Risk management policy

12 Months Ended

Dec. 31, 2023

Disclosure of risk management strategy related to hedge accounting [abstract]

26.

Risk management policy

The Group permanently advances it’s risk management environment, to fit up-to-date challenges and risks the Group is exposed to. The Group is exposed to the following types of risks: credit risk, liquidity risk and market risk.

Credit risk

The Group is exposed to credit risk, which is the risk that a customer will be unable to pay amounts in full when due. The Group’s credit risk exposure arises primarily from our consumer finance business through the Fintech Platform. To manage credit risk during loan origination, the Group centralized all processes related to decision making, verification and accounting through it’s headquarters. The Group has developed an automated, centralized and big data-driven proprietary loan approval process that enables it to make instant credit decisions. The risk management division is responsible for maintaining credit risk assessment models and decision-making process. The quality of approved loans are monitored by risk management division on day-to-day basis with periodical validation of the models.

During the credit decision process, the Group uses proprietary risk algorithms and predictive credit risk assessment models for the evaluation of the risks of potential borrowers using statistical modelling based on (i) a wealth of proprietary internal data such as application, transactional, behavioral, shopping and payment history information, which is supplemented by (ii) external data such as data received from credit bureaus (First Credit Bureau LLP and State Credit Bureau JSC) and pension centre (the State Pension Payment Centre) with regard to each customer.

The additional proprietary data constantly accumulated around the Group’s customers’ activity that enables it to continuously deepen its credit decision process.

The risk management division, in terms of credit risk, consists of independent modelling, anti-fraud, monitoring and provisioning division.

Maximum Exposure

The Group’s maximum exposure to credit risk varies significantly and is dependent on both individual risks and general market economy risks. For financial assets recorded on statements of financial position, the maximum exposure equals to a carrying value of those assets prior to any offset or collateral. For financial guarantees and other contingent liabilities the maximum exposure to credit risk is the maximum amount the Group would have to pay if the guarantee was called on or in the case of commitments, if the loan amount was called on.

As at 31 December 2022 and 2023, the maximum exposure to credit risk after offset and collateral was equal to its carrying value of all financial assets except for loans to customers.

As at 31 December 2022 and 2023, the maximum exposure to credit risk after offset and collateral of loans to customers were KZT 2,750,424 million and KZT 3,823,734 million, respectively.

Collateral held as security and other credit enhancements

The Group holds collateral or other credit enhancements to mitigate credit risk associated with financial assets. The main types of collateral obtained are as follows:

•

For reverse repurchase transactions – securities;

•

For loans to customers that are secured – charges over real estate properties and vehicles.

Although, the Group uses collateral as credit enhancement to mitigate its exposure to credit risk, major part of its loan portfolio is represented by unsecured loans. Thus, as at 31 December 2022 and 2023, unsecured gross carrying amount of loans to customers were KZT 2,942,812 million and KZT 4,046,581 million, respectively.

As at 31 December 2022 and 2023, credit impaired loans with a net carrying value of KZT 29,174 million and KZT 26,932 million, respectively were either fully or partially collateralized, reflecting the extent to which collateral and other credit enhancements mitigate credit risk.

Credit quality of financial assets

The tables below present information about the significant changes in the gross carrying amount of loans to customers during the period that contributed to changes in the allowance for impairment losses during the years ended 31 December 2022 and 2023:


	Stage 1			Stage 2			Stage 3
	12-month ECL			Lifetime ECL			Lifetime ECL			POCI		Total
Loans to customers at amortized cost

Gross carrying amount as at 1 January 2022		2,407,687			29,831			135,635			-		2,573,153

