S&P - the stake of critical loans makes 20% of Kazakhstan bank sector's aggregate loan portfolio

/INTERFAX-KAZAKHSTAN, Almaty, July 08, 08/ - International rating agency Standard & Poor's (S&P) is more critical than Kazakhstan state regulators in estimation of loan condition and assets of republic commercial banks. Thus, according to S&P, "the stake of loans, subjected to stress" makes 15- 20% of Kazakhstan bank sector's aggregate loan portfolio", Associate Director of mentioned rating agency Ekaterina Trofimova. "This evaluation exceeds much official reporting indicators of bank's overdue debts, - she marked. - Kazakhstan banks conducts restructuring of problem loans and prolongs grace periods on payments with purpose to decrease the level of overdue debt in its account". "Telling about "loans, subjected to stress", - S&P analyst explained, - we mean: all loans, payments on which are overdue (including functional and nonfunctional parts of these loans, but not taking overdue of technical reasons into account); all loans, given to persons connected with problem loaners (even if they are functional); restructuring loans; mortgaged property, which is withdrawn for non payment or transferred to creditor's property and other assets, demanded and obtained during debt regulating process". S&P also considers that Kazakhstan commercial banks` quality assets may worsened more in case of further decreasing of consumption and economic activity in the country. "Banks` assets quality mostly depends on the level of internal consumption, as more than 70% issued loans came to economic spheres, connected with consumption. During recent crediting boom in Kazakhstan volumes of loans, given for home needs and to companies of non primary sectors (not connected with production and processing of minerals) grew faster. Such loaners mostly rely on refinancing of their liabilities through new bank loans" - E. Trofimova explained. "But risk-management practice in most Kazakhstan banks is not corresponded to best world standards. Aggressive rates of growth and income increasing arouse suspicion on quality and agreement of granting of credit procedure during recent years" - S&P analyst considers. "Government finance support, high prices on primary goods, banks` restructuring of problem loans and some regulative indulgences should contribute to decreasing of bank's sector problems, but can't eliminate prime cause", - she marked. "We positively take measures of AFS and National bank for stability, especially in liquidity problems, which are fully justified under current conditions. However, we hope for firmer steps in the bank's quality assets restoration sphere" - S&P leading analyst stressed. Along with this she informed that S&P noted rates decreasing process in commercial banks during last time. "During recent months, this process is seen especially in most sustainable corporate clients segment though is not directly connected with refinancing rate reviewing" - E. Trofimova said. "As banks hardly makes loans from National Bank, decision on refinancing rate reviewing won't have direct influence on market liquidity, inflation and price conjuncture, though it may be indirect signal for rates decreasing on the market" - she added thereupon. As informed, in Kazakhstan refinancing rate, set by national Bank was decreased from 11% to 10.5% since July 1. National Bank noted that decreasing of official refinancing rate should provoke decreasing of yield on financial market, what will contribute to supporting of bank sector credit activity and economic growth. In June the Chairman of Agency of Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations (AFS) Elena Bahmutova informed that credits with overdue on June 1 made 9.9% and increased by 5.8% since year beginning. At the same time, according to Bahmutova, the stake of so called "nonworking (hopeless) credits grew from 1.5% to 2.5% over January-May. And the stake of credits with high possibility to become "nonworking" increased since year beginning and as of June 1 from 3.2% to 5.1%. The situation getting worse and demands to take corresponding measures both on the side of bank's society and state body regulator in the whole" - E. Bahmutova stressed thereupon. "Portfolio` quality is certainly getting worse, - the head of AFS admitted. - But as far as provision volume covers "nonworking" credits volume, - she stressed, - the situation is normal. It means that banks created enough volume of provision and in case of emergency they will charge off these credits, having matured them by created provisions". E. Bahmutova also said that the amount of join earnings of commercial banks is positive at the current moment, taking necessity of provision forming into account. "The volume of undistributed net income since year beginning made more than KZT58.0 bn." - she informed (the current 120.54/$1). According to E. Bahmutova, within the first 5 months the growth of assets of commercial banks made a little higher than 2% and credit portfolio decreased by 0.2%. "It doesn't mean that new credits were not granted during the year. By no means, they are granted" - the head of AFS noted. "Five months (of the current year - IF-K) showed that banks cope with foreign debt maturity. Moreover, most loans, which should be matured during this period this or that were refinanced, what again support the fact that accessibility to foreign markets for our banks is not closed. Banks can be refinanced. Reducing of bank sector foreign debts is surly observed what testifies on some improvement" - E. Bahmutova said. According to E. Bahmutova, as of June 1 commercial banks` total credit portfolio made KZT8.843 bn., 74.6% of which made economic credits and 25.4% - credits to physical entities. [2008-07-09]