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Moody’s Investors Service on Kazakhstan’s banking sector

26 june 2013, 08:19
0
Kazakhstan’s banking sector’s outlooks are set to remain negative, Moody’s rating agency analysts believe.

“Following a raft of crisis developments, defaults and debt restructuring, high system risks have been lowered (…) However, major problems defining banks’ ratings are still there”, Armen Dallakyan, Moody’s Investors Service Senior Analyst, believes.

Despite the quite strong GDP growth, the country’s banking system [rated at B3 on average] is stagnating. “There have been some positive developments in lending operations since 2011, but the growth is rather limited”, he said.

The banking system outlook remains negative, he said, assigning the problem “to the high share of NPLs (…), weakened lending growth (…) and low profitability”.

“Substantial growth of lending is crucial to generate high revenues to offset losses [related to NPLs] and raise capitalization (…) enhancement of the banking regulation and better corporate governance are needed to rectify the structure flaws of the banking system”, he believes.

According to Mr. Dallakyan, the domestic demand for loans, notably corporate loans, is growing slowly. “In 2012 banks’ loan portfolios grew by 12%, mostly driven by retail loans. Retail loans grew by 40%. Growth of lending in 2013 is expected at 10-12%”, he said.

The share of NPLs will only reduce insignificantly in the following 12-18 months, he said. NPLs with maturities over 90 days comprise around 30 percent of the total loan portfolio of Kazakh banks and stand at 3.5 trillion tenge ($23 billion), Reuters reported late April 2013, citing the local financial market regulator.

According to Moody's experts, banks’ capital adequacy will remain under substantial pressure as the banks’ ability to generate capital is weak and no noticeable injections are expected. In 2013, the return on assets is expected at 1% on average. Most banks are likely to retain acceptable indicators in terms of liquidity as “deposits seem to grow further, with lending growth being insignificant”.

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