Changes in the gross carrying amount
- Transfer to Stage 1		8,927			(3,094	)		(5,833	)		-		-
- Transfer to Stage 2		(46,924	)		47,497			(573	)		-		-
- Transfer to Stage 3		(157,484	)		(19,421	)		176,905			-		-
New loans to customers originated or purchased		2,422,809			-			-			4,754		2,427,563
Loans to customers that have been repaid or derecognized		(1,576,118	)		(13,879	)		(29,049	)		-		(1,619,046	)
Write-offs		-			-			(64,231	)		-		(64,231	)
Recovery from off-balance loans to customers		-			-			52,060			-		52,060
Other changes		-			-			13			-		13

Gross carrying amount as at 31 December 2022		3,058,897			40,934			264,927			4,754		3,369,512


	Stage 1			Stage 2			Stage 3
	12-month ECL			Lifetime ECL			Lifetime ECL			POCI			Total
Loans to customers at amortized cost

Gross carrying amount as at 1 January 2023		3,058,897			40,934			264,927			4,754			3,369,512

Changes in the gross carrying amount
- Transfer to Stage 1		32,712			(4,991	)		(27,721	)		-
- Transfer to Stage 2		(58,058	)		66,931			(8,873	)		-
- Transfer to Stage 3		(194,471	)		(19,322	)		213,793			-
New loans to customers originated or purchased		3,413,069			-			-			9,553			3,422,622
Loans to customers that have been repaid or derecognized		(2,203,671	)		(27,748	)		(15,305	)		(3,803	)		(2,250,527	)
Write-offs		-			-			(82,959	)		-			(82,959	)
Recovery from off-balance loans to customers		-			-			19,844			-			19,844
Other changes		-			-			(3	)		-			(3	)

Gross carrying amount as at 31 December 2023		4,048,478			55,804			363,703			10,504			4,478,489

The Group uses an internal rating model to classify individually significant loans to customers in different risk categories:


	Stage 1			Stage 2			Stage 3
	12-month ECL			Lifetime ECL			Lifetime ECL			POCI		Total
Loans to customers that are individually assessed for impairment
Grades: Low to fair risk		8,119			-			-			-		8,119
Grade: Impaired		-			-			6,636			-		6,636
Loans to customers that are collectively assessed for impairment		3,050,778			40,934			258,291			4,754		3,354,757

Total gross carrying amount		3,058,897			40,934			264,927			4,754		3,369,512
Allowance for impairment losses		(67,604	)		(11,785	)		(135,313	)		-		(214,702	)
Carrying amount as at 31 December 2022		2,991,293			29,149			129,614		4,754			3,154,810


	Stage 1			Stage 2			Stage 3
	12-month ECL			Lifetime ECL			Lifetime ECL			POCI			Total
Loans to customers that are individually assessed for impairment
Grades: Low to fair risk		5,669			-			-			-			5,669
Grade: Impaired		-			-			6,718			-			6,718
Loans to customers that are collectively assessed for impairment		4,042,809			55,804			356,985			10,504			4,466,102

Total gross carrying amount		4,048,478			55,804			363,703			10,504			4,478,489
Allowance for impairment losses		(59,939	)		(16,290	)		(166,042	)		(261	)		(242,532	)
Carrying amount as at 31 December 2023		3,988,539			39,514			197,661			10,243			4,235,957


	Stage 1			Stage 2		Stage 3
	12-month ECL			Lifetime ECL		Lifetime ECL		Total
Due from banks
High grade (A- and higher)		17,052			-		-		17,052
Investment grade (BBB+ - BBB-)		7,799			-		-		7,799
Not rated		823			-		-		823

Total gross carrying amount		25,674			-		-		25,674
Allowance for impairment losses		(6	)		-		-		(6	)
Carrying amount as at 31 December 2022		25,668			-		-		25,668


	Stage 1			Stage 2		Stage 3
	12-month ECL			Lifetime ECL		Lifetime ECL		Total
Due from banks
High grade (A- and higher)		29,652			-		-		29,652
Investment grade (BBB+ - BBB-)		1,031			-		-		1,031
Investment grade (BB+ - B-)		6			-				6

Total gross carrying amount		30,689			-		-		30,689
Allowance for impairment losses		(6	)		-		-		(6	)
Carrying amount as at 31 December 2023		30,683			-		-		30,683


