The
exposure at default (EAD) represents the gross carrying amount of
the financial instruments subject to the impairment calculation,
addressing both the client’s ability to increase its exposure
while approaching default and potential early repayments too. To
calculate the EAD for a Stage 1 loan, the Group assesses the
possible default events within 12 months for the calculation of the
12mECL. For Stage 2, Stage 3 and POCI financial assets, the
exposure at default is considered for events over the lifetime of
the instruments.
The
Group determines EADs by modelling the range of possible exposure
outcomes at various points in time, corresponding the multiple
scenarios. The IFRS 9 PDs are then assigned to each economic
scenario based on the outcome of Group’s models.
The
Group’s product offering for its clients, small and
medium-sized businesses, and retail customers includes a variety of
overdraft and credit cards facilities, in which the Group has the
right to cancel and/or reduce the facilities. The Group does not
limit its exposure to credit losses to the contractual notice
period, but, instead calculates ECL over a period that reflects the
Group’s expectations of the customer behaviour, its
likelihood of default and the Group’s future risk mitigation
procedures, which could include reducing or cancelling the
facilities. The interest rate used to discount the ECLs for credit
cards is based on the average effective interest rate that is
expected to be charged over the expected period of exposure to the
facilities.
Loss given default
For
lending to small and medium businesses, LGD values are assessed at
least monthly by account managers and reviewed and approved by the
Risk Management Department.
The
credit risk assessment is based on a standardised LGD assessment
framework that results in a certain LGD rate. These LGD rates take
into account the expected EAD in comparison to the amount expected
to be recovered or realised from any collateral held.
The
Group segments its retail lending products into smaller homogeneous
portfolios, based on key characteristics that are relevant to the
estimation of future cash flows. The applied data is based on
historically collected loss data and involves a wider set of
transaction characteristics (e.g., product type, wider range of
collateral types) as well as borrower characteristics.
70
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Credit risk (continued)
Loss given default (continued)
Where
appropriate, further recent data and forward-looking economic
scenarios are used in order to determine the IFRS 9 LGD rate for
each group of financial instruments. When assessing forward-looking
information, the expectation is based on multiple scenarios.
Examples of key inputs involve changes in, collateral values
including property prices for mortgages, payment status or other
factors that are indicative of losses in the group.
LGD
rates are estimated for the Stage 1, Stage 2, Stage 3 and POCI
segment of each asset class. The inputs for these LGD rates are
estimated and, where possible, calibrated through back testing
against recent recoveries.
Significant increase in credit risk
The
Group continuously monitors all assets subject to ECLs. In order to
determine whether an instrument or a portfolio of instruments is
subject to 12mECL or LTECL, the Group assesses whether there has
been a significant increase in credit risk since initial
recognition.
If
contractual payments are more than 30 days past due, the credit
risk is deemed to have increased significantly since initial
recognition.
Grouping financial assets measured on a collective
basis
Dependent
on the factors below, the Group calculates ECLs either on a
collective or on an individual basis.
Asset
classes where the Group calculates ECL on an individual basis
include:
●
All Stage 3 assets,
regardless of the class of financial assets;
●
The treasury and
interbank relationships (such as amounts due from banks, cash
equivalents and debt investment securities at amortised cost and
FVOCI);
●
Exposures that have
been classified as POCI when the original loan was derecognised and
a new loan was recognised as a result of a credit driven debt
restructuring;
●
Financial assets
whose gross carrying value at the reporting date exceeds 0.2% of
the Bank’s equity, but not less than KZT 50
million.
Asset
classes where the Group calculates ECL on a collective basis
include:
●
Financial assets
that are not subject to individual assessment.
The
Group groups these exposures into smaller homogeneous portfolios,
based on a combination of internal and external characteristics of
the loans, for example internal grade, overdue bucket, product
type, loan-to-value ratios, or borrower’s
industry.
Forward-looking information and multiple economic
scenarios
In its
ECL models, the Group relies on a broad range of forward-looking
information as economic inputs, such as:
●
Index of the
physical volume of gross domestic product using the production
method;
●
Volume of
production of oil and gas condensate;
●
Base rates of the
NBRK;
●
Unemployment
rates;
●
Inflation.
The
inputs and models used for calculating ECLs may not always capture
all characteristics of the market at the date of the financial
statements. To reflect this, qualitative adjustments or overlays
are occasionally made as temporary adjustments when such
differences are significantly material.
