Shareholders' equity decreased over the period from 413.746 to 353.466 million kzTthat is decreased for 60, 294 million kzt.

Note - Compiled by the author according to the data of website www.afn.kz

Figure 5.Changes in Total equity 2010-2012 (mln. KZT)

Return on equity

Shows the return on shareholders' investment, in terms of accounting profits.

The formula for calculating the return on equity:

ROE = Net Income / Equity, (4)

Table 2

Return on Equity

	2010	2011	2012
Net Income	20 789	23 520	20 992
Book value of equity	413 746	436 632	353 466
Continue Table 2
	2010	2011	2012
ROE, %	5,18%	5,53%	5,31%
Note - source website www.kase.kz

At calculation of ROE, we used data on net income and book value of equity excluding preferred shares.

In fact, the main indicator for strategic investors help determine the efficiency of capital invested by the owner of the enterprise. Return on equity shows how much currency net profits earned each unit invested owners of the company. Return on equity shows the amount of net profit that was generated net worth companies, characterizes the degree of attractiveness of the object for investment of the shareholders. The higher the coefficient of ROE, the higher the profit attributable to the share, and the larger the potential dividends.

Management of the Bank’s own Capital

In accordance with the established quantitative targets for capital adequacy The Bank is required to comply with the requirements to maintain minimum amounts and ratios of capital adequacy and Tier I capital to assets weighted by risk.

Capital adequacy requirements set by the FMSA and controlled using the principles, methods and factors identified by the Basel Committee on Banking Supervision.

Table 3

Execution of prudential and other standards of JSC Kazkommertsbank

Requirements of CFR NB RK andNB RK	Standardvalue	01.01.2012	01.01.2011	01.01.2010
Minimum size of authorized capital (1), billion KZT	5billionKZT (2)	204.1	204.1	204.1
K1-1 Tier 1 capital to total assets	Not less than 0.05 (until 01.07.09 - K1)	0.125	0.123	0.128
K1-2 tier I capital to assets and contingent and potential claims and liabilities, risk-weighted	Not less than 0.05 (introduced since 01.07.09)	0.121	0.111	0.110

The continuation of Table 3.

K2 equity-to-assets and contingent consideration and possible requirements andliabilities, risk-weighted	Notlessthan 0.10	0.160	0.150	0.149
K4 –currentratio	Notlessthan 0.3	0.770	0.675	0.588
K4-1 –quickratio (3)	Notlessthan 1	15.290	10.548	3.580
K4-2 –quickratio (4)	Notlessthan 0.9	4.470	4.145	1.172
K4-3 –quickratio (5)	Notlessthan 0.8	2.086	2.244	1.182
The quick currency liquidity ratio K4-4 (6)	Not less than 1	7.141	7.415	3.076
Coefficient of quick liquidity ratio K4-5 (7)	Not less than 0.9	2.737	2.980	1.120
Coefficient of quick currency liquidity ratio K4-6 (8)	Not less than 0.8	1.320	1.689	1.127
Note - source website www.kase.kz

(1) In accordance with the legislation in force contributions to the statutory fund may only be made in monetary form. Borrowed funds cannot be used as a down payment.

(2) For the newly created banks.

(3) Quick ratio K4-1 effective from 01.07.08 is calculated as the ratio of monthly average liquid assets of the average size of term liabilities with a remaining term to maturity of up to seven days or less.

(4) Quick ratio K4-2 effective from 01.07.08 is calculated as the ratio of monthly average liquid assets with maturity up to odnogo100 months, including highly liquid assets, the size of the monthly term obligations with a remaining maturity of up to one month, inclusive.

(5) The quick currency liquidity ratio K4-4 effective from 01.07.08 is calculated as the ratio of monthly average liquid assets in foreign currency to the average size of the fixed-term liabilities in the same foreign currency, with a remaining term to maturity of up to seven days or less.

(6) The quick currency liquidity ratio K4-5 effective from 01.07.08 is calculated as the ratio of monthly average liquid assets in foreign currency with a remaining term to maturity of up to one month, including highly liquid assets, the size of the monthly term liabilities in the same foreign currency with a remaining term to maturity of up to one month, inclusive.

