Kazakhstan hopes to cap consumer lending growth

By bne IntelliNews February 4, 2014

bne -

Kazakh authorities are working with commercial lenders to limit growth of retail loans, as it eyes the segment's potential to destabilize the country's recovering banks.

Kazakhstan's central bank has agreed with commercial banks not to allow consumer lending to rise by more than 30%, central bank governor Kairat Kelimbetov told a press conference on February 3. The move is provoked by concern - shared by several other Eurasian countries - that the consumer loan sector, which has boomed in recent years, is in danger of overheating.

The National Bank of Kazakhstan (NBK) has not yet set a formal cap on consumer loan growth, but is in talks with lenders on the issue. "We have agreed with second-tier banks to reduce the overheating in the consumer loan segment. Consumer lending shouldn't grow by more than 30% ... it's early to be talking of some precise timing or some precise rate," Kelimbetov said, according to Tengrinews.

Consumer loan rates will be reduced in Kazakhstan in the longer run, Kelimbetov continued. He claimed that the central bank will not interfere with lenders' financial strategies, noting that the negotiations process is being carried out in a few stages.

In December, the central bank announced three measures aimed to tackle the problem, which is also becoming an issue in states such as Azerbaijan, as incomes in the region rise on the back of growing energy exports. The NBK has reportedly also agreed with lenders to limit the volume of loans in order to make repayments a maximum of 50% of an individual borrower's income. At the same time, capital requirements calculations will put more weight on unsecured consumer lending, making it more expensive for lenders.

The final point may be key. Despite rising default rates, the banks keep on doling out consumer loans due to the high profit margin. Lenders pay around 8% on one-year deposits, notes the FT, but lend at between 25-40%. Consumer credit in Kazakhstan increased 37% between July 2011 and November 2013.

Illustrating the potential dangers, the NBK is also working to bring down the high level of non-performing loans (NPLs), which account for 35.8% of Kazakhstan's loan portfolio, or $30.7bn. "The Central Bank is negotiating with second-tier banks to reduce the figure down to 15% by January 1, 2015 and further to 10% by January 1, 2016," Kelimbetov said, without going into detail on how such a huge swing could be achieved.

New legislation to make it easier for banks to write off bad debts and for companies to declare bankruptcy is due to be prepared by June 2014. The central bank is also drawing up legislation on collections agencies.

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