The Agency for the Development and Regulation of the Financial Market (FMRRA) has announced the launch of a regular supervisory process, the Debt Service Review (DSR), which will verify the accuracy of how second-tier banks calculate borrowers' debt burden ratio (DBR). Eleven major banks in the country will fall within the scope of the review, infohub.kz reports.
According to the agency's press service, the new supervisory process is aimed at maintaining a balanced level of debt burden among citizens and strengthening responsible lending practices. "Ensuring responsible lending and protecting citizens from excessive debt burden are among the Agency's priority areas of activity. Amid growth in retail lending, an objective assessment by banks of borrowers' solvency at the stage of deciding whether to grant a loan is of particular importance," the agency said.
The launch of the new supervisory process was preceded by a pilot project in which the Agency analyzed the accuracy of DBR calculations at 8 banks. The results of the pilot project confirmed the need to introduce the DSR into the regular supervisory process.
The press service noted that the main objectives of the DSR are: preventing excessive household indebtedness through proper assessment of borrowers' incomes and credit obligations; reducing credit risks by promptly identifying cases where borrowers' debt burden is underestimated; ensuring a uniform practice of DBR calculation across the banking sector, taking into account differences in banks' approaches identified during the pilot project; and improving the quality of banks' loan portfolios by refining approaches to assessing borrowers' solvency, including timely calibration of internal scoring models.
Based on the results of the reviews, the Agency will assess the nature and materiality of any violations identified and will consider whether supervisory measures are needed, as well as whether banks should adopt corrective action plans. The findings will be used in preparing proposals to improve regulatory requirements for DBR calculation.
"Overall, the DBR reflects the ratio of a borrower's monthly payments on credit obligations to their average monthly income. It is one of the key regulatory tools for limiting the debt burden of the population. Correct calculation of this indicator makes it possible to objectively assess a borrower's ability to service both existing obligations and a new loan. Underestimating borrowers' debt burden increases banks' credit risks and the risks of growing household indebtedness," the Agency said.