	Stage 1		Stage 2		Stage 3
	12-month ECL		Lifetime ECL		Lifetime ECL		Total
Investment debt securities
High grade (A- and higher)		558		-		-		558
Investment grade (BBB+ - BBB-)		1,070,752		-		-		1,070,752
Non-Investment grade (BB+ - B-)		2,393		-		-		2,393
Not rated		-		2,252		-		2,252
Сarrying amount as at 31 December 2022		1,073,703		2,252		-		1,075,955


	Stage 1		Stage 2		Stage 3
	12-month ECL		Lifetime ECL		Lifetime ECL		Total
Investment debt securities
High grade (A- and higher)		33,681		-		-		33,681
Investment grade (BBB+ - BBB-)		1,335,500		-		-		1,335,500
Non-Investment grade (BB+ - B-)		4,037		-		-		4,037
Not rated		-		2,322		1,188		3,510
Сarrying amount as at 31 December 2023		1,373,218		2,322		1,188		1,376,728

Financial assets, other than loans to customers and other financial assets, are graded according to their external credit ratings issued by an international rating agencies, such as Standard and Poor’s, Fitch and Moody’s Investors Services. The highest possible rating is AAA.


	A- and higher		BBB+ to BBB-		BB+ to B-		CCC+ and lower		Not rated		Total
Gross carrying value:
31 December 2022
Cash and cash equivalents, excluding cash on hand		197,445		234,998		-		-		3,151		435,594
Mandatory cash balances with NBRK		-		42,917		-		-		-		42,917
Due from banks		17,052		7,799		-		-		823		25,674
Investment securities and derivatives		558		1,071,110		2,401		-		2,942		1,077,011

31 December 2023
Cash and cash equivalents, excluding cash on hand		341,639		205,881		8,323		-		5,007		560,850
Mandatory cash balances with NBRK		-		47,110		-		-		-		47,110
Due from banks		29,652		1,031		6		-		-		30,689
Investment securities and derivatives		33,702		1,336,627		4,048		-		4,803		1,379,180

As at 31 December 2022 and 2023, all loan commitments and financial guarantee contracts of the Group are classified in Stage 1 (12-month ECL) and have “low to fair” risk grade.

Modified loans to customers

As a result of the Group’s forbearance activities, loans to customers might be modified. Modification doesn't lead to a material change in the net present value (“NPV”), therefore the Group doesn't recognize a modification gain/loss. The following tables refer to modified loans to customers where modification does not result in derecognition.

Loans to customers (with allowance for impairment losses based on lifetime ECL) modified during the years ended 31 December 2022 and 2023:


	2022			2023
Gross carrying amount of loans to customers that are impaired after modification but not NPL as at 1 January		12,021			27,899
Gross carrying amount of modified loans to customers within period		54,035			109,386
Loans to customers transferred to non impaired category (cured loans)		(21,043	)		(42,268	)
Loans to customers transferred to NPL		(12,789	)		(17,435	)
Repaid loans to customers		(4,325	)		(9,553	)
Gross carrying amount of loans to customers that are impaired after modification but not NPL as at 31 December		27,899			68,029

The net carrying amount of loans to customers at time of modification that are modified during the years ended 31 December 2022 and 2023 were KZT 37,221 million and KZT 78,766 million, respectively. The gross carrying amount of modified loans to customers for which the allowance for impairment losses changed from lifetime to 12-month ECL in the years ended 31 December 2022 and 2023 were KZT 12,656 million and 24,932 KZT million, respectively.

