Denis Rybalkin of KzRating -
It appears that there is no such thing as a permanent "top-three" group of banks in Kazakhtan. Traditionally, the top three have been Kazcommerce, Bank TuranAlem and Narodnyi Bank, though Alliance Bank and ATF Bank have periodically taken that third spot due to assets growth. In general, this indicator of a bank's size is less significant from an analytical point of view, since it does not help determine risks, credit or solvency.
Looking at the top-three banks in the short term, there could be changes in their respective placing. Kazcommerce and Bank TuranAlem have strong positions because they have large and medium-sized businesses as clients. Even though retail banking has contributed to phenomenal growth in several banks, this segment still can't compete with the corporate sector. In any case, the leading banks continue to hold their positions in retail; for example, Kazcommerce has put a new emphasis on developing its retail business.
In general, the group of top-10 banks isn't likely to change in the short term. The larger and more successful of the top 10 gained access to the international markets, which basically has ensured their competitive advantage and corresponding market share. However, there could be some changes at the bottom, though they won't affect the banking system significantly. AO Tsesnabank might enter the top 10 (currently ranked 11), as it has recently expanded its regional network and shown fast asset growth. However, this change depends on whether the retail strategy of Eurasian Bank in the number-10 slot succeeds or not. A bank's success in general depends on its management's innovations and decisions.
There are a number of factors that could change the rankings of Kazakh banks in the medium term, primarily the actions of foreign investors with regards to their desire to invest in the Kazakh banking system and provide capital for local banks. The recent acquisition of ATF Bank sees the beginning of large international players entering the market and we expect at least one more acquisition of a local bank in the short term.
If a foreign investor chooses to pursue an aggressive strategy to increase its market share and increase its capital, theoretically that could alter the banks' ranking.
Another factor relates to the risks that might worsen the financial condition of a fast-growing bank and affect its ability to draw funds abroad, which would in turn affect its further growth. Lowering benchmarks for borrowers because of the need to attract funds from abroad quickly can potentially lower the quality of loan portfolios.
As the aggregate sum of loans continues growing monthly, it is difficult to estimate the quality of a bank's assets since standard-issued loans cover up any problems with existing loans. When the volume of retail loans starts declining, a number of banks could face the problem of a reduction in the quality of their loan portfolio.
It is also important to note a bank's dependency on foreign funding, which is the most important factor of a bank's growth. Negative developments on global markets could deprive Kazakh banks of future growth opportunities. In this case, those banks that focus on drawing funds from abroad will be the most affected.
Denis Rybalkin is vice director of KzRating, which is a member of Global Rating Group.
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