(7) According to the definition of the FMSA, "equity" means the sum of Tier 1 and Tier 2 capital level (in an amount not exceeding the equity tier 1) capital and the third level (in an amount not to exceed 250 % of Tier I capital, intended to cover market risk) minus the bank's investments in equity of other companies. Tier 1 capital level - the amount of share capital plus share premium plus the reserves established at the expense of profits, plus perpetual financial instruments (at a rate not exceeding 15% of the equity tier 1) less intangible assets. Tier 2 capital - operating income plus revaluation of fixed assets and securities, plus general provisions (in an amount not to exceed 1.25% of balance sheet items, risk-weighted), plus subordinated debt (not more than 50% of Tier 1 capital) plus perpetual financial instruments (not included in Tier 1 capital).

Concentration ratio of equity

Concentration ratio shows the proportion of equity assets of the organization, which are covered by equity (provided their own sources of formation). The remaining share of the assets covered by borrowings.

Investors and banks issuing loans, pay attention to the importance of this factor. The higher the ratio, the more likely the organization can pay off the debts from its own funds. The higher the score, the more independent company.

Regulatory restrictions> 0.5.

The concentration factor on equity,%

The average annual equity / Total assets (1) /8/ Appendix 1

The general formula for calculating the coefficient of:

Concentration ratio of equity= Total equity/Total assets (2)

CRE2010=413 746/2 688 108=0,15(2)

CRE2011=436 632/2 565 689=0,17

CRE2012= 353 466/2 598 337 =0,14

were,

CRE- concentration ratio of equity

Analyzing the results of the calculations of this ratio, we can conclude that the assets are covered by their own sources of formation. In 2010, the figure was 0.15 depending, in 2011 - 0.17, in 2012 - 0.14, that is, above the regulatory limits, which indicates a good, independent financial condition of the bank.

Bank capital adequacy

The capital adequacy of commercial bank - the bank rate, expressed as the ratio of shareholders' equity to total volume of assets weighted for risk.

This ratio should not be less than 10%, follows from the calculations - the coefficient of compliance.

BCA= Total equity/Total assets * 100% (3)

BCA2010= 413 746/2 688 108*100=15% (3)

BCA2011=436 632/2 565 689*100=17%

BCA2012=353 466/2 598 337 *100=14%

where,

BCA- bank capital adequacy

Table 4

Capital adequacy

Capital adequacy	2012	2011	2010
Equity/Total Assets	0,17	0,11	0,11
Liquidity
Current Ratio (k4)	0,64	0,68	0,59
Cash Ratio(k4-1)	8,32	10,54	3,58
Quick Ratio (k4-2)	2,892	4,15	1,17
Capital adequacy (k1-1)	0,13	0,12	0,13
Capital adequacy (k2)	0,16	0,15	0,15
Note - source websitewww.kase.kz

According to the FSA as at 01.07.2012. Bank with a margin carries out prudential standards on capital adequacy K1-1 and K2, as well as the current liquidity K4.

Note - Compiled by the author according to the website www.afn.kz

Figure6. Capital adequacy ratio (2010-2012)

In calculating the capital adequacy ratio as at 31 December 2012, 2011 and 2010the bank included in the calculation of capital obtained a subordinated loan in the amount not exceeding 50% of Tier I capital. In the event of bankruptcy or liquidation of the Bank, repayment of this debt is the Bank's liabilities to all other creditors. For the years ended December 31, 2012, 2011 and 2010the bank fully complied with all established requirements for the capital.

2. Analysis of activity of Kazkommertsbank in formation of deposit market and implementation of deposit policy.

About 75% of liabilities of Kazakh banks are deposits of legal entities and individuals, and for some time there is tendency to growth in weight of retail deposits as liabilities of commercial banks. However, respondents' Ks' experts can hardly call deposits as a reliable source of funding. According to the National Bank of Kazakhstan, from December 2011 to December 2012 the total amount of deposits in Kazakhstan's commercial banks increased by 607.9 billion KZT (7%), the volume of deposits of legal entities decreased by about 40 billion KZT (about 7%), while retail deposits increased by 650 billion KZT (about 20%).