Macro sensitivity

The Group has performed ECL sensitivity analysis on its loan portfolio, in the event that key assumptions used to calculate ECL change by 1 percentage point. For the purpose of ECL estimation, the Group uses a change of the nominal USD/KZT exchange rate and change of base rate KZT of:

change of the nominal USD/KZT exchange rate

•

1.48% and 1.80% for 2024 and 2025, respectively, as a baseline scenario,

•

-1.38% and -1.06% for 2024 and 2025, respectively, as an upside scenario and

•

4.34% and 4.66% for 2024 and 2025, respectively, as a downside scenario.

change of base rate KZT

•

-21.87% and -21.70% for 2024 and 2025, respectively, as a baseline scenario,

•

-28.28% and -28.28% for 2024 and 2025, respectively, as an upside scenario and

•

4.77% and 4.94% for 2024 and 2025, respectively, as a downside scenario.

A change in the baseline nominal USD/KZT exchange rate by +/- 1 percentage point, with respective correction of the upside and downside scenarios, leads to a change in the allowance for impairment losses by KZT -1,792/+1,908 million as at 31 December 2023, respectively.

A change in the baseline base rate KZT by +/- 1 percentage point, with respective correction of the upside and downside scenarios, leads to a change in the allowance for impairment losses by KZT -182/+237 million as at 31 December 2023, respectively.

Liquidity risk

The liquidity management framework of the Group mainly consists of following instruments:

Assessment of sufficient level of high quality liquid assets;

Cash flow forecasting;

Diversification of funding;

Social media marketing;

Up-to-date contingent funding plan;

The liquidity risk is managed considering specific aspects of Kazakhstan economy, in particular limited funding instruments and possible dollarization due to currency devaluation expectations.

The Group devotes great significance to social media marketing, to support the brand of the Group and mitigate various risks such as liquidity and reputational risks. The division of social media marketing covers mass media, social networks, blogs and other sources of information, available to current or potential customers.

A major part of the Group’s obligations consists of customer accounts of individuals, with nominal maturity under 2 years. However, 95% of deposits in 2022 were rolled over, which absent a liquidity event such as a run on the bank, allows the Group to maintain a long-term stable funding base. The average amount of individuals’ customer

accounts balance is KZT 1,100 thousand as at 31 December 2023, which is another indicator of diversification and stability of the funding base.

The Group retains a significant amount of high quality liquid assets, which consists mainly of cash, deposits within NBRK, short-term and mid-term notes of NBRK and bonds issued by the Ministry of Finance of the Republic of Kazakhstan.

Market risk

Price Risk

The Group's market risk arises from fluctuations in the value of financial instruments because of changes in market prices whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments traded in the market. The Group has established various limits on operations with securities, including instrument specific limits, in order to balance profit and risk in the securities portfolio. The Group's portfolio is predominantly comprised of Kazakhstan government debt securities.

Interest rate risk

The contractual maturities of assets and liabilities of the Group has modest gaps, which provides possibilities of instant reactions on changes of market interest rates. The Group has significant amounts of high quality liquid assets with a short maturity which helps to minimize the sensitivity to a sharp increase of interest rates in case of a liquidity shortfall on the market.

An analysis of the financial assets and liabilities liquidity and interest rate risks is presented in the following table on discounted basis:


	Up to 1 month		1 month to 3 months		3 months to 1 year			1 year to 5 years		Over 5 years		2022 Total
Cash and cash equivalents		246,442		85,596		-			-		-		332,038
Due from banks		798		2,200		22,670			-		-		25,668
Investment securities		551,634		34,367		152,450			323,882		13,622		1,075,955
Loans to customers		320,313		441,337		1,305,181			955,362		132,617		3,154,810
Total interest bearing financial assets		1,119,187		563,500		1,480,301			1,279,244		146,239		4,588,471

Cash and cash equivalents		283,322		-		-			-		-		283,322
Mandatory cash balances with National Bank of the Republic of Kazakhstan		42,917		-		-			-		-		42,917
Derivative financial assets		30		-		-			-		-		30
Investment securities		253		-		-			-		34		287
Other financial assets		57,750		-		-			-		-		57,750
Total non-interest bearing financial assets		384,272		-		-			-		34		384,306
Total financial assets		1,503,459		563,500		1,480,302			1,279,244		146,273		4,972,778

