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The Rating agency KzRating has prepared an overview of Kazakhstan’s
banking system as of September 2009. The review estimated the impact of
the crisis on the banking system, the level of risks and the future
development trends of the banking sector.
One of the interesting points is how the agency has estimated the dynamics of the quality changes of loan portfolios. The report notes that the overall asset decline is not even throughout the industry, though in general the asset quality is declining (except for BTA and Alliance Bank). The government’s conservative approach to asset quality may be used during debt restructuring negotiations. The total amount of bad assets and conditional liabilities accounted for 18% of aggregate assets (6-time growth), or for 5% (25% growth) without BTA and Alliance Bank. The report notes that the quality of the loan portfolio (especially in the corporate sector) may be exaggerated to assure the shareholders of steady earnings. The new owners of ATF Bank were the first ones to restructure assets in 2008; asset restructuring at Alliance and BTA show that the problem is widespread among Kazakh banks. This information allows KzRating to lower the overall asset quality of large Kazakh banks since there is a clear tendency of worsening asset quality as the owners of institutions change.
Deputy managing director of KzRating Denis Rybalkin commented on the loan portfolio issue: there has been no drastic change in retail loans and the period of booming financing is not over yet. The quality of the corporate loan portfolio, however, probably does not reflect the reality correctly. Banks try to show what happens to their portfolios as they form provisions and raise additional capital. Individual banks’ portfolios vary in quality, so it is difficult to estimate what is happening. It is no coincidence that during the past few years the banks used net earnings for add-in capital alone. Rybalkin noted that Kazakh banks, ironically, hold excessive liquidity. State programmes have helped to support it. However, this does not lead to higher financing since a majority of banks are behaving conservatively: they realize that they have to pay off large amounts of debt in the future, so they hoard liquidity.
Rybalkin thinks that one of the medium-term goals for the government in the banking sector is to determine a reasonable amount of external payments that would enable the making of new loans. It would mean getting over the crisis and starting economic recovery. Restructuring the external debts of BTA and Alliance is important not only for those banks but for the banking sector in general. Restructuring of BTA loans is more likely due to the strict limits set by the government because the creditors have few other options. It is important for the market that 5-7 of the largest banks restart financing. Rybalkin is sceptical that other, smaller banks would be able to play this role. They would remain niche players and there are a lot of foreign subsidiaries in the second dozen of the banks, whose shareholders are unlikely to be interested in expanding in the current conditions. He also thinks that Kairat Kelimbetov’s, Chairman of Samruk-Kazyna, statement is important for the market: namely, the government does not plan to participate in the banks’ capital forever, including in BTA, and will exit within the next few years. Overall, the government viewpoint on the banking sector is extremely important for investors and for the financial community.
Other macroeconomic factors, such as high oil prices, should not affect the banking system significantly. Kazakhstan’s GDP dropped by 2.3%, which is not as significant as for some other countries. Also, this is not a result of the penetration of banking services in the economy. The development levels of the economy and the banking system were not equal before the crisis so one cannot assume that high export prices can boost banks’ liquidity. Instead, the banks were financed by speculative money flows from abroad, and thus the banking system will not be restored simply by higher commodity prices.
Nikolaj DROZD
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