71
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Credit risk (continued)
Forward-looking information and multiple economic scenarios
(continued)
The
Group obtains the forward-looking information from third party
sources (external rating agencies, governmental bodies e.g. NBRK
and international financial institutions). Experts of the
Group’s Risk Management Department determine the weights
attributable to the multiple scenarios. The tables show the values
of the key forward looking economic variables/assumptions used in
each of the economic scenarios for the ECL
calculations.
Market risk
Market
risk is the risk that the fair value or future cash flows of
financial instruments will fluctuate due to changes in market
prices. Market risks comprise currency risk, profit rate risk and
other price risks. Market risk arises from open positions in profit
rate, currency and equity financial instruments, which are exposed
to general and specific market movements and changes in the level
of volatility of market prices.
The
objective of market risk management is to manage and control market
risk exposures within acceptable parameters, whilst optimising the
return on risk.
ALCO is
responsible for market risk management. Market risk limits are
approved by the ALCO based on recommendations of the Risk
Management Department and subsequently agreed by the Board of
Directors.
The
Group manages its market risk by setting open position limits in
relation to financial instrument, interest rate maturity and
currency positions and stop-loss limits which are monitored on a
regular basis and reviewed and approved by the Management Board and
Board of Directors.
In
addition, the Group uses a wide range of stress tests to model the
financial impact of a variety of exceptional market scenarios on
individual trading portfolios and the overall position. Stress
tests provide an indication of the potential size of losses that
could arise in extreme conditions. The stress tests carried out by
the Group include risk factor stress testing, where stress
movements are applied to each risk category, and ad hoc stress
testing, which includes applying possible stress events to specific
positions.
Interest
rate risk is also managed by monitoring the interest rate gap and
is supplemented by monitoring the sensitivity of net interest
margin to various standard and non-standard interest rate
scenarios.
Interest rate risk
Interest
rate risk is the risk that the fair value or future cash flows of
financial instruments will fluctuate due to changes in market
interest rates. The Group is exposed to the effects of fluctuations
in the prevailing levels of market profit rates on its financial
position and cash flows. Interest margins may increase as a result
of such changes, but may also reduce or create losses in the event
that unexpected movements occur.
Interest rate gap analysis
Interest
rate risk is managed principally through monitoring interest rate
gaps. As the majority of the financial instruments bear fixed
interest rates the interest gap analysis is similar to the maturity
analysis.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Market risk (continued)
Currency risk
The
Group has assets and liabilities denominated in several foreign
currencies.
Currency
risk is the risk that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in foreign
exchange rates. Despite the fact that the Group hedges its exposure
to currency risk, such transactions do not qualify as hedging
relationships in accordance with IFRS.
The
currency position of the Group as at 31 December 2019 is presented
below:
The
currency position of the Group as at 31 December 2018 is presented
below:
73
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“Bank Freedom Finance Kazakhstan”
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Market risk (continued)
Currency risk (continued)
The
tables below indicate the currencies to which the Group had
significant exposure at 31 December on its non-trading monetary
assets and liabilities and its forecast cash flows. This analysis
is on a net of tax basis and is based on foreign currency exchange
rate variances that the Group considered to be reasonably possible
at the end of the reporting period. The analysis assumes that all
other variables, in particular interest rates, remain constant.
Negative amounts in the table reflect a potential net reduction in
income or equity, while a positive amount reflects a net potential
increase.
Operational risk
Operational
risk is the risk of loss arising from systems failure, human error,
fraud or external events. When controls fail to perform,
operational risks can cause damage to reputation, have legal or
regulatory implications, or lead to financial loss. The Group
cannot expect to eliminate all operational risks, but a control
framework and monitoring and responding to potential risks could be
effective tools to manage the risks. Controls should include
effective segregation of duties, access, authorisation and
reconciliation procedures, staff education and assessment
processes, including the use of internal audit.
Liquidity risk
Liquidity
risk is the risk that the Group may encounter difficulty in meeting
the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. Liquidity
risk exists when the maturities of assets and liabilities do not
match. The matching and/or controlled mismatching of the maturities
and interest rates of assets and liabilities is fundamental to
liquidity risk management. It is unusual for financial institutions
ever to be completely matched since business transacted is often of
an uncertain term and of different types. An unmatched position
potentially enhances profitability, but can also increase the risk
of losses.
