NPLs in Kazakh banking sector rise to 29% in May

Visor Capital

June 26, 2009

Regulatory data for the Kazakh banking sector in May showed a sharp asset quality deterioration as non- performing loans (NPLs) for both BTA Bank and Alliance Bank reached over 61% of their respective portfolios. All banks under our coverage increased their provisions for bad debts during the month. We expect a negative share impact for the sector.

The Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organisations (AFN) yesterday published asset quality data for May. Sector non-performing loans (NPLs) increased as a percentage of total loans to 29.2% from 15.2% during the month. Loans with principal amounts at least one day overdue fell slightly to 21.8% from 22.6%, and by 3.2% in relative terms for the sector during May. Loans with principal amounts and interest 90 days overdue rose by 19.2% in relative terms MoM. NPLs for both BTA Bank (BTAS KZ) and Alliance Bank (ASBN KZ)(ASBNp1 KZ)(ALLB LI) increased to over 61% in May and in relative terms by 189% and 412%, respectively.

In addition to the worsening asset quality, Kazakhstan’s banks significantly increased provisions by 83.8% MoM in the sector during May, reaching a total of 29.2% of their loan portfolios. While BTA Bank, Alliance Bank and Temirbank (TEBN KZ)(TEBNp KZ) showed the highest relative increases in provision charges during May (198.8%, 279.2% and 26.9%, respectively), all other major banks in the sector also increased provisions. While most of the banks have sufficient provisions to cover loans with