S&P Warns Kazakh Credit Risk Is ‘Extremely High’ on Banks

Kazakh banks, burned by debt defaults after a collapse in real-estate prices, drew criticism from Standard & Poor’s for their “aggressive lending” as the share of bad loans is the highest among the country’s peers.

“Economic risks in Kazakhstan remain very high in a global context,” S&P said in a report today. “Kazakh banks’ risk appetites remain aggressive, reflecting opportunistic growth by some small and mid-size Kazakh banks as well as banks’ continued financing of volatile real estate and construction projects.”

Five years after the government was forced to use $10 billion to bail out banks and help the economy, Kazakh lenders are sowing anxiety again as S&P predicts their assets will surge about 15 percent in 2014-2015, outpacing gross domestic product growth of 4.5 percent to 5 percent.

Central bank Governor Kairat Kelimbetov last year called Kazakhstan a “world champion” in the concentration of non-performing loans and later threatened to revoke licenses of banks that won’t reduce their share to 10 percent by 2016. Regulatory actions “to clean up the banking system’s very high level of problem loans” proved to be “ineffective,” S&P said.

Kazakhstan’s 38 banks had 32.2 percent of loans overdue by more than 90 days as of July 1, compared with 30 percent in the same period last year and 33.5 percent in May, according to central bank data.

‘Extremely High’

“Our view of extremely high credit risk in Kazakhstan takes into account the country’s banks’ history of aggressive underwriting standards and the country’s weak payment culture and rule of law,” S&P said, adding that the financial system’s risk-adjusted profitability is low.

Ruled by President Nursultan Nazarbayev for the past quarter-century, Kazakhstan has devalued its currency twice since 2009, with the tenge losing about 50 percent against the dollar in the period. Central Asia’s biggest energy producer is rated BBB+ at S&P, placing it above Spain, Russia and Brazil.

“The Kazakh banking regulators lack independence and can be subject to political interference,” S&P said. “Uncertainty regarding highly centralized policy making and implementation and concerns about smooth presidential succession poses high political risk.”

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