Due to banks		16,432		-		-			-		-		16,432
Customer accounts		246,255		501,096		2,038,759			331,734		6,147		3,123,991
Debt securities issued		44,913		-		-			95,465		-		140,378
Subordinated debt		3,252		5,249		17			59,090		-		67,608
Total interest bearing financial liabilities		310,852		506,345		2,038,776			486,289		6,147		3,348,409

Customer accounts		876,699		-		-			-		-		876,699
Derivative financial liabilities		3		144		-			-		-		147
Other financial liabilities		35,297		143		-			-		-		35,440
Total non-interest bearing financial liabilities		911,999		287		-			-		-		912,286
Total financial liabilities		1,222,851		506,632		2,038,776			486,289		6,147		4,260,695
Guarantees issued and similar commitments		170		349		45			4,627		-		5,191
Total financial liabilities and commitments		1,223,021		506,981		2,038,821			490,916		6,147		4,265,886
Liquidity surplus/ (gap)		280,438		56,519		(558,519	)		788,328		140,126
Cumulative liquidity surplus/(gap)		280,438		336,957		(221,562	)		566,766		706,892

Interest sensitivity surplus/ (gap)		808,335		57,155		(558,475	)		792,955		140,092
Cumulative interest sensitivity surplus/ (gap)		808,335		865,490		307,015			1,099,970		1,240,062


	Up to 1 month		1 month to 3 months			3 months to 1 year			1 year to 5 years		Over 5 years		2023 Total
Cash and cash equivalents		331,907		77,388			-			-		-		409,295
Due from banks		896		1,614			25,894			2,279		-		30,683
Investment securities		371,756		54,521			108,440			629,089		212,922		1,376,728
Loans to customers		411,868		590,174			1,727,068			1,333,853		172,994		4,235,957
Total interest bearing financial assets		1,116,427		723,697			1,861,402			1,965,221		385,916		6,052,663

Cash and cash equivalents		411,171		-			-			-		-		411,171
Mandatory cash balances with National Bank of the Republic of Kazakhstan		47,110		-			-			-		-		47,110
Derivative financial assets		37		605			-			-		-		642
Investment securities		368		-			-			-		34		402
Other financial assets		41,534		-			-			-		-		41,534
Total non-interest bearing financial assets		500,220		605			-			-		34		500,859
Total financial assets		1,616,647		724,302			1,861,402			1,965,221		385,950		6,553,522

Due to banks		154		-			-			-		-		154
Customer accounts		364,505		851,492			3,081,866			64,056		5,918		4,367,837
Debt securities issued		50,481		-			-			48,987		-		99,468
Subordinated debt		3,257		-			18			59,094		-		62,369
Total interest bearing financial liabilities		418,397		851,492			3,081,884			172,137		5,918		4,529,828
Customer accounts		1,073,619		-			-			-		-		1,073,619
Derivative financial liabilities		187		532			-			446		-		1,165
Other financial liabilities		68,721		-			-			-		-		68,721
Total non-interest bearing financial liabilities		1,142,527		532			-			446		-		1,143,505
Total financial liabilities		1,560,924		852,024			3,081,884			172,583		5,918		5,673,333
Guarantees issued and similar commitments		457		100			-			4,546				5,103
Total financial liabilities and commitments		1,561,381		852,124			3,081,884			177,129		5,918		5,678,436
Liquidity surplus/ (gap)		55,266		(127,822	)		(1,220,482	)		1,788,092		380,032
Cumulative liquidity surplus/ (gap)		55,266		(72,556	)		(1,293,038	)		495,054		875,086

Interest sensitivity surplus/ (gap)		698,030		(127,795	)		(1,220,482	)		1,793,084		379,998
Cumulative interest sensitivity surplus/ (gap)		698,030		570,235			(650,247	)		1,142,837		1,522,835

As at 31 December 2022 and 2023, guarantee deposits in favour of international payments systems included in due from banks were KZT 24,823 million and KZT 27,357 million, respectively.

