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From Stormy Expansion to Riding out the Storm: Banking Development in Kazakhstan

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    Abstract

    Pushed by expanding income (on the back of rising oil prices) and by rapid external debt accumulation, the Kazakh banking sector featured one of the most dynamic credit booms in CESEE until 2007. Following the U.S. subprime crisis, banks’ access to external funding plummeted and credit expansion ground to zero. The global financial and economic crisis that broke out in late 2008 forced credit institutions to drive down their external debt. Moreover, the collapse of the oil price in late 2008 and the devaluation of the Kazakh tenge in February 2009 cut domestic demand, liquidity and solvency. The share of nonperforming loans (NPLs) skyrocketed from 7% at end-2008 to 38% a year later. Large losses stemming from real estate exposure (burst of the housing bubble), lending to dubious partners and fraud played a role. Loan loss provisions were sharply ramped up, profitability was all but wiped out in 2008 and hefty losses incurred in 2009 (ROA at end-2009: –24%). Sector capital even turned negative. The authorities’ crisis response measures included the nationalization of two of the country’s largest banks and the recapitalization of two others (together accounting for twothirds of banking sector assets). The two nationalized banks then defaulted on their high foreign liabilities and initiated debt restructuring negotiations that are currently in the process of completion, promising steep haircuts for creditors, which should reduce the sector’s debt burden and positively impact its capital. Very high credit risk and a weak institutional environment weigh on investor sentiment. But there are also important shock-absorbing factors: the (oil price-driven) recovery of the real economy, depositor confidence, record-level official foreign currency reserves, the record-level oil stabilization fund and modest public debt.

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    Bibliographic Info

    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Financial Stability Report.

    Volume (Year): (2010)
    Issue (Month): 19 ()
    Pages:

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    Handle: RePEc:onb:oenbfs:y:2010:i:19:b:1

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