Kazakhstan banks exposed to high forex risk: S&P

Standard & Poor's has labeled most of the Kazakhstan banks as “Stable”, but does not expect them to continue improving, Tengrinews reports.

Kazakhstan devalued its currency, the tenge, by nearly 20% on February 11, 2014. After that, fearing instability of the national currency, the Kazakhstan population transferred a significant portion of their savings from tenge denominated deposits to dollar deposits, even though Kazakhstan banks offered lower interests on dollar deposits then those on tenge deposits.

Associate Director for Financial Institutions at Standard & Poor's Natalia Yalovskaya said that Kazakhstani banks were exposed to increased forex risks as a result. "An important trend that we see this year, a negative one for the banks, is that the population and many corporate customers have transferred their deposits from tenge into dollars. The banks are willing to take deposits, but they have not way to place these dollar deposits in dollar denominated assets simply because there is no demand for dollar denominated loans. Since the banks continue to accept deposits in dollars and issue loans in tenge, this exposes them to increased currency risks, which may subsequently have a negative impact," Yalovskaya explained.

According to Yalovskaya, the February devaluation of tenge destabilized the deposit based on the banks, increased flows between banks and triggered a general outflow of money from Kazakhstan's banking sector. "We expect this situation to stabilize. But it takes a consorted effort of the banks and ensuring that no similar shocks keep happening to stabilize it," she said.

According to S&P primary credit analyst Annette Ess, only two Kazakhstani banks have positive outlooks - Eurasian Bank and Tsesnabank. An increase in the banks’ capital could help them improve their ratings in the coming year or two, she said. "But this will mostly likely happen through capital injections by shareholders, not thanks to the bank's profits," she said, adding that small emerging Kazakhtstan banks are likely to continue growing, but only at the expense of deterioration of the quality of their assets. 

Kazakhstan doesn't have a single bank that has a strong risk position, Annette Ess said, and the excessive risk exposure of the Kazakhstan banks negatively influences the banks' ratings with S&P. "There are only a few banks that have adequate risk positions, whereas a majority has moderate or weak risk positions," she said. 

Reporting by Azhar Ashirova, writing by Dinara Urazova, editing by Tatyana Kuzmina