The
Group maintains liquidity management with the objective of ensuring
that funds will be available at all times to honour all cash flow
obligations as they become due. Liquidity risk management policy is
reviewed and approved by the Board of Directors.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Liquidity risk (continued)
The
Group seeks to actively support a diversified and stable funding
base comprising issued debt securities, long-term and short-term
loans from other banks, deposits of the main corporate customers
and individuals as well as diversified portfolios of highly liquid
assets, in order to be able to respond quickly and smoothly to
unforeseen liquidity requirements. Liquidity risk management policy
includes:
●
Projecting cash
flows by major currencies and considering the level of liquid
assets necessary in relation thereto;
●
Maintaining a
diverse range of funding sources;
●
Managing the
concentration and profile of debts;
●
Maintaining debt
financing plans;
●
Maintaining a
portfolio of highly marketable assets that can easily be liquidated
as protection against any interruption to cash flow;
●
Maintaining
liquidity and funding contingency plans.
●
Monitoring
liquidity ratios against regulatory requirements.
The
Bank Treasury receives information from business units regarding
the liquidity profile of their financial assets and liabilities and
details of other projected cash flows arising from projected future
business. The Treasury then provides for an adequate portfolio of
short-term liquid assets to be maintained, largely made up of
short-term liquid trading securities, loans to banks and other
inter-bank facilities, to ensure that sufficient liquidity is
maintained within the Group as a whole.
The
daily liquidity position is monitored and regular liquidity stress
testing under a variety of scenarios covering both normal and more
unfavourable market conditions is performed by the Treasury. Under
normal market conditions, liquidity reports covering the liquidity
position are presented to senior management on a monthly basis.
Decisions on liquidity management are made by the ALCO and
implemented by the Treasury.
Analysis of financial liabilities by remaining contractual
maturities
The
table below summarises the maturity profile of the Group’s
financial liabilities at 31 December 2019 and 2018, based on
contractual undiscounted payments. Liabilities repayable subject to
notice are treated as if notice were to be given immediately.
However, the Group expects that many customers will not request
repayment on the earliest date the Group could be required to pay
and the table does not reflect the expected cash flows indicated by
the Group’s deposit retention history.
|
|
31 December 2019
|
|||||
|
Financial liabilities
|
On
demand
|
Less than 3 months
|
3 months
to 12 months
|
1 to 5 years
|
Over 5 years
|
Total
|
|
|
|
|
|
|
|
|
|
Amounts due to
banks and other financial institutions
|
39,806
|
585,315
|
6,242,025
|
1,355,561
|
7,096,125
|
15,318,832
|
|
Amounts due to
customers
|
24,850,353
|
7,971,644
|
38,847,179
|
21,400,322
|
–
|
93,069,498
|
|
Subordinated
debt
|
5,739
|
58,998
|
180,045
|
925,730
|
6,053,146
|
7,223,658
|
|
Other financial
liabilities
|
17,002
|
357
|
112,363
|
265
|
–
|
129,987
|
|
Total
undiscounted financial liabilities
|
24,912,900
|
8,616,314
|
45,381,607
|
23,681,883
|
13,149,271
|
115,741,975
|
75
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
24.
Risk management (continued)
Liquidity risk (continued)
Analysis of financial liabilities by remaining contractual
maturities (continued)
|
|
31 December 2018
|
|||||
|
Financial liabilities
|
On demand
|
Less than 3 months
|
3 months
to 12 months
|
1 to 5 years
|
Over 5 years
|
Total
|
|
|
|
|
|
|
|
|
|
Amounts due to
banks and other financial institutions
|
–
|
609,898
|
2,304,041
|
8,176,240
|
4,679,841
|
15,770,020
|
|
Amounts due to
customers
|
18,386,247
|
26,425,151
|
40,564,384
|
20,425,242
|
1,771,404
|
107,572,428
|
|
Subordinated
debt
|
–
|
39,547
|
189,561
|
1,099,853
|
6,190,337
|
7,519,298
|
|
Other financial
liabilities
|
4,869
|
119,325
|
–
|
–
|
–
|
124,194
|
|
Total
undiscounted financial liabilities
|
18,391,116
|
27,193,921
|
43,057,986
|
29,701,335
|
12,641,582
|
130,985,940
|
In
accordance with Kazakhstan legislation, depositors can withdraw
their term deposits at any time, losing in most of the cases the
accrued interest income. The Group expects that many customers will
not request repayment on the earliest date the Group could be
required to pay. Accordingly, in the above table, deposits of
individuals are presented in accordance with contractual terms with
consideration of this assumption.
Management
expects that the repayment of liabilities and disposal of assets
may be different from their contractual terms either because
management has the discretionary ability to manage the cash flows
or because past experience indicates that cash flows on these
financial assets and liabilities may differ from contractual
terms.
25.
