Tenge Suffers Weekend Loss of Confidence

NBCentralAsia analysts say a sharp drop in the Kazak tenge’s value at currency exchange points was prompted by the world stock market crisis in August, along with the risky nature of lending in the country’s banking system.



From August 30 to September 1, people were panic-buying US dollars, and the Kazak tenge fell sharply from 126 to 140 to the dollar at currency-exchange offices. On the national currency exchange, though, it was still around the 126 mark by the end of this period.



Anvar Saydenov, chairman of the National Bank of Kazakstan, described the weekend rush as “hysteria”. He urged people to resist panic and keep their savings in tenge, the Interfax-Kazakstan news agency reported on September 2.



The drop in the tenge’s value is in sharp contrast to last year, when the problem was over-appreciation. At that time the central bank had to buy over 11 billion dollars to prevent the tenge from growing too strong, and it continued to purchase foreign currency into 2007.



NBCentralAsia analyst Petr Svoik said the latest sudden tenge depreciation was caused partly by non-residents shifting their capital out of Kazakstan in response to the world financial situation. The US mortgage crisis led to a rise in interest rates, which in Svoik’s view prompted an outflow of foreign currency from Kazakstan.



The National Bank of Kazakstan has responded by selling what Svoik says were “very substantial amounts of dollars”. He says that the central bank has adequate foreign currency reserves to allow it to avert a real crisis, and that Saydenov is right to be encouraging people to hold onto their tenge.



But Svoik warns that the external indebtedness of Kazak banks, which he puts at 40 billion dollars, is a problem. The banks have used these loans to offer mortgages and consumer loans to their domestic customers. However, such loans are poorly protected from the possibility that borrowers will default.



“In previous years, our only problem was how to attract as much money as possible into our country, but now we have the opposite problem – where will the money to repay our earlier bank borrowing come from?” he said.



Gulnur Rahmatullina, the head of economic research at the Kazakstan Institute for Strategic Studies, agrees that apart from the international financial climate, the weekend crisis also arose in part because of the boom in high-risk mortgage and consumer lending in Kazakstan over the past few years.



She argues that the central bank must take every possible step to keep financial markets and monetary policy under control, including the imposition of tougher conditions on banks’ borrowing abroad and lending at home.



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