Kazakhstan 2015 | FINANCE | REVIEW: BANKING

Kazakhstan's banking regulator is adamant to shore up any loose ends that might jeopardize the sector's broader role in the national economy.

There is no denying that Kazakhstan has been through the ringer in recent times. Yet so long as the financial sector takes on board the advice of significant others—read the ratings agencies—it can remain a regional exemplar and achieve the performance metrics needed for the nation to develop its non-carbon economy. Problem loans have been the Achilles' heel of the system for some time; Kazakhstan's central bank, National Bank of Kazakhstan, (NBK) has been grappling with non-performing loans (NPLs) at around 36%, or $30.7 billion, of the systems total loan portfolio, by early 2014 by official calculation. The NBK aims to have reduced NPLS to 10% by January 1st, 2016.

Meanwhile, Samruk-Kazyna, the Sovereign Wealth Fund created in the wake of the crisis, has been working to shed the mantle of troubled banks such as BTA Bank, Kazakhstan's largest pre-crisis entity. Sale plans, first to Russia's Sberbank and later to Kazakh giant Halyk Bank, collapsed. Ultimately the deal to sell BTA to Kazkommertsbank and Kazakhstani investor Kenes Rakishev for $930 million went through, with the fund retaining a minority stake materialized mere days before the end-2013 deadline set by President Nazarbayev to shift the three banks—BTA, Alliance Bank and Temirbank—taken over once the global financial had made landfall in Kazakhstan. In May 2014, the national wealth fund sold a 79.88% stake in Temir Bank and 16% of Alliance Bank to Bulat Utemuratov, owner of Forte Bank and Kassa Nova Bank. While Samruk-Kazyna retains a 51% controlling stake in Alliance Bank, an eventual merger of the two entities was mooted.

Business News Europe reports that the potentially runaway caboose of consumer lending has been causing alarm among key observers, concerned at the prospect of an overheated banking system. The IMF had warned in 2013 that consumer loans—although from a relatively low base—had been rising by 40% a year. The motive behind this is simple enough to grasp; Kazakhstan's banks have grown accustomed to charging interest rates of between 25% and 40% per annum on consumer loans, and a rising middle class has been willing to bite the bullet. Meanwhile, the 2015 to 2019 roll out of Basel III rules for the banking system, with higher asset level stipulations, may spell consolidation on the horizon for smaller banks. As part of the Basel process over 2013, the NBK raised the required level of tier-one and tier-two capital, as well as increasing consumer loan conditions to mitigate against the aforementioned overheating.

Also of concern to authorities has been the fact that corporate loans were less active than consumer counterparts, especially among the non-extractive sectors that, unlike the resources-sector typically rely on bank finance for growth. According to The Astana Times, The NBK's declared economic policy for 2015 will be aimed at “…mitigating the effects of negative external factors, and strengthening the stability of the socio-economic situation. The main goals are to address recovery of the financial sector, and maintain macroeconomic stability and competitiveness of Kazakhstan's economy through diversification of the economy."


The latest official NBK data indicates a banking universe of 38 players, where 17 banks have foreign participation, which includes 15 subsidiary banks. A somewhat concentrated sector saw the five largest players hold 54.0% of total assets 60.8% of the total loan portfolio, and 52.8% of total customer deposits as of September 1 2014. As of that date total assets of the banking system stood at KZT17,312 billion on a 12.0% rise for the first nine months of the year. As of September 1 the ratio of banking sector assets to GDP was 44.8%, while those of the loan portfolio and customer deposits to GDP were 37.6% and 29.1%, respectively. The loan portfolio was the leading asset category at 63.1% of total assets, and with a print of KZT14,513 billion, up 8.7% for the period. A breakdown of the loan book reveals corporate loans of KZT7,603 billion, accounting for 52.4% (up 1.7% as of September 1) of the loan portfolio. Individual loans of KZT3,684 billion meanwhile, claimed 25.4% of the loan book, up 11.7% from January.

Meanwhile, retail loans claimed 17.9% of the loan portfolio, while those to SMEs were at 20.4% of the loan book, up 26.4% from January 2014. NPLs—defined as loans overdue by more than 90 days) stood at KZT4,359 billion, or a high 30.0% of the loan portfolio, though down marginally from January's 31.2% level. A gauge of prudence, the overall system had provisions of KZT4,707 billion, or 32.4% of the loan portfolio at September 1. The liabilities of Kazakhstani banks stood at KZT15,216 billion as at September 1, 2014, up 13.7% from January 1, 2014. The lion's share in total liabilities went to customer deposits at 73.9%, and outstanding securities at 6.4%, while liabilities to non-residents stood at KZT1,546 billion, and claiming 10.2% of total liabilities. Corporate deposits accounted for 60.6% of customer deposits, and had risen by 15.6% since the beginning 2014. And regional woes, the local deposits of businesses held in Fx rose from 32.7% at the start of the year to 41.9% as of September 1, 2014. Household deposits in Fx, too, had risen from 44.0% at the start of 2014 of the year to 55.8% as of September 1. Turning to sector profitability, net income stood at KZT62 billion as of September 1, 2014, while return on assets (ROA), at 0.89%, was down notably from 8.80% a year earlier, at return on equity (ROE) saw a 7.00% print, a far cry from the 82.96% print for the same period of 2013.


