Moody’s Investors Service expects Kazakh banks to continue facing solvency risks over the next 12-18 months amid a challenging business environment, the rating agency said in its report entitled “Banks – Kazakhstan; Heightened Insolvency Risks Drive the Negative Outlook”.
“Asset quality remains weak across Kazakhstan’s banking sector as the depreciated tenge, combined with challenging operating conditions and declining real incomes, have fuelled a rise in problem loans in 2016 to 37% of total loans, on average, among our rated banks in Kazakhstan,” says Semyon Isakov, Vice President at Moody’s.
While liquidity conditions for banks in Kazakhstan are improving, local currency funding will remain scarce, according to the rating agency. Although confidence in the tenge is beginning to gradually recover, savers continue to favor the dollar overall and, in order to lend, banks needs to maintain costly hedges. Banks also face the risk that funding costs might suddenly rise in the event that the tenge weakens again.
Moody’s noted that weak profitability was also limiting lenders’ ability to absorb credit losses.
“Without special measures to address provisioning needs, it will likely take years for the banking system to work through accumulated problem loans,” the rating agency said.
Moody’s forecasts net interest income to remain low in 2017 because of a large share of banks’ loans.
However, the capacity of the government to recapitalize or provide liquidity to certain large banks remains strong due to the relatively small size of the Kazakhstan banking system, the rating agency said.
Thirty-four banks were operating in Kazakhstan as of January 1, 2017. (Trend/Business World Magazine)