Fair value measurement
Fair value measurement procedures
For the
purpose of significant assets evaluation, such as real estate,
external appraisers are engaged. The Group’s Managing Board
decides is external appraisers should be engaged. Selection
criteria include market knowledge, reputation, independence and
whether professional standards are maintained. Valuers are normally
rotated every three years.
At each
reporting date, the Group analyses the movements in the values of
assets and liabilities which are required to be
re-measured
or re-assessed as per the Group’s accounting policies. For
this analysis, the Group verifies the major inputs applied in the
latest valuation by agreeing the information in the valuation
computation to contracts and other relevant documents. The Group,
in conjunction with the Group’s external valuers, also
compares each the changes in the fair value of each asset and
liability with relevant external sources to determine whether the
change is reasonable. On a periodic basis, the Group and the
Group’s external appraisers present the valuation results to
the Audit Committee. This includes a discussion of the major
assumptions used in the valuations.
For the
purpose of fair value disclosures, the Group has determined classes
of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level
of the fair value hierarchy as explained above.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
25.
Fair value measurement (continued)
Fair value hierarchy
77
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
25.
Fair value measurement (continued)
Fair value hierarchy (continued)
During
2019 and 2018, there was no movement between levels of the
hierarchy model of the fair value for financial assets and
liabilities shown at fair value.
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Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
25.
Fair value measurement (continued)
Fair value of financial assets and liabilities not carried at fair
value
Set out
below is a comparison by class of the carrying amounts and fair
values of the Group’s financial instruments that are not
carried at fair value in the consolidated statement of financial
position. The table does not include the fair values of
non-financial assets and non-financial liabilities.
|
|
31 December 2019
|
31 December 2018
|
||||
|
|
Carrying amount
|
Fair value
|
Unrecog-nisedgain/(loss)
|
Carrying amount
|
Fair value
|
Unrecog-nisedgain/(loss)
|
|
Financial
assets
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
33,448,522
|
33,448,522
|
–
|
43,344,207
|
43,344,207
|
–
|
|
Amounts due from
other banks and other financial institutions
|
776,208
|
776,208
|
–
|
554,244
|
554,244
|
–
|
|
Loans to
customers
|
68,124,327
|
76,825,946
|
8,701,619
|
74,604,438
|
83,702,981
|
9,098,543
|
|
Investment
securities measured at amortised cost
|
3,785,045
|
3,837,476
|
52,431
|
–
|
–
|
–
|
|
Other financial
assets
|
502,064
|
476,449
|
(25,615)
|
282,630
|
282,019
|
(611)
|
|
|
|
|
|
|
|
|
|
Financial
liabilities
|
|
|
|
|
|
|
|
Amounts due to
banks and other financial institutions
|
9,111,519
|
9,028,965
|
82,554
|
10,909,578
|
10,909,578
|
–
|
|
Amounts due to
customers
|
85,802,298
|
86,220,104
|
(417,806)
|
100,532,184
|
103,186,128
|
(2,653,944)
|
|
Subordinated
debt
|
3,303,255
|
3,660,095
|
(356,840)
|
3,244,190
|
3,244,190
|
–
|
|
Lease
liabilities
|
226,456
|
226,456
|
–
|
–
|
–
|
–
|
|
Other financial
liabilities
|
129,987
|
129,987
|
–
|
124,194
|
124,194
|
–
|
|
Total
unrecognised change in unrealised fair value
|
|
|
8,036,343
|
|
|
6,443,988
|
Valuation techniques and assumptions
The
following describes the methodologies and assumptions used to
determine fair values for assets and liabilities recorded at fair
value in the financial statements and those items that are not
measured at fair value in the statement of financial position, but
whose fair value is disclosed.
Assets for which fair value approximates carrying
value
For
financial assets and financial liabilities that are liquid or
having a short-term maturity (less than three months) it is assumed
that the carrying amounts approximate to their fair value. This
assumption is also applied to demand deposits and savings accounts
without a specific maturity.
Investment securities measured at FVOCI
Investment
securities at FVOCI valued using a valuation technique or pricing
models primarily consist of short-term securities. The cost of
these assets is determined using the models, which comprise,
solely, data observable at the market.
Financial assets and financial liabilities carried at amortised
cost
Fair
value of the quoted notes and bonds is based on price quotations at
the reporting date. The fair value of unquoted instruments, loans
to customers, customer funds, amounts due from other banks and
other financial institutions, amounts due to banks and other
financial institutions, subordinated loans, other financial assets
and liabilities is estimated by discounting future cash flows using
rates currently available for debt on similar terms, credit risk
and remaining maturities.
