OREANDA-NEWS. On November 26, 2007 in order to bring its individual consumer lending model in line with international standards Alliance Bank has decided to cancel risk insurance for newly issued consumer loans starting from November 1, 2007, reported the press-centre of Alliance Bank.

Prior to this decision, all individual consumer loans were subject to mandatory insurance by Alliance Policy insurance company, a strategic partner of the Bank. Insurance premium of 7% of the total loan amount had been applied to the Bank's individual consumer loan portfolio generated earlier.

“Risk insurance for new consumer loans was necessary at the initial stage of development of this type of lending due to the innovative nature of the product at that moment, and Alliance Bank didn't have detailed statistics for calculating losses,” - Anuar Erzhanov, Managing Director of Alliance Bank, commented. – “At this stage, when the Bank has accumulated a fair database on losses and improved statistical models and software together with Experian-Scorex, there is no need to insure the risks of the individual consumer loans.”

Starting from November 1, 2007 insurance of the consumer loans will be replaced by creating additional provisions (reserves) to cover risks related to this type of lending. According to our estimation we expect the provisioning ratio of the individual consumer loan portfolio to reach the level of 5,9% (as of October 1, 2007 it was 5,3%). At the same time, Alliance Policy insurance company will continue servicing policies under the existing consumer loan portfolio until full maturity.

Alliance Bank is focusing on further development of the individual consumer finance segment, since it is one of the most profitable and promising segments of the retail business. As a result the Bank has one of the highest net interest margins (NIM) in the market (approximately 9,1% as of October 1, 2007) and net profit for the first nine months of 2007 reached KZT 30 billion. This fact decreases dependence of the bank on external borrowings and makes possible fast development of the business. Moreover the bank's high-yielding core business allows the creation of additional provisions (reserves) for covering risks, which is in line with international standards.

The success of Alliance Bank in retail lending rests upon well adjusted business processes and its automated data processing system. This system is used to evaluate solvency and creditworthiness of the borrowers upon decision-making on extending individual consumer loans. It is based on effective scoring model which is constantly updated due to accumulation of an extensive database of information on the borrowers, online access to information on officially certified income, introduction of additional checks for large loans, cooperation with the First Credit Bureau and development of its risk management system.

A key element of the individual consumer finance model is the Bank's effective risk management system, which allows the Bank to maintain projected quality of the loan portfolio. Since November 2006, Alliance Bank together with Experian-Scorex (world leader in developing scoring models for retail lending) has introduced optimized scoring cards and procedures for determination of terms and conditions, developed based on statistics accumulated by the Bank. The Bank uses standard techniques for loan portfolio quality assessment and modeling such as Vintage Analysis, Roll Rates (transition matrixes) and alternative methods applied by leading foreign banks. These innovations helped to improve efficiency of the scoring processes, increase origination of consumer loans and reduce nonpayment risks. In November the Scoring Committee of Seimar Alliance Financial Corporation (SAFC) approved a new, more effective version of scoring cards which are at the stage of introduction.

Alliance Bank is one of the largest financial institutions in Kazakhstan and a leading bank in retail lending with a market share of more than 20%. In September 2007 Alliance Bank received “Best Retail Bank in Kazakhstan” award in the category of “World's Best Banks in Corporate Governance 2007” by Euromoney - one of the leading international financial publications.

The major shareholder of Alliance Bank is Seimar Alliance Financial Corporation, which owned 72.04% of the Bank's voting shares as of October 1, 2007.

Alliance Bank is represented by an extensive branch network with 25 branches and 216 outlets in 47 cities and 18 settlements of the Republic of Kazakhstan. The customer base of the Bank is currently over 2 million people.