The Kazakh economy has not yet fully absorbed the effects of the devaluation of the national currency in August when the central bank abolished the tenge's trading corridor and allowed the currency to float freely. This, coupled with base effects, has caused the economy to contract in the following months, according to an analysis by Russia’s Sberbank.

The short-term economic indicator, a narrower gauge of GDP growth covering 67-68% of the country’s economy, increased by just 0.8% y/y in the first nine months of the year, with industrial output falling by 4.2% in September and 1% in January-September. Growth in retail sales, which was positive in August, turned negative in September on the back of the currency devaluation, which dragged down y/y growth to 2.4% in the nine-month period. “We expect negative growth in retail sales in 4Q15, weighing down the full-year result to under 1.5%,” Sberbank said. Growth in investment also fell in Kazakhstan in January-September.

“Income growth decelerated to the extent that real income growth in 1Q15 turned negative; this, combined with sluggish credit growth (and even deleveraging in some segments), indicates a lack of support for consumption in the coming months,” Sberbank said. “Lending growth is poor, and both nominal and real lending rates appear too high.”

According to the Kazakh State Statistics Committee, growth in nominal per-capita income was negative in the first quarter of the year, but sharply increased by nearly 8% m/m in April. However, the negative trend continued between May and August. At the same time, y/y growth in real terms was negative in March and July this year so far, showing a 1.6% growth in January-August.

The share of foreign currency in total credit has declined this year as compared with 2014, but continues to fluctuate between 20% and 30%, Sberbank said. Expectations of devaluation led to shortages of tenge liquidity, while uncertainty around the exchange rate forced banks to suspend the issuance of loans in foreign currency. “Expectations of further currency depreciation have not fully evaporated yet, as the tenge is still being supported by interventions from the [National Bank of Kazakhstan]” Sberbank said. The central bank said it spent over $3.9bn in the foreign exchange market in October alone.

Total credit issued to the economy fell from 36.8% of GDP at the beginning of the year to 33% as of September 1, while total deposits increased from 28.5% to 30.8%. At the same time, total credit fell from KZT14.2tn (€46.3bn) to KZT13.6tn, which was a result of a sharp fall in non-performing loans (NPL) from KZT3.34tn to KZT1.26tn for the entire banking sector. As a result of the country’s largest bank Kazkommmertsbank’s (KKB) deconsolidation of the embattled BTA Bank’s problem assets, KKB managed to demerge nearly KZT1.2tn worth of BTA assets, thus significantly decreasing the share of NPLs in its loan portfolio (to 10.53% as of October 1 from 20.29% at KKB and 85.66% at BTA as of June 1). Changes to legislation have generally allowed banks to set up special units and transfer problem assets to them, improving their loan portfolios. As a result, the share of NPLs in the total loan portfolio of the banking sector went down from 23.5% at the beginning of the year to 9.21% as of September 1.

This resulted in the total profits of the banking sector more than doubling to KZT127.6bn in the year to September 1. The banking sector’s interest income increased from KZT969.1bn to KZT1,072.7bn and interest expenses increased from KZT488.3bn to KZT496.2bn, according to the National Bank.

Following the tenge’s 50% devaluation since August, inflation accelerated to 1.0% m/m in September, but still remained relatively low at 2.9% year-to-date, Sberbank said. It expects the annual inflation rate to reach 5.5% in 2015, well within the National Bank’s target of 6-8%.