Kazakhstan’s top bankers this week called an end to the liquidity crisis that has gripped the country’s financial sector since the summer, amid a growing gulf between investor perception and what they insist is still a strong and well-capitalised banking system.
“We have overcome the problem with liquidity in Kazakhstan,” said Andrey Timchenko, managing director at Kazkommertsbank (KKB). Conditions in the banking sector last August and September were “as bad as they could get” but Kazakh banks nevertheless “had adequate capital,” he said. “The government and president issued a strong message to the markets that the banking sector would remain well supported.”
BTA bank chairman Roman Solodchenko, echoing Timchenko’s optimism, said: “Perceptions about the Kazakh banking sector are based on assumptions that started in August last year” against the backdrop of a global liquidity crunch. “I agree that in those days, there was a basis for those assumptions, but reality and time have proven the assumptions wrong,” he said.
But foreign analysts have taken a different view. Rating agency Standard & Poor’s on April 29 revised its outlook on Kazakhstan’s sovereign credit ratings to negative from stable on “an increasing risk that deteriorating bank asset quality and funding challenges will impact the country’s economy,” said Ben Faulks, analyst at the rating firm.
Meanwhile credit default swaps – specifically, the cost of insuring 5-year senior debt - for the Kazakh sovereign were this week quoted at 175bp, compared with 45bp the same time last year, while KKB CDS was quoted at 700bp compared with 220bp twelve months ago.
In their bid to win back wary investors, KKB this month completed an investor education roadshow while BTA is meeting investors in the Middle East to gauge demand for a possible dollar sukuk issue later in the year, aimed at diversifying the bank’s investor base.
“Conditions in Kazakhstan have not been easy but extensive communication from our side has definitely helped sentiment,” said Timchenko. “I don’t think we will see a quick change in sentiment, and conditions for borrowing will not resume in the short-term. It will take time.”
In the first quarter of the year, Kazakh banks successfully repaid more than $6 billion of debt, easing fears of refinancing risk. While share prices of Kazakh banks have fallen, the acquisition of a major stake of Bank CenterCredit by Korea’s Kookmin - completed at “close to pre-crisis multiples,” Solodchenko said – is evidence of the continued appeal of Kazakh banks to international investors. “The multiples are quite encouraging.”
The effective closure of the public bond markets to Kazakh bank borrowers has meant that most will see their balance sheets shrink this year – KKB’s by 5%-10% this year, Timchenko said – while BTA will grow its loan book by 19% with funds from the sale of TemirBank.
Rising inflation will put pressure on consumers’ ability to repay their debts, but according to the banking chiefs, non-performing loans are adequately provisioned. BTA’s non-performing loans have tripled to 1.8% and are predicted to rise to 2%-2.5% of the loan book.
Kazakhstan’s banks – the CIS region’s most prolific borrowers - ran up external debt worth 46% of GDP by the end of June last year to fund their rapid growth, which averaged 75% over the three years until 2007. Since August 2007, however, only Halyk Bank – now Kazakhstan’s only investment-grade rated bank - has successfully priced a new public benchmark – the $500 million five-year it launched in April.
The National Bank, under chairman Anvar Saidenov, acted quickly, injecting more than $5 billion of foreign currency liquidity into the system, resulting in official reserves falling by 22%. Fears of a burst in the country’s real estate bubble have so far been assuaged by messages of support from the government.