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KzRating analyses the Kazakh banking system and its development trends. In this review:
• The slowing down of the banking system.
• Banks are switching to short-term loans to insure fast asset turnover and to maintain liquidity in order to pay off external loans.
• The retail loan market is growing while corporate loans are declining.
• Consumer loans are increasing, while mortgages are declining.
• The cross-border expansion of Kazakh banks is expected to slow down due to a lack of excessive liquidity.
• The amount of overdue loans in the loan portfolio is not critical but can contribute to instability in the medium term.
Kazakhstan’s banking sector is one of the most dynamic components of the national economy. Its level of penetration in the economy (about 90% of GDP) is comparable to European markets. External funding is one of the main growth factors of the banking system.
The total assets of the banking sector on July 1 2007 was 11,137.8bn tenge, an increase by 25.9% or 2,301.8bn tenge from the beginning of the year.
Significant growth in assets forces banks to constantly increase capital to maintain the required regulatory minimum. In the first half of 2007 the total banking regulatory capital grew by 351,9bn tenge (30.1%) to 1, 520.5bn tenge as of July 1, 2007.
Political risk is insignificant in the medium term since the president can be reelected an unlimited number of times. Long-term risk remains high due to the lack of a power transfer system in the country.
Transparency is low, especially for large banks, but there have been positive developments in the disclosure of the final owners of the medium and large banks.
Liquidity risk is the key problem facing the Kazakhstan market. Maintaining the liquidity necessary to pay off short-term loans, especially during the global liquidity crisis, has led to slower growth in the banking system.
The Kazakh banking system has sufficient liquidity in the short term. In the worst case scenario, intervention from the National Bank is likely. At present banks are still keeping up with payment schedules without the state’s help. Risks will increase if the banks continue taking large loans.
The amount of overdue loans in the loan portfolio is not critical, but can contribute to instability in the medium term. Due to large construction loans a slow down in the construction sector due to lower mortgage financing rates has affected some banks’ balance sheets.
Loans are continuing to increase monthly and this complicates the assessment of assets, since new loans negate the problems with the old loans. When growth in the retail loan portfolio slows then a number of banks’ loan portfolios may worsen.
To order banking sector reviews on the following topics:
• Kazakhstan banking system: Stability during global liquidity crisis. Time for new strategies.
• Armenia banking system. Transparency. Neutrality. Resource Deficit.
• Russian corporate bond market, Russian retail banking
• Azerbaijan banking system (coming soon)
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Research