Property and equipment – land and buildings
The
fair value of land and buildings owned by the Group is based on
valuations performed by an accredited independent valuer. The fair
value of the Group’s land and buildings was determined by
using market comparable method. This means that valuations
performed by the valuer are based on market transaction prices,
adjusted for difference in the nature, location or condition of the
specific property.
79
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
26.
Maturity analysis of assets and liabilities
The
table below shows the expected maturity profile of assets and
liabilities as at 31 December 2019 and 2018. See Note 24 for the Group’s
contractual undiscounted repayment obligations.
|
|
31 December 2019
|
31 December 2018
|
||||
|
|
Less than 12 months
|
Over 12 months
|
Total
|
Less than 12 months
|
Over 12 months
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
33,448,522
|
–
|
33,448,522
|
43,344,207
|
–
|
43,344,207
|
|
Amounts due from
other banks and other financial institutions
|
776,208
|
–
|
776,208
|
554,244
|
–
|
554,244
|
|
Loans to
customers
|
10,983,406
|
57,140,921
|
68,124,327
|
8,769,420
|
65,835,018
|
74,604,438
|
|
Investment
securities measured at fair value through other comprehensive
income
|
–
|
–
|
–
|
1,655,460
|
–
|
1,655,460
|
|
Investment
securities measured at amortised cost
|
29,364
|
3,755,681
|
3,785,045
|
–
|
–
|
–
|
|
Property and
equipment
|
–
|
6,457,813
|
6,457,813
|
–
|
6,367,860
|
6,367,860
|
|
Intangible
assets
|
–
|
1,156,968
|
1,156,968
|
–
|
1,121,630
|
1,121,630
|
|
Current corporate
income tax assets
|
–
|
–
|
–
|
133,801
|
–
|
133,801
|
|
Other
assets
|
2,645,483
|
316,858
|
2,962,341
|
2,653,440
|
–
|
2,653,440
|
|
Total
assets
|
47,882,983
|
68,828,241
|
116,711,224
|
57,110,572
|
73,324,508
|
130,435,080
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Financial
instruments at fair value through profit or loss
|
9,626
|
–
|
9,626
|
–
|
–
|
–
|
|
Amounts due to
banks and other financial institutions
|
6,254,414
|
2,857,105
|
9,111,519
|
1,171,610
|
9,737,968
|
10,909,578
|
|
Amounts due to
customers
|
70,620,056
|
15,182,242
|
85,802,298
|
81,228,350
|
19,303,834
|
100,532,184
|
|
Subordinated
debt
|
88,360
|
3,214,895
|
3,303,255
|
72,943
|
3,171,247
|
3,244,190
|
|
Current corporate
income tax liabilities
|
209,187
|
–
|
209,187
|
–
|
–
|
–
|
|
Deferred corporate
income tax liabilities
|
–
|
1,277,045
|
1,277,045
|
–
|
1,121,248
|
1,121,248
|
|
Lease
liabilities
|
96,492
|
129,964
|
226,456
|
–
|
–
|
–
|
|
Other
liabilities
|
614,052
|
–
|
614,052
|
475,272
|
–
|
475,272
|
|
Total
liabilities
|
77,892,187
|
22,661,251
|
100,553,438
|
82,948,175
|
33,334,297
|
116,282,472
|
|
Net
position
|
(30,009,204)
|
46,166,990
|
16,157,786
|
(25,837,603)
|
39,990,211
|
14,152,608
|
The
Group’s ability to repay its liabilities relies on its
ability to realise an equivalent amount of assets within the same
period of time. As at 31 December 2019, the Group has a negative
liquidity gap of KZT 30,009,204 thousand within a year
(31 December 2018: KZT 25,837,603 thousand).
Repayments
which are subject to notice are treated in the table above as if
notice were to be given immediately. However, the Group expects
that many customers will not request repayment on the earliest date
the Group could be required to pay and the table does not reflect
the expected cash flows indicated by the Group’s history of
retention of amounts due to customers.
27.
Related party disclosures
In
accordance with IAS 24 Related
Party Disclosures, parties are considered to be related if
one party has the ability to control the other party or exercise
significant influence over the other party in making financial or
operational decisions. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
The
Group’s related parties comprise counterparties that are the
Group’s shareholders, and members of the Board of Directors
and Managing Board. Other related parties comprise: companies with
which the Group has significant shareholders in common; companies
in which a substantial interest in the voting power is owned,
directly or indirectly, by shareholders of the Group or by
individuals which have significant influence over the Group, or
anyone expected to influence, or be influenced by, that person in
their dealings with the Group.
