Loans in dollars are dangerous: head of Kazkom

Chairman of the Board of Kazkommertsbank Magzhan Auezov considers lending in dollars a bad idea for Kazakhstan, Tengrinews reports citing his interview for Business Time show of Almaty TV channel.

According to the banker, such loans are particularly dangerous for those who have incomes in tenge, which is for almost all the citizens of Kazakhstan. "We see that with all the best intentions and efforts, the exchange rate is rather difficult to predict, and that the interest rate of the dollar-denominated loans that may seem very reasonable and good today, may be very expensive tomorrow due to the strengthening of the currency," he said.

In addition, the Kazkom banker explained why lending in tenge was so high on the agenda of Kazakhstani banks. "In the past year, we saw many depositors convert their tenge deposits into dollars (after the 19% devaluation of the tenge on February 11, 2014). Especially after the very sharp devaluation of the Russian ruble in December. This trend was very strong for a month or a month and a half after that and the banks were experiencing a big shortage of tenge liquidity," Auezov said.

"This problem became apparent in late 2014, and since then the National Bank undertook a number of measures to increase the volume of tenge in the country. This included placement of the pension fund's money, an unprecedented program of refinancing of mortgage loans - 130 billion tenge were allocated – these are unprecedented conditions - to extend the loans, convert the loans into tenge and lower the rates. Russia does not have such a program, but we do. In connection with this, the pressure on the tenge has been waning since the second quarter,” Auezov explained.

The banker advised those who do not have their income in dollars to refrain from obtaining taking loans in foreign currencies. Banks, too, are uneasy about issuing such loans to just anyone. "Today, we are all aware that it is dangerous to lend (dollars) to the clients who have incomes in tenge, who are not exporters and whose revenues are not tied to receiving dollars. Because the exchange rate is beyond the control of an entrepreneur. In this regard, we advice out customers against borrowing in dollars and consider it dangerous for the banks to lend in dollars to those customers who have all their income in tenge," chairman of Kazkom said.

Nevertheless, Auezov gave a positive outlook on the Kazakhstani banking sector until the end of 2015. "I would hope that in the absence of any big unexpected macroeconomic shocks that may come from outside and be associated with a variety of factors, being optimistic, in the second half of the year we will see a decline in demand for foreign currency (in Kazakhstan), a trend of decreasing interest rates in the domestic market, banks having more liquidity, mechanisms allowing banks to fulfill their key role and lend to the economy implemented. We see that the level of non-performing loans, in spite of all the challenges, such as low oil prices, reached the appropriate level as of 30 June," the chairman of Kazkommertsbank bank.

Writing by Dinara Urazova, editing by Tatyana Kuzmina