On June 30, 2014, KKB, Kazakhstan's largest bank by assets (up 59.8% to KZT4.1 trillion for 9M2014 from KZT2.6 trillion at YE2013) finalized the purchase of a 46.5% stake in BTA Bank from the Sovereign Wealth Fund. Consolidation led to a virtual doubling of consolidated liquid assets, increasing deposits, while their industry concentration decreased, and the share of retail loans and deposits increased from 14% to 17% and to 42.9% from 42.6% in for 1H2014, respectively. The bank's 2Q2014 NPL ratio, at 35.5%, was down QoQ from 6.1%. 9M2014 results were less than shiny due to the related cost of consolidation. The bank posted profit of KZT6.1 billion, down 23% YoY. Net interest income climbed 43% YoY to KZT46 billion, albeit partially offset by higher provision charges (up 57% YoY to KZT31.7 billion) and almost doubled operating expenses KZT23.4 billion. Total deposits rose 37.2% KZT 2.3 trillion, while total CAR printed at 13.6%.


Halyk Bank offers retail and corporate banking services in Kazakhstan, Russia, Kyrgyzstan, and Georgia, leasing services in Kazakhstan and Russia, and asset management, insurance and brokerage in Kazakhstan. Leveraging its nationwide branch network, it is also a non-exclusive agent of the Government for the channeling of diverse budgetary payments and pensions.

As at 9M2014 Halyk Bank had reported total assets of KZT2.8 trillion ($15.2 billion as at January 2015 conversion rate), up from KZT2.5 trillion at end-December 2013, ranking second place in the market. Net income for 9M2014 skyrocketed 63.8%, chiefly on a rise in higher interest rate bearing loans. As Kazakhstan's most profitable bank, net profit printed at KZT92 billion ($508 million) for the period.


SME specialist Bank CenterCredit (BCC) posted net assets of KZT1.1 trillion for 1H2014. The bank's largest shareholder, Kookmin Bank of Korea, holds a 41.9% stake, while the IFC retains a 10% shareholding in BCC. In December of 2014 the European Bank for Reconstruction and Development (EBRD) upped its support for Kazakhstan's private sector through a KZT10 billion five-year loan to Bank CenterCredit scheduled for on-lending to micro, small and medium-sized enterprises. Moreover, at least 60% of the proceeds were earmarked for enterprises beyond the major cities of Almaty and Astana. The loan marked the first sub-operation under the EBRD's $200 million Kazakhstan MSME Framework.


Russian giant Sberbank has benefitted from a massive increase in total assets over 2013 of 41% at its Kazakh subsidiary. A renowned SME enabler, on December 11, 2014 the Kazakh subsidiary bank signed a KZT4 billion loan agreement with Damu Entrepreneurship Development Fund aimed at financing manufacturing and service sector SMEs. Meanwhile, it registered 1H2014 assets of KZT1.3 trillion. Corporate deposits rose 27.4% YoY to KTZ649.1 billion and of natural persons by 33.3% and to KZT298.8 billion. Accordingly, 1H2014 net profit came in at KZT9.6 billion.


Certainly one to watch, Tsesna Bank had tripled its market share in terms of total assets since 2010 from 1.9% to 6% by YE2013, coming in at KZT883 billion ($5.63 billion). While geared toward corporate banking, it is also looking to the SME segment by delivering timely solutions. Talking to TBY, Chairman of the Management Board Dauren Zhaksybek commented that: “We are proud that for the second year in a row, Euromoney has chosen TsesnaBank as the best bank in Kazakhstan. Also, in 2013 The Banker also chose us as the Best Bank in Kazakhstan."


Kazakhstan's 2009 law on Islamic finance laid the groundwork for the functioning of Islamic banks, investment funds, and securities issuance, making it the first former soviet nation to do so. A subsequent law in 2011 enabled the issuing of state Islamic securities. Sharia-based financial offering is on the rise, with Abu Dhabi-based Al Hilal Bank the most recent addition to the fold. In 2014 President Nursultan Nazarbayev received the Global Islamic Finance Award (GIFA) for work to promote Islamic banking, and from May 19-21, 2015 Almaty hosts the 12th Islamic Financial Services Board (IFSB) summit. The summit's agenda will, among other topics, explore regional and global cooperation on financial stability and capacity building, and probe the potential for expanding this financial paradigm. IFSB consists of 184 members, among which are 59 regulatory and supervisory bodies and eight international inter-governmental organizations, and the NBK joined as an associate member in 2011.The NBK's hope now is that the event in Kazakhstan will showcase Almaty as the CIS Islamic financial hub.