Related
parties may enter into transactions which unrelated parties might
not. Prices and terms of such transactions may differ from prices
and terms of transactions between unrelated parties.
80
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
27.
Related party disclosures (continued)
Balance
of related party transactions as at 31 December 2019 and 2018 is
presented below:
|
|
31 December 2019
|
||
|
|
Parent
|
Key management
personnel
|
Other related
parties
|
|
Assets
|
|
|
|
|
Cash and cash
equivalents
|
849,567
|
–
|
–
|
|
Loans
to customers before ECL allowance
|
–
|
5,180
|
57,733
|
|
|
|
|
|
|
ECL
allowance
|
–
|
(105)
|
(71)
|
|
Loans
to customers
|
–
|
5,075
|
57,662
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Amounts due to
customers
|
–
|
223,497
|
1,983,912
|
|
Subordinated
debt
|
–
|
–
|
1,040,000
|
|
|
31 December 2018
|
||
|
|
Parent
|
Key management
personnel
|
Other related
parties
|
|
Assets
|
|
|
|
|
Amounts due from
other banks and other financial institutions
|
–
|
–
|
684,780
|
|
Loans
to customers before ECL allowance
|
–
|
13,362
|
62,999
|
|
|
|
|
|
|
ECL
allowance
|
–
|
–
|
(13)
|
|
Loans
to customers
|
–
|
13,362
|
62,986
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Amounts due to
customers
|
576,002
|
281,379
|
4,284,927
|
|
Subordinated
debt
|
–
|
–
|
1,040,000
|
The
income and expense items on transactions with related parties for
the years ended 31 December 2019 and 2018 were as
follows:
|
|
31 December 2019
|
31 December 2018
|
||||
|
|
Parent
|
Key manage-ment personnel
|
Other related parties
|
Parent
|
Key manage-ment personnel
|
Other related parties
|
|
Interest income on
loans to customers
|
–
|
721
|
9,100
|
–
|
461
|
10,008
|
|
Credit loss
expense
|
–
|
(105)
|
(71)
|
–
|
–
|
(13)
|
|
Interest expenses
on amounts due to other banks and other financial
institutions
|
(47,597)
|
–
|
–
|
–
|
–
|
–
|
|
Interest expense on
amounts due to customers
|
–
|
(4,184)
|
(95,867)
|
–
|
(4,072)
|
(188,083)
|
|
Interest expense on
subordinated debt
|
–
|
–
|
(80,000)
|
–
|
–
|
(80,000)
|
|
Net fee and
commission (expense)/income
|
(49,925)
|
724
|
12,735
|
483
|
109
|
(27,740)
|
|
Net gains from
foreign currencies
|
–
|
256
|
114,480
|
2,597
|
154
|
20,011
|
|
Other operating
income/ (expenses)
|
880
|
–
|
(5,195)
|
6,903
|
–
|
(7,576)
|
81
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
27.
Related party disclosures (continued)
As at
31 December 2019 and 2018, interest rates and maturity dates on
transactions with related parties are as follows:
|
|
31 December 2019
|
31 December 2018
|
||||
|
|
Parent
|
Key manage-ment personnel
|
Other related parties
|
Parent
|
Key manage-ment personnel
|
Other related parties
|
|
Loans
to customers
|
|
|
|
|
|
|
|
Maturity
|
–
|
2022
|
2020-2028
|
–
|
–
|
2020-2028
|
|
Annual interest
rate in tenge
|
–
|
13.80%
|
13.90%
|
–
|
–
|
14.32%
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
|
|
|
|
|
Maturity
|
–
|
–
|
–
|
–
|
–
|
–
|
|
Annual interest
rate in tenge
|
0.00%
|
–
|
–
|
0.00%
|
–
|
–
|
|
|
|
|
|
|
|
|
|
Amounts
due to customers
|
|
|
|
|
|
|
|
Maturity
|
–
|
2020-2022
|
2020-2021
|
2019
|
2019-2020
|
2019-2020
|
|
Annual interest
rate in tenge
|
–
|
7.10%
|
6.0%
|
–
|
7.94%
|
6.43%
|
|
Annual interest
rate in USD/EUR
|
–
|
1.80%
|
0.4%
|
0.01%
|
1.68%
|
0.93%
|
|
|
|
|
|
|
|
|
|
Subordinated
debt
|
|
|
|
|
|
|
|
Maturity
|
–
|
–
|
2033
|
–
|
–
|
2033
|
|
Annual interest
rate in tenge
|
–
|
–
|
8.00%
|
–
|
–
|
8.00%
|
Below
is information on compensation to 8 members of key management
personnel at 31 December (in 2018: 8 members) of key management
personnel:
|
|
2019
|
2018
|
|
|
|
|
|
Salaries and other
short-term benefits
|
529,153
|
337,884
|
|
Social security
contributions
|
21,166
|
30,958
|
|
Total
|
550,319
|
368,842
|
82
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
28.
