Banks Accused of Fueling Inflation

Government attempts to curb Kazakstan’s inflation by restricting the amount banks can borrow from foreign sources might weaken the economy, according to NBCentralAsia analysts.



On February 8, the state Agency for Financial Inspection, AFI, announced its intention to introduce foreign borrowing restrictions on banks from March this year.



The AFI have not yet stipulated the exact borrowing cap, but limitations are expected to be in place for a full year until March 2008.



According to the deputy director of AFI Gani Uzbekov, levels of foreign borrowing risk “overheating” the economy and fueling inflation.



But analysts suggest that reducing the amount Kazak banks can borrow from outside the country will weaken their competitiveness.



Aitolkyn Kurmanova, head of financial analysis at ATF bank, argues that financial institutions can’t rely on domestic sources of funds.



People’s savings are increasing very slowly and stock market trading is down. Kazakstan’s banks simply do not have enough capital.



Kurmanova does not believe that foreign borrowing is the economy’s biggest problem. A far greater risk is the country’s dependence on oil prices and its failure to develop sectors outside of mineral resources, he said.



NBCentralAsia analyst Eduard Poletaev said, “[Inflation] is not just the banks’ fault. It has not been caused solely by the flow of foreign money into the country, but also by money raised from the sale of energy resources, the inflation pressure of which is by no means lower.”



He asserts that the new restrictions should be introduced carefully and reasonably as excessive pressure may cause an outcry in the banking community.



(News Briefing Central Asia draws comment and analysis from a broad range of political observers across the region.)