S&P says tenge depreciation to create hurdles for Kazakh banks
The recent sharp drop in Kazakhstan's currency will likely complicate matters for the country's banking sector, already hurting from the economic slowdown following the recent plunge in oil prices, according to a report entitled, "Kazakh Banks Will Feel The Weight Of Tenge Depreciation And Worsening Economic Conditions", published by Standard & Poor's Ratings Services Aug. 31.
“The National Bank of Kazakhstan (NBK), alongside the central government, untethered the tenge from the dollar, on Aug. 20, 2015, enabling it to float freely. As a result, the tenge has fallen by about 25% so far,” the statement said.
“Standard & Poor's assumes that Kazakh banks' business prospects will feel constrained over the remaining part of 2015 due to the worsening macroeconomic environment, deteriorating borrowers' creditworthiness, and the sharp weakening of the tenge,” Standard & Poor's said. “Standard & Poor's projects that Kazakh banks may face both volatile customer funding and limited opportunities to invest foreign-currency denominated funds into income generating assets of acceptable credit risk.”
In 2015, Kazakh banks' profitability will likely bow under the pressure of the tenge's drop and negative macroeconomic trends.
Standard & Poor's expects credit risks in Kazakhstan's banking sector will increase in the next one to two years amid the worsening macroeconomic environment and weakened local currency.
Tenge liquidity will likely remain tight in the banking sector in the second half of 2015, despite the government's efforts.
Banks' pronounced currency mismatch between loans and deposits will likely complicate their lending growth and overall business prospects in the absence of readily available long-term market instruments to hedge foreign currency risks.
Standard & Poor's anticipates that the dynamics of the banking sector loan portfolio will be almost flat in 2015 (adjusted for the BTA Bank deconsolidation from the sector).
Standard & Poor's currently rates 19 commercial banks in Kazakhstan.
In Standard & Poor's opinion, the country's banking industry is exposed to very high risks, according to our Banking Industry Country Risk Assessment of '8', which ranges from '1' for lowest risk to '10' for highest risk.
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