Changes in liabilities arising from financing
activities
“Other”
represents the effect of interest accrued but not yet paid. The
Group classifies interest paid as cash flows from operating
activities.
29.
Capital adequacy
The
Group maintains an actively managed capital base to cover risks
inherent in the business. The adequacy of the Bank’s capital
is monitored using, among other measures, the norms established by
the NBRK in supervising the Bank.
The
primary objectives of the Bank’s capital management are to
ensure that the Bank complies with externally imposed capital
requirements and that the Bank maintains strong credit ratings and
healthy capital ratios in order to support its business and to
maximise shareholders’ value.
The
Group manages its capital structure and makes adjustments to it in
the light of changes in economic conditions and the risk
characteristics of its activities.
83
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
29.
Capital adequacy (continued)
Under
the current capital requirements set by the NBRK, banks have to
maintain:
●
A ratio of basic
capital to the sum of credit risk weighted assets and contingent
liabilities, market risk and a quantitative measure of operating
risk weighted assets and contingent liabilities and
(k1.1);
●
A ratio of tier 1
capital less investments to the sum of credit risk-weighted assets
and contingent liabilities, market risk and a quantitative measure
of operational risk weighted assets, contingent assets and
liabilities (k1.2);
●
A ratio of
statutory capital to the sum of credit risk weighted assets and
contingent liabilities, market risk and a quantitative measure of
operating risk weighted assets and contingent liabilities and
(k2).
Investments
for the purposes of calculation of the above ratios represent
investments into share capital (interest in the share capital) of a
legal entity and subordinated debt of a legal entity if their total
exceeds 10% of the total of tier 1 and tier 2 capital of the
Bank.
As at
31 December 2019 and 2018 the Bank’s capital adequacy ratio,
calculated in accordance with the requirements of the NBRK was
as follows:
|
|
31 December
2019
|
31 December
2018
|
|
|
|
|
|
Tier 1
capital
|
15,201,485
|
13,499,091
|
|
Tier 2
capital
|
2,214,895
|
3,292,912
|
|
Deduction of the
positive difference with regulatory reserves
|
–
|
(87,254)
|
|
Total
statutory capital
|
17,416,380
|
16,704,749
|
|
Risk-weighted
statutory assets, contingent liabilities, operational and market
risk
|
88,565,360
|
94,394,374
|
|
|
|
|
|
Capital adequacy
ratio k1-1 (at least 5.5%)
|
16.9%
|
13.8%
|
|
Capital adequacy
ratio k1-2 (at least 6.5%)
|
17.2%
|
14.3%
|
|
Capital adequacy
ratio k2 (at least 8.0%)
|
19.7%
|
17.7%
|
30.
Events after the reporting date
The economic situation in the country
Due to
the rapid spread of the COVID-19 pandemic in 2020, many
governments, including the Government of the Republic of
Kazakhstan, have taken various measures to combat the outbreak,
including imposing travel restrictions, quarantines, closing
businesses and other institutions, and closing certain regions.
These measures had an impact on the global supply chain, on the
demand for goods and services, as well as on the degree of business
activity in general. It is expected that the pandemic itself, as
well as associated public health and social measures, could have an
impact on the activities of organizations in various sectors of the
economy.
Support
measures have been taken by the Government of the Republic of
Kazakhstan to prevent a significant deterioration in economic
performance as a result of the outbreak of the COVID-19 disease.
These measures include, but are not limited to, concessional loans
to organizations operating in the affected industries and affected
individuals, credit holidays, and the relaxation of certain
regulatory constraints to support the financial sector and its
ability to provide resources and help clients avoid liquidity
shortages resulting from measures to preventing the spread of
COVID-19.
During
2020, the tenge depreciated against the US dollar and other major
currencies. The exchange rate of the KASE as of April 26, 2021 was
429.85 tenge per 1 US dollar.