This suggests that the strategy of many Kazakh banks have recently focused on the increase in the share of deposits, including the consumer in the overall structure of their liabilities. Retail deposits and deposits of legal entities constitute a significant share of liabilities in commercial banks of Kazakhstan at the beginning of 2013. They amounted to 75% of the market average. In number of banks, such as Halyk and CenterCredit, the share of liabilities is above average market share over 80%.

According to research by Standard & Poor `s, provided by the business portal Kapital.kz, indicators of funding and liquidity of the banking sector in Kazakhstan will remain adequate, stimulating the growth of lending without attracting significant external funding. Taking the limited investment opportunities in Kazakhstan into consideration, experts expect a further increase in the volume of deposits of Kazakhstan banks with economic growth in the country.

Analyst of Halyk Finance BakayMadybaev outlined two polarity of deposit funding of second tier banks. On the one hand, attraction of deposits reduces the concentration of funding sources, but on the other hand, a relatively short period of time of deposits hinders corporate and mortgage lending, and the risks of an early withdrawal of funds make banks hold excess liquidity, thereby reducing the return on assets.

A large percentage of the risks is noted by director of the Center for Macroeconomic Research OlzhasHudaybergenov, noting that the overall volume of deposits is growing, but among them short-term deposits dominate. In addition, the depositor may withdraw the deposit at any time. As well as deposits are now the main source of funding for banks, but quite unreliable.

An analyst "Uralsib Capital" Natalia Berezina has another opinion, noting that in more or less stable macroeconomic deposits of the population can be considered a reliable source of funding. According to her, the high proportion of retail deposits makes sense in case of the corresponding share of retail lending, or lending to small and medium-sized businesses. For example, Kaspi Bank can afford to keep 60% of liabilities in retail deposits, but if we take the Halyk, in which retail deposits are about 20% of the loan portfolio, or Kazkommertsbank where the share reaches only 10%, it seems reasonable that the share of retail deposits in the liabilities is about 30% that banks have.

The most popular terms for investors are usually the first, deposits in KZT at 6.5-8% with the possibility of partial withdrawals and replacements, and, second, the deposits by more than 8% (up 9.4%), but with a higher minimum deposit amount or without the option of partial withdrawals.

According to statistics of the National Bank of Kazakhstan as of February 1, 68% of the deposits of legal entities and 88.5% of retail deposits were made in KZT. National Bank statistics show a trend of popularity of KZT deposits. According to data as of February 1, 2013, deposits of legal entities in Kazakhstan's commercial banks amounted to more than 1,467 trln. KZT or about 68% of the total amount of deposits of this group of investors. The volume of retail deposits in KZT amounted to nearly 323.7 billion KZT, or 88.5% of total deposits of individuals. These do not include data on deposits of non-residents.

Contributions are often made for a period of 12 to 36 months in the national currency. The banks themselves encourage Kazakhstanis to save in the national currency. Taking into consideration the fact that for the bank the national currency is preferred for maintaining needs of business units, the highest interest rates are set on deposits in KZT. As a result customers usually place deposits in the national currency.

In addition, the Kazakhstan Deposit Insurance Fund (KDIF) recommends a nominal interest rate of 9% per annum for deposits in KZT and 5.5% for deposits in foreign currency. In December 2012 average rates for the system on retail deposits in KZT (6.7%) and foreign currency (4.7%) were below the maximum recommended rate (from 1 January 2013 - 9% and 5.5%, respectively, in the second half of 2012 was 9% and 6%).It is obvious that the Kazakh banks offering more than 9%, involve the effective rate (which is always above par), or offer award to depositors, which in the case of a bank failure may be unwarranted. The scheme is built like this: the bank itself determines what he wants to guarantee deposits, and in proportion to the volume of this contributes to the KDIF and the fund, in turn, sets the recommended rates at size of which will be guaranteed reward. The Bank may establish a higher rate, but there is no guarantee on difference. /23/

Let’s consider deposit market on the example of Kazkommertsbank.

