30 september 2020

Central Asia news

Banking sector of Kazakhstan displayed an impressive growth all over the Commonwealth in 2006

09.04.2007 10:44 msk


Business Kazakhstan

Rates of growth and levels of developments in the meantime vary from country to country. Kazakh banks did the best and reached the level typical of the most advanced countries of the world (in the context of the national economy, of course). Russian banks remain at the average CIS level.

Level of national banking systems is evaluated by the ratio between their total assets and the GDP. Where availability of banking services is concerned, Kazakhstan is an unquestionable leader in the Commonwealth (101.7%). All other countries are far behind - Ukraine with 63.5%, Russia with 52.8%, and Moldova with 51.7%.

The Uzbek banking system is the outsider. The ratio between assets and capitals went down there from 37% to 34.7%, and the rate of growth was one of the lowest throughout the Commonwealth. This banking system is one of the least transparent in the post-Soviet zone. Aggregate portfolios of Uzbek banks' loans went down from $3.3 million to $3.2 million in 2005. This figure was not even published in 2006 (a clear indication of continued deterioration).

Analysis of the parameters of the national banking systems in the last two years explains the Kazakh success. The ratio between assets and GDP more than doubled (48.5% to 101.7%). The situation with the ratio between loans and the GDP (32.7% to 68.7%) and capitals and the GDP (6.3% to 13.4%) is similar.

As a matter of fact, this performance is quite outstanding even by East European standards. The average ratio between assets and the GDP there amounts to 60-100% with the exception of the leaders like the Czech Republic and Croatia with the coefficient approaching 110%. The Kazakh banking system formally matches its analogs in the advanced countries like the United States (70%) and Germany (137%) though the room for improvement is still considerable bearing in mind that in France this parameter amounts to 239% and in Great Britain to 340%. The record figures shown by the Kazakh banking system are ascribed to the growth of its total assets related to the institutional reforms under way.

The Kazakh Central Bank launched radical reforms and reduced the number of commercial banks in the republic to 33 by January 1, 2007 (against 1,189 in Russia). This dramatic reduction allowed for a more exacting and versatile supervision approaching international standards. Kazakh banks provide reports in accordance with internationally accepted requirements. That and the mandatory audit made the national banking system more transparent, increased domestic and foreign investors' confidence in it, and generally improved the overall performance. The growth was so rapid, in fact, that local regulators decided to curtail it somewhat and specified a connection between the loans made by the banks and size of their own capitals.

Parameters of sufficiency of capitals is another importance nuance. The norms established in Kazakhstan (5-6% for the ratio between first level capitals and total assets and 10-12% for the ratio between capitals and assets evaluated by degree of risk) do not impede the growth of loans and, consequently, total assets.

It should be added as well that the Kazakh banking system is highly concentrated. Ten largest banks control 94% of total assets. It means that the whole system enjoys the highest possible pre-investment credit ratings. The said ten largest banks therefore set the general trend. In Russia, ten largest banks control only 54% of all assets. Reduction of the number of financial establishments usually boosts investment attractiveness of the remaining ones in the eyes of foreign players in the market.

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Aleksei Buzdalin of INTERFAX-CEA

Kommersant-Bank, April 5, 2007, p. 29

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