Could Kazakhstan suffer a credit crisis?

You can talk about Borat, but don't mention the word crisis in Kazakhstan.
Central Asian bankers were unusually candid û at times even argumentative û at what many had expected to be a staid banking conference in Kazakhstan on Wednesday. Instead, the meeting turned into a lively debate over whether or not the country's banks are facing a crisis.

At the opening day of the Almaty Interbanking Conference at the swank InterContinental Hotel in KazakhstanÆs effective banking capital, bankers joined together to announce their support for the establishment of a Eurasian Club of Bankers - an idea floated by KazakhstanÆs President NA Nazarbayev in St Petersburg on June 10.

BankTuranAlem, the organiser of the conference, gathered together an impressive panel of speakers who endorsed the presidentÆs call for the clubÆs formation û from Vladimir Shkolnik, the first deputy of the presidentÆs administration, to chief executives from major Kazakhstan, Ukraine and Russian banks. The speeches were long, lilting and, well, what you would expect from post-Soviet era bureaucrats.

Accustomed to such ramblings, the crowd of 500 (largely from the Commonwealth of Independent States [CIS], Russia and London) quickly diminished as people slipped out of the conference to the lobby, for coffee, a smoke and too-rich cookies, not to mention a gander at the Unistream Money Transfer girls in gold hot pants, skimpy skin-tight tops and stilettos who were handing out pamphlets and breath mints.

In no time, the lobby was the place to be. The banter was all about the crisis û is Kazakhstan in one, or not? And that was the topic that carried over into the roundtable discussions.

Kazakhstan banks have been on a borrowing spree û to the tune of $18 billion last year on the external debt market alone û in order to support a construction boom, as well as corporate and retail growth. Not surprisingly, as the global bond market has ground to a halt, so too has KazakhstanÆs borrowing. (It was actually slowing before the global crunch clamped down on the back of the US subprime credit woes û investors had already gorged themselves at the KazakhstanÆs issuer buffet).

Not surprisingly then, in the last month, the bonds of the more frequent Kazakh bank issuers have widened to up to 300 basis points (although to be fair, those banks, like Halyk Bank, that were not frequent issuers, havenÆt seen such wide spreads).

Adding to the worries is the fact that thereÆs a lot owed. As of June this year, there was at least $40 billion of outstanding foreign borrowings. While thus far there havenÆt been any defaults, analysts estimate there is about $6 billion in loans and bonds scheduled to mature this year.

But there are also good signs in the economy. According to the Kazakh government, gross domestic product is expect to hit 10% this year û indeed it has grown by an average of 9.5% every year since 2000. Last year, the banking assets to GDP ratio grew at 97% and analysts expect it to grow to 116% this year.

ôAre we in a crisis? I donÆt think we are in a crisis,ö says Gregory Vojack, managing partner for the Central Asian practice of Bracewell & Giuliani. While conceding there are pockets of overheating, he says investors are over-reacting which has caused liquidity to dry, but the base economy ôstill seems strongö.

Similarly Standard & PoorÆs rating agencyÆs Ekaterina Trofimova says: ôWe donÆt consider the current situation as a crisis. This is a normal situation banks have to handle.ö

That doesnÆt mean it wonÆt be without pain.

Indeed, in an August Standard & PoorÆs report the agency wrote of the global credit crunchÆs impact on Kazakhstan that: ôTheir fundamentals are still relatively good in terms of business prospects, asset quality, earnings and capitalisation. The main impact is expected to be the curtailing of growth trends and earnings margins in the short to medium term. Banks are passing the higher cost of funding on to customers, which is already dampening credit demandö.

No wonder then that some of the calls from the crowd listening to the speeches included questions as to what the government was doing about the problem. Noting that the government has cut back on lending, one person in the audience commented in an obvious prepared statement: ôInternational governments have trusted us and lent to us, but our own government doesnÆt trust or lend to us?ö Others simply used the word crisis freely û ignoring any statements from speakers that there wasnÆt one.

This prompted delegates to titter amongst themselves that it was well worth attending the conference during mid-autumn festival, a holiday for many of the attendees. The debates werenÆt the only sign that spurs hope that Kazakhstan will find its way out of a heavy debt burden û perhaps a more subtle one is the cover of this monthÆs Kazakhstanfinance magazine. While itÆs printed in London, its target market is clearly those who do business in and are from Kazakhstan. The cover image: An image of Sacha Baron Cohen and the cut line: Never mind æBoratÆ û donÆt miss out on KazakhstanÆs boom. A few months ago the edict was donÆt mention Borat, now even locals are invoking his humour, a sign of a self-awareness that Borat himself couldnÆt muster.
¬ Haymarket Media Limited. All rights reserved.
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