An economic and mathematical model for project management of distressed bank assets for the economy of Kazakhstan

The global financial crisis 2007-2008 had a significant impact on the banking system of Kazakhstan. The share of overdue debt has risen sharply. As a result, lending to the economy and economic growth has stalled. Financial resources issued to second-tier banks in the amount of three trillion tenge did not increase the volume of lending to the economy. The Government created the Fund of Distressed Loans to form a new mechanism for improving the banking system. According to the foreign experience the organizations of this type are considered to be efficient institutes for the management of distressed assets as their activity improves national economy by buying out the assets and collecting credit debts. This work offers a new mathematical model of the banking system included in the economy model. This is done to study the possibility of using international experience in project management of distressed bank assets in the economy of Kazakhstan. Upon describing a bank system there have been differentiated four economic agents: second-tier banks; subdivisions of second-tier banks specialized on the work with the distressed assets (bad bank); central bank; fund of distressed assets. In describing the activity of second-tier banks there have been defined the internal restrictions on the distressed assets transfer to a bad bank. When describing the activities of a bad bank three key problem resolution schemes have been presented: 1) independent project management of distressed assets; 2) distressed assets irrevocable repurchase; 3) an agreement on buy-back between the fund and a bad bank. To investigate the effect of the banks distressed assets projects at Kazakhstan economy the model is focused at consideration of additional economic agents: producers, private household, and Government. Here as a form of particular scientific results internal restrictions of the second-tier banks to transfer distressed assets to a bad bank has been found for the first time; the amount of households insured deposits, the volume of equity transferred to a bad bank and the amount of the equity additionally decommissioning to a bad bank due to its organization has been calculated; the maximum volume of new credits by the second-tier banks excluding the new credits of a bad bank has also been distinguished. Further studies will be devoted to the verification of the theoretical model in the case study of real statistical data to analyze the impact on the economy of Kazakhstan of various schemes for the repurchase of distressed assets by the Government, as well as to make scenario forecasts. In principal, the constructed model can be used to study the impact of distressed asset management on the economies of other countries.