S&P affirms 'ВВВ/А-3' foreign and 'ВВВ+/А-2' local currency credit ratings on Kazakhstan; outlook is stable

/Standard & Poor's, London, April 5, 07, title of IRBIS/ - Standard & Poor's Ratings Services said today that it affirmed its long-term 'BBB' foreign and BBB+' local currency sovereign credit ratings on the Republic of Kazakhstan. At the same time, the short-term 'A-3' foreign and 'A-2' local currency sovereign credit ratings were affirmed. The affirmation is a result of on-balance sheet assets continuing to outpace government debt, though off- balance sheet contingent liabilities are high and rising because of the rapid expansion of bank credit. The outlook is stable. At the same time, reflecting the full ownership and support of the government, the 'BBB/A-3' ratings on Development Bank of Kazakhstan were also affirmed. The outlook remains stable. "The affirmation reflects the growing net asset position of the government and strong economic expansion that offset the contingent liability risk stemming from high domestic credit growth and the burgeoning external borrowing of the banks," said Standard & Poor's credit analyst Luc Marchand. The stable outlook balances the continued prudent fiscal policy against the risks of increasing inflation and deterioration in asset quality for banks. "Risks to the budget from oil price fluctuations have been partially mitigated by the government's accrual of substantial reserves," added Mr. Marchand. Inflationary pressures may force the National Bank to allow an acceleration of the Kazakhstani tenge's appreciation, which would complicate attempts to diversify the economy. The recent proposal to limit external borrowings in the banking sector could be positive for the sovereign ratings if the potential negative implications of the policy are well managed. The policy challenge is to support continued economic expansion, while containing the vulnerabilities associated with the rapid growth of bank credit. Deterioration of the government's financial position due to sharp oil price declines, substantial increases in already-high inflation, or weaker asset quality for banks could result in downward pressure on the ratings. A significant deterioration in the political climate could also trigger a downgrade. For more detailed information: Luc Marchand, London, 44 (207) 176-71-11 Felix Ejgel, Moscow, 7 (495) 783-40-60 Analysts' e-mail addresses: luc_marchand@standardandpoors.com felix_ejgel@standardandpoors.com Group E-Mail Addresses SovereignLondon@standardandpoors.com [2007-04-05]