In a report on the Kazakh banking system “Slower Loan Growth Reduces Potential Risks at Kazakh Banks” Standard & Poor’s notes that, over the past few years, the banking system in Kazakhstan (foreign currency, BB/Positive/B; local currency, BB+/Positive/B) has been growing at a phenomenal rate, albeit from a low base (accounting for only about 20% of GDP at the end of 2002).
Standard & Poor’s is concerned about excessive credit growth, however, as it is one of the leading indicators of potential stress in financial systems. Other causes of concern are politically motivated or directed lending, and banks’ moves into new areas of business. Loan growth was significantly slower in
“Aggressive loan portfolio expansion by Kazakh banks has far outpaced the rapid economic growth of 9.60% in 2000 and 13.23% in 2001,” says Standard & Poor’s credit analyst Denis Deripasko. At the major Kazakh banks Kazkommertsbank (JSC) (KKB; B+/Stable/B) and Bank TuranAlem (BTA; B+/Stable/B) lending increased as much as 100% per year in 2001. With such rapid growth, Standard & Poor’s expects banks to experience asset quality problems if the economy slows down, leaving borrowers less able to repay loans due to lower profits. The adverse loan classification and provisioning requirements are prudent, however, and banks are taking ample collateral, which has hitherto allowed banks to report only small losses. As a result, there has been a significant recovery in the quality of Kazakh banks’ loan portfolios since 2000.
Standard & Poor’s views the conservative lending policies of major Kazakh banks positively and notes a significant improvement in the risk management procedures and risk evaluation in rated banks, such as KKB, BTA, Halyk Savings Bank of Kazakhstan (B/Stable/C), OJSC Nurbank (B-/Stable/C), and some others over the past few years. “Standard & Poor’s will continue to carefully monitor these policies, especially in view of the recent high loan growth and expansion into higher risk consumer and SME lending,” says Deripasko.