The
Group does not consider the above pandemic and the worsening
economic situation in the country and in the world as an adjusting
event for the financial statements as of December 31, 2019. The
Group has introduced a number of support measures for customers
impacted by COVID-19, which include loan repayment deferrals to
certain customers. The repayment deferral arrangements were deemed
continuations of customers’ existing loans and were therefore
accounted for as non-substantial loan modifications. A total
modification loss of KZT 107,296 thousand were recognised in
relation to repayment deferrals on loans. No other modification
gains or losses were recognised as a result of the repayment
deferrals (Note 7).
With
the impact of COVID-19 and significant uncertainty around the
market demand on commercial property, Group has made necessary
adjustments to valuations of property plant and equipment. The fair
value of property plant and equipment was estimated based on
valuation provided by external and independent valuer. External and
independent valuer used combination of income and market
approaches, which resulted in negative revaluation in the amount of
KZT 1,637,813 thousand.
|
“Bank Freedom Finance Kazakhstan”
JSC
|
Notes to the 2019 and 2018 consolidated financial
statements
|
(thousands of tenge)
Acquisition of the Bank
On July
29, 2020, “ForteBank” JSC and “Freedom
Finance” JSC signed the Purchase and Sale Agreement for the
Bank's common shares (hereinafter referred to as DCP).
In
accordance with the terms of the DCP, prior to the closing date of
the transaction, ForteBank JSC undertook to:
●
purchase from the
Bank the entire pool of the Bank's loans (Note 7), except for
loans, which are fully secured by cash, credit cards and debit card
overdrafts;
●
purchase issued
guarantees from the Bank, except for guarantees secured by cash
(including pledge of future cash flows) and tender
guarantees;
●
ensure
the acquisition of non-core and real estate property of the Bank by
a subsidiary of ForteBank JSC.
In
addition, by agreement of the parties, the deposit placed by
Kazakhstan Sustainability Fund JSC (hereinafter - KFU) under the
foreign currency loans refinancing program in the amount of KZT
3.258.126 thousand will be returned by the Bank to the KFU.
ForteBank JSC, in turn, having received the deposit from KFU, will
reimburse the Bank for expenses from the derecognition of the KFU's
deposit in the amount determined by an independent appraiser, after
receiving the KFU's approval to transfer the deposit from the Bank
to ForteBank JSC. With this, the amount of reimbursement of
expenses will be included in the loan sale price for loans
refinanced under the program of refinancing of foreign currency
loans (the discount amount (value of the benefit) for the KFU
deposit valuation will be added to the market valuation of
loans).
As of
December 28, 2020 (as of the date of the close of the Bank's
acquisition transaction), the Bank fulfilled all obligations
specified in the Purchase and Sale Agreement of the Bank's ordinary
shares.
In
order to fulfill the terms specified in the Purchase and Sale
Agreement of the Bank's ordinary shares:
●
Loans
to customers with the net carrying amount of KZT 47,521,139
thousand were reclassified to Assets held for sale in accordance
with IFRS 5 and sold. Gain from the sale of loans amounted to KZT
1,689,434 thousand.
●
33
items of inventories (non-core property) with the carrying amount
of KZT 1,958,278 thousand (Note 11), were sold. As of December 31,
2020, there was no movable and immovable collateral (non-core
property) on the balance sheet of the Bank. Loss from the sale of
inventories to ForteBank JSC amounted to KZT 41,863
thousand.
●
7
objects of property and equipment (sales department buildings) with
the carrying amount of KZT 520,530 thousand (Note 9) were
reclassified to Assets held for sale and sold. Loss from
revaluation of property and equipment before the reclassification
to assets held for sale amounted to KZT 309,479 thousand, including
KZT 267,094 thousand recognized in profit and loss, as well as the
loss of KZT 42,385 thousand recognized in other comprehensive
income.
●
Guarantees issued
to customers with the carrying amount of KZT 643 thousand were
transferred. Loss from the transfer of risks under the guarantees
amounted to KZT 4,705 thousand.
●
The
deposit of Kazakhstan Sustainability Fund JSC (Note 13) for KZT
3,258,126 thousand tenge was transferred. Loss on derecognition of
the deposit amounted to KZT 180,861 thousand.
On
December 20, 2020 Freedom Holding Corp. (new creditor) and original
creditors (Global Development LLP and Maglink Limited) (Note 15)
signed assignment agreements for the subordinated loan agreements.
The rights of claim under the subordinated loan agreements were
transferred from the original creditors to the new creditor on the
date when the cost of rights paid by the new creditor was received
into the bank account of the original creditor, which is December
23, 2020.
As
at the date of issue of these consolidated financial statements the
Freedom Finance JSC owns 100.00% of the Bank’s ordinary
shares (Note 1).
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