Kazak Bank Shares Plummet

The global credit squeeze has hit Kazakstan and share prices in some of the country’s major banks have plummeted.



NBCentralAsia economic analysts say that the banks’ risky lending policies have driven investors away and the state will have to intervene to prevent them from going bankrupt.



Share prices in Kazak banks tumbled on the London Stock Exchange at the end of August, with Narodny Bank falling 16 per cent, Kazkommerzbank by 33 per cent and Alliance Bank by 37 per cent.



The value of shares in the country’s largest companies also dropped – 26 per cent for the metals company Kazakmys and 21 per cent for the state-run oil and gas company KazmunaiGaz.



Kazak banks currently owe 40 million US dollars to foreign creditors, a sum equivalent to the country’s entire foreign currency reserves. NBCentralAsia economic observer Petr Svoik says the banks have overestimated their capacity to repay their debts, and have lost the confidence of their investors.



Over the last few years, Kazak banks have taken out large amounts of cheap loans offered by European financial institutions, and used the money to offer their domestic customers mortgages and consumer loans. However the mortgage and consumer lending sectors are poorly protected from the possibility that borrowers will default, and the banks do not currently have enough reserves to meet their repayment commitments without help from the government.



“If the government does not help, then banks will have to face the consequences of their own policies, and this will prompt at least a number to declare bankruptcy,” said Svoik.



Political scientist Maxim Kaznacheev explains that the crisis has hit hard because several large repayments have now fallen due.



“The main risk factor is that large amounts of debt incurred in previous years must be paid off this autumn and winter. Investors are not confident that the payments will be met on time and in full,” he said.



Kaznacheev says the banks will now have to tighten their lending policy, and get tough on debt defaulters. Abroad, he said, “the activity of domestic banks on international markets will be minimal. They will try to restructure their debts and switch from short-term to long-term loans.”



Svoik asserts that this stock market plunge is not an economic disaster because other banks in Kazakstan have not been hit by falling share prices. But he warns nevertheless that “it will have a negative political and psychological impact”.



Kazakstan is currently reevaluating its investment opportunities, and Svoik predicts that the knock-on effect of that process will hit much harder. Loans may become more expensive and several banks could go bust, putting at risk some of the estimated 10 billion US dollars that the population has in deposits.



(NBCentralAsia draws comment and analysis from a broad range of political observers across the region.)