Fitch notes banking system risks as it affirms Kazakhstan at ‘BBB’

By bne IntelliNews October 31, 2016

Fitch Ratings has affirmed Kazakhstan's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BBB' with a stable outlook, the ratings agency said on October 28. While the economy is gradually adjusting to shocks caused by lower oil prices and weaker demand in key trading partners, the banking sector is a significant weakness compared with peers, the agency warns. 

As growth resumes, “the erosion of the strong sovereign balance sheet, which underpins the ratings, is slowing”, Fitch said. Greater exchange rate flexibility is helping the balance of payments adjust, with official reserves rising to $31.4bn over the first nine months of 2016, up from $27.9bn.

Kazakhstan's current account deficit is projected to narrow to 2.3% of GDP in 2016, from 3.2% in 2015 and will be fully financed by net inflows of foreign direct investment. The current account is forecast to return to small surplus in 2017 thanks to rising oil and metals prices.

“Increasing sovereign net foreign assets and bank deleveraging will offset the rise in net external debt of the non-bank private sector caused by the financing of energy projects,” the agency noted. That will reduce net external debt forecast to 13.7% of GDP at end-2018, againstt 20% at end-2016.

Lower spending will reduce the IMF-defined general government deficit to 4.7% of GDP from 6.9% in 2015. Moreover, Fitch forecasts the general government deficit to narrow to 2.4% of GDP by 2018, based on its higher oil price assumptions. The deficit on the republican budget is also expected to narrow to 2% of GDP in 2016 from 2.2% in 2015.

“General government debt is projected at 19.6% of GDP at end-2016, compared with a peer median of 40.3%,” Fitch added. “Fitch expects it to drop to 15.9% at end-2018 due to high nominal GDP growth and exchange rate appreciation.”

The banking sector, however, is a credit weakness. Some of the asset-quality deterioration risks stem from foreign currency loans, which are currently classified as performing, but were mostly provided to unhedged borrowers. Government capital injections into the sector are possible, but are unlikely to be large relative to the sovereign's capacity to support the sector, according to Fitch. 

Kazakh economy is projected to expand by 1.9% on average in 2016-2018, well below the 5.6% average of the previous decade and the 2.9% peer median.

Policy mismanagement or prolonged low oil prices could lead to a further weakening in the sovereign external balance sheet, prompting a downgrade in ratings, Fitch said. The ratings could also be lowered due to “materialisation of significant contingent liabilities from the banking sector on the sovereign balance sheet”.

Fitch would consider an upgrade if steps are taken to reduce the vulnerability of the public finances to future oil price shocks. Among other factors, a sustained recovery in GDP and in external and fiscal buffers could also lead to positive rating action.

 

Related Articles

Higher rates not helping Turkish lira as it slides towards new record lows

The Turkish lira hit to a new historic low of 3.4768 against the US dollar in early trading hours of November 25, a day after the ... more

Russia's Rosneft approves $17bn worth of borrowing

Russia's state-controlled oil giant Rosneft has approved borrowing RUB1.07 trillion ($16.6bn) in 10-year foreign currency bonds, Vedomosti daily reported on November 25. ... more

Ukraine central bank warns against losing international financial support

The National Bank of Ukraine (NBU)'s governor Valeriya Gontareva believes that attempts to destabilise the political situation in the country have resulted in the slowing of structural ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss