Problem loan recovery still slow in Kazakh banks - Fitch

Date: 10:17, 09-04-2014.

Almaty. April 9. KazTAG - Problem loan recovery remains slow in Kazakhstani banks due to deep-seated problems at many distressed borrowers, reads the statement of Fitch Ratings international agency.

"Problem loan recovery remains slow, due to deep-seated problems at many distressed borrowers, legal and tax impediments to loan work outs, and sometimes weak court enforcement of creditor rights and/or inefficient collateral foreclosures," reads the statement.

Fitch Ratings says in a newly published report that the outlook for Kazakhstan's banks remains stable, as a generally supportive operating environment offsets challenges arising from still sizable problem legacy corporate loans, rapid growth in consumer lending and tighter sector liquidity.

The economic background remains broadly supportive for bank lending, in Fitch's view, given robust GDP growth (2014F: 5.5%), slightly improving economic diversification and moderate credit penetration, with net loans amounting to 27% of GDP, or 34% of non-oil GDP, at end-2013. However, corporate loan growth has been limited (12% in 2013), as many large banks remain primarily focused on work-outs of old exposures.

The economic background remains broadly supportive for bank lending, in Fitch's view, given robust GDP growth (2014F: 5.5%), slightly improving economic diversification and moderate credit penetration.

"However, corporate loan growth has been limited (12% in 2013), as many large banks remain primarily focused on work-outs of old exposures," said the experts.

Rapid retail lending growth (27% in 2013) has supported sector profitability. "Although household lending is still a moderate 10.3% of GDP, the cost of servicing this debt is significant, in particular for lower-income borrowers, because of high rates and rapid amortisation," reads the report.

In Fitch's view, the newly adopted 50% regulatory ceiling on borrowers' payment-to-income ratios (effective from April 2014) should help to limit overheating risks in the sector, as may proposed measures to limit annual consumer loan growth and increase regulatory risk weightings.

The sector's funding profile has improved considerably over recent years as a result of deleveraging, debt write-downs by restructured banks, and deposit inflows. However, banks' liquidity management is complicated by significant deposit concentrations, a shallow domestic interbank market and limited refinancing possibilities with the National Bank of Kazakhstan (NBK). Fitch believes that the 19% devaluation will likely have a further moderate negative impact on corporate loan quality, although a high proportion of foreign currency exposures has already been recognised as problematic, reducing the potential for additional deterioration.

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