Based on prior experience, the Group considers it highly unlikely that all customer accounts seek repayment on maturity. Historically the majority of such deposits are rolled over.

Interest rate sensitivity analysis

The Group manages fair value interest rate risk through periodic estimation of potential losses that could arise from adverse changes in market conditions. The Risk Management Department conducts monitoring of the Group’s current financial performance, estimates the Group’s sensitivity to changes in interest rates and its influence on the Group’s profitability.

The sensitivity analysis includes interest rate risk, which has been determined based on “reasonably possible changes in the risk variable”. The level of these changes is determined by management and is contained within the risk reports provided to key management personnel.

As at 31 December 2023, the impact on profit before income tax due to a +/-3 p.p. change in interest rate amounted -/+ KZT Nil million (2022: -/+ KZT 150 million).

As at 31 December 2023, the impact on equity due to a +/-3 p.p. change in interest rate amounted KZT -60,568 million /KZT+68,949 million (2022: KZT -20,705 million/
KZT +22,982 million).

Currency risk

The Group manages its currency risk by keeping modest open currency position. The Group only issues loans to customers in tenge, which protects the Group from hidden currency risk in case of a currency devaluation.

The Group’s exposure to foreign currency exchange rate risk is presented in the table below:


	Tenge			USD 1 USD = KZT 462.65			EUR EUR 1 = KZT 492.86			Other currency			2022 Total
Non-derivative financial assets
Total non-derivative financial assets		4,411,208			514,781			25,753			6,371			4,958,113

Non-derivative financial liabilities
Total non-derivative financial liabilities		3,743,473			499,768			7,403			2,706			4,253,350

NET POSITION ON NON- DERIVATIVE FINANCIAL INSTRUMENTS		667,735			15,013			18,350			3,665

Derivative financial instruments
Accounts payable on spot and derivative contracts		(33,894	)		(55,518	)		(17,250	)		(4,581	)		(111,243	)
Accounts receivable on spot and derivative contracts		50,898			55,419			-			4,604			110,921
NET POSITION ON DERIVATIVE FINANCIAL INSTRUMENTS		17,004			(99	)		(17,250	)		23			(322	)

NET POSITION		684,739			14,914			1,100			3,688


	Tenge			USD 1 USD = KZT 454.56			EUR EUR 1 = KZT 502.24			Other currency		2023 Total
Non-derivative financial assets
Total non-derivative financial assets		6,021,554			499,951			24,629			6,746		6,552,880

Non-derivative financial liabilities
Total non-derivative financial liabilities		5,188,795			474,723			6,634			2,016		5,672,168

NET POSITION ON NON- DERIVATIVE FINANCIAL INSTRUMENTS		832,759			25,228			17,995			4,730

Derivative financial instruments
Accounts payable on spot and derivative contracts		(70,704	)		(93,313	)		(16,574	)		-		(180,591	)
Accounts receivable on spot and derivative contracts		94,070			83,917			-			1,165		179,152
NET POSITION ON DERIVATIVE FINANCIAL INSTRUMENTS		23,366			(9,396	)		(16,574	)		1,165		(1,439	)

NET POSITION		856,125			15,832			1,421			5,895

Currency risk sensitivity analysis

The Group analyzed sensitivity to an increase and decrease in the USD and EUR against the KZT. 25% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign currency exchange rates. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation as at 31 December 2022 and 2023 for a 25% change in foreign currency rates. The sensitivity analysis includes external loans as well as loans to foreign operations within the Group where the denomination of the loan is in a currency other than the currency of the lender or the borrower.

As at 31 December 2023, the impact on profit or loss and on equity due to +/-25% change in USD rate were KZT +/-3,958 million (2022: KZT +/-3,729 million).

As at 31 December 2023, the impact on profit or loss and on equity due to +/-25% change in EUR rate were KZT +/-355 million (2022: KZT +/-275 million).