The amount of deposits on 1 January 2013 was 1,483 billion KZT, in comparison with 2012, it increased by 7.5% (Table 5). The increase in retail deposits was 12.9% (Table 6). The growth of deposits of legal entities was 4% (Table 7).

Table 5

Volume of deposits in banks

Bank	Volume of deposits, 2013	Volume of deposits,2012	Outflow/inflow, %
Tsesnabank	515 916 040	341 221 597	51,2
Kaspibank	412 780 931	318 054 513	29,8
Eurasian Bank	295 670 077	229 931 551	28,6

The continuation of Table 5.

Bank CenterCredit	753 587 150	691 552 108	9,0
Kazkommertsbank	1 482 837 684	1 379 042 248	7,5
ATF Bank	473 464 804	522 671 732	-9,4
BTA Bank	541 185 190	736 085 241	-26,5
1 Note - top ten banks were taken in terms of assets on January 1, 2013 2 Note - source website www.kapital.kz

Table 6

Volume of retail deposits in banks

Bank	Volume of retail deposits, 2013	Volume of retail deposits, 2012	Outflow/inflow, %
Sberbank	119 053 175	70 566 558	68,7
Tsesnabank	159 218 635	99 337 729	60,3
Eurasian Bank	97 570 733	63 659 140	53,3
Kaspibank	319 161 964	222 723 782	43,3
AllianceBank	156 468 590	112 836 456	38,7
ATF Bank	211 478 861	155 200 290	36,3
Halyk bank	686 426 476	559 209 118	22,7
Kazkommertsbank	621 475 266	550 670 855	12,9
Bank CenterCredit	391 869 279	376 138 527	4,2
BTA Bank	291 932 918	302 213 768	-3,4

Table 7

Volume of deposits of legal entities in banks

Bank	Volume of deposits of legal entities, 2013	Volume of deposits of legal entities, 2012	Outflow/inflow, %
Tsesnabank	356 697 405	241 883 868	47,5
Eurasian Bank	198 099 344	166 272 411	19,1
Sberbank	374 716 512	318 345 900	17,7

The continuation of Table 7.

Bank CenterCredit	361 717 871	315 413 581	14,7
Kazkommertsbank	861 362 418	828 371 393	4,0
Halyk bank	969 614 101	960 069 229	1,0
AllianceBank	177 936 136	179 667 795	-1,0
Kaspibank	93 618 967	95 330 731	-1,8
ATF Bank	261 985 943	367 471 442	-28,7
BTA Bank	249 252 272	433 871 473	-42,6
1 Note - top ten banks were taken in terms of assets on January 1, 2013 2 Note - source website www.kapital.kz

Note - Compiled by the author according to the data of website www.kapital.kz

Figure 7. Dynamics of change in volume of retail and deposits of legal entities of Kazkommertsbank in 2012, 2013, mln. KZT

The share of retail deposits is 58,1%, the share of deposits of legal entities is 41,9% . Nowadays we can see that retail deposits grow rapidly. Earlier in the structure of deposit portfolio the deposits of corporate clients dominated, in the last couple of years, there is such a tendency that retail deposits pursue deposits of legal entities.

Note - Compiled by the author according to the data of website www.kapital.kz

Figure8. The share of retail deposits and deposits of legal entities in 2012

In comparison with other banks, we can see that an increase in retail and legal entities deposits is not high. This is can be explained by the fact that Kazkommertsbak has sufficient liquidity and sufficient funds to provide growth. As a result during 2 years Kazkommertsbank has reduced interest rates on deposits which reduced interest rates on loans to public. Another reason why bank decreases interest rate on deposits is that in July of this year, Kazakhstan Deposit Insurance Fund (KDIF) lowered the recommended interest rate for banks. So, KDIF lowered the recommended rate on KZT deposits from 10 to 9% per annum in foreign currency - from 7 to 6% per annum. According to managing director of bankAndreyTimchenko, the bank has no plans to revise interest rates on deposits. Effective annual rate of KZT deposits for individuals in Kazkom ranges from 7.2-7.7% per annum.

Table 8

Deposits with high interest rates

Bank	Name of deposit	Interest rate
		12 month	24 month	36 month
Eurasian Bank	«Казына Премиум»	8%	9%	-
Kaspibank	«Каспийский»	8,65%	-	-

The continuation of Table 8.

Halyk bank	«Стандартный»	8%	8%	8%
Kazkommertsbank	«Лучший»	7,5%	8%	-
BTA Bank	«Сберегательный»	7%	7,5%	8%
Bank CenterCredit	«Чемпион»	7%	4%	-
Temirbank	«Урожай»	8% (13 month.)	-	6% (37 month)
Note - source website www.kapital.kz

Let’s consider deposit portfolio of Kazkommertsbank. We can see that time deposits exceed demand deposits. Bank encourages people to put money in time deposits by setting high interest rates in comparison with demand deposits. For a bank fixed deposit is advantageous because it can use these funds for a longer time for making loan to the borrower and receiving high interest rates.

Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure9. The share of time deposits, demand deposits, JSC National Welfare Fund’s “Samruk-Kazyna”, JSC Entrepreneurship Development Fund’s “Damu” and JSC Stress Assets Fund’s deposits, accounts in precious metals

There is a tendency to an increase in volume of time deposits and opposite tendency to decrease in volume of demand deposits.

Table 9

Dynamics of change in time and demand deposits

Types of deposits	30 September 2012 (unaudited) (KZT million)	31 December 2011 (KZT million)	31 December 2010 (KZT million)
Time deposits	954,411	894,543	893,814
Demand deposits	388,416	457,588	459,480
JSC National Welfare Fund “Samruk-Kazyna”, JSC Entrepreneurship Development Fund “Damu” and JSC Stress Assets Fund	105,442	107,689	152,383
Accountsinpreciousmetals	3,780	3,257	1,123
Total	1,452,049	1,463,077	1,506,800
Note - source financial statement of Kazkommertsbank

Note – Compiled by the author according to the financial statement of Kazkommertsbank

Figure10. Dynamics of change in volume of time and demand deposits from 2010-2012, mln. KZT

Statistics shows that customers prefer to keep their money in KZT. KZT is the most popular currency. Dollar takes second place, euro the third place. Deposits in KZT amounted to 55,3% in 2012. For the bank the national currency is preferred for maintaining needs of business units, the highest interest rates are set on deposits in KZT . As a result customers prefer to place deposits in the national currency.

Note - Compiled by the author according to the financial statement of Kazkommertsbank

Figure11. Shares of deposits in KZT, dollar, euro, ruble, another currency in 2012

Why do people prefer to make deposits in Kazkommertsbank?

One of the main reasons is an advertisement.

Nowadays advertisement plays an important role in attracting new depositors.

Kaskommertsbank is one of the leaders in volume of funds directed at advertisement.

More than 19.4% of the market of advertising budget belongs to Kaspi bank, the second place is taken by Eurasian Bank 15.2%. Kazkommertsbank 14.3% took the third place.  So, in 2012, Kaspi bank spent on advertising more than 1.2 billion, "Eurasian Bank" -1.0 billion, Kazkom - 953.6 mln.

In comparison with 2011, Kazkommertsbank reduced its expenses on advertisement by 11.2%, according to website www.kapital.kz.

Table 10

Leaders in volume of funds directed at advertisement.

Bank	Expences on advertisment, th. KZT
Kaspibank	1 296 419
Eurasian Bank	1 017 002
Kazkommertsbank	953 637
Sberbank	739 925
Halyk bank	639 631
Tsesnabank	550 543
Bank CenterCredit	464 575
BTA Bank	412 906
AllianceBank	382 216
ATF Bank	209 621
Note – source website www.kapital.kz