Clare Nuttall in Almaty -

Now that Kazakhstan's economy is starting to revive, the country's major banks are preparing for a resumption of growth in the sector - but a period of more cautious and conservative growth.

The rising oil price has given rise to a new mood of optimism in Kazakhstan. In the latest forecast from the government (which admittedly tends to err on the side of optimism), Prime Minister Karim Massimov said on October 19 that the economy would return to 2.4% growth in the 2010 financial year, based on oil prices of just $50 per barrel (today, prices are bouncing around $70).

Bankers, too, say they are starting to see the light at the end of the tunnel. Serik Akhanov, chairman of the Association of Financiers of Kazakhstan (AFK), cites recent increases in assets, liabilities and retail deposits. On a less positive note, non-performing loans (NPLs) have continued to increase, rising from 33.8% to 34.7% of all loans during September, although the high percentage of bad loans at BTA Bank and Alliance Bank skew the data.

Timur Ishmuratov, managing director of Bank CenterCredit's international department, agrees that we have started to see some kind of recovery, including an improvement in NPL levels at some of the banks and an increase in the recovery of previously written-off loans. However, he warns that there are still several factors that could cause a setback. "The best-case scenario is that the sector will hit bottom by the end of this year and there will be some improvements in 2010," he says. "It's possible that the current situation could continue through 2010, but we believe that the optimistic scenario is more realistic."

Stricter lending

Most of the major banks introduced stricter lending criteria as the crisis hit, if they had not already done so. Now, some face the problem of having funds to lend, but no suitable loan candidates. "To maintain the quality of our loan portfolio at a reasonable level, the bank has toughened requirements for borrowers and implementation of risk management. In addition, we have increased our liquid assets as a cushion against potential volatilities," says Zareena Taimagambetova, executive director of Eurasian Bank. "There are also very few good corporate projects in Kazakhstan, and faced with this lack, most banks have a high level of liquidity."

ATF Bank plans to increase its lending activity, but the bank's CEO, Alexander Picker, has a different take on the situation. "The main obstacle to increasing lending is not that there are no suitable companies, but that there needs to be a general change in the relationship between banks and borrowers," he says. "Previously, banks acted like pawn shops, in that when deciding to whether to make a loan they focused on the collateral rather than the company's repayment capacity. The problem is that most of the collateral was real estate, and prices have gone down."

Although Kazakhstan didn't have a banking bubble on the scale of those in western financial hubs, there were widespread breaches of classical commercial banking rules, in particular those about not making loan decisions purely on collateral and not making speculative transactions. The AFN has already introduced new regulations for commercial banks, intended to prevent a repeat of the current crisis. Meanwhile, a high-level concept for post-crisis development of the banking sector is being drawn up. This is expected to be signed by President Nursultan Nazarbayev by the end of 2009.

With BTA and Alliance out of the picture, other major banks are looking to increase their market share in the new competitive landscape. Halyk Bank's chairwoman, Umut Shayakhmetova, tells bne in a recent interview that the bank views 2009 as a year of opportunity. ATF and BCC, both of which have strong foreign investors, have benefited from recent developments, while Eurasian leaped from 7th to 10th place among Kazakh banks in terms of assets in the first half of this year.

But while the larger banks may be looking to increase their share of the market, they also expect to play a more modest role in the development of the economy as a whole. No one expects a return to the explosive, debt-fueled growth of the pre-crisis years. "The crisis has been a cold shower for banks. I am sure they have learned many lessons," Akhanov tells bne. "Before the crisis, banks had asset growth of up to 70% a year, while GDP was growing by just 10% on average. Now they have learned first that the correlation of GDP growth to banking sector growth is important. Second, risk assessment needs to be improved. And third, economies are cyclical - bankers had forgotten that growth cannot be constant."

ATF's Picker agrees: "Banks used to be the driver for the economy. If they can't return to that function in future, I don't know that it would be a bad thing."

"Banks should have an important role in any economy, providing loans and support for the real economy, but they should have a more humble role," he says. "It's time for a return to good old commercial banking."

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