Kazakh central bank governor warns on risk management
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Emerging Markets

Kazakh central bank governor warns on risk management

But banking sector rebuffs credit crunch fears

National Bank of Kazakhstan (NBK) governor Anvar Saidenov has told Emerging Markets that the country’s heavily leveraged banking sector must strengthen risk management. The warning comes as investors and ratings agencies identify Kazakhstan as one of the most vulnerable emerging markets to tighter global liquidity. Spreads on Kazakh bank bonds have tightened in recent weeks, but analysts say the fall-out from the global credit crunch is far from over.

“Market participants must assume the responsibility for the consequences of their decisions,” Saidenov said. The state “is creating the necessary conditions and will contribute to the development of the economy”, but “an improvement in the quality of management” is needed from market participants.

Saidenov confirmed that he is ready to extend short-term loans to the country’s banks if they struggle to refinance foreign borrowings. He played down concerns about the overall credit quality of the sector, describing profitability as “extremely high.”

“There will be some additional pressure on end-borrowers, and maybe some problems with the loan portfolios will emerge, but I don’t think it will be a widespread phenomenon,” he argued.

Saidenov acknowledged that there had been a bubble in Kazakh property markets, partly driven by speculative activity, on the back of very high credit growth – more than 80% in 2006. “Risks for the banks do exist if the property bubble bursts,” Saidenov. “At the end of August 2007, the share of mortgage credits accounted for 9.7% of all credit in the Kazakh economy.” State bodies are “examining ways of resolving any issues that may arise” in the property market.

Marat Baitokov, vice president of the Kazakh Bank Association, disputed Saidenov’s warnings on the property market. He told Emerging Markets that mortgage lending would remain attractive, and forecast “impressive growth rates” thanks to a strong economy – despite predictions of a 15-20% slump in property prices.

He acknowledged that real estate and construction companies might face problems, but said banks had already tightened lending criteria through increased interest rates and “intensified identification of borrowers that are unlikely to repay”.

On external borrowing, Baitokov said capitalization in the banking sector remained strong enough to meet repayments estimated at $3 billion per quarter. The NBK’s planned increase in minimum reserve requirements – which was postponed in August, but will now take effect in January next year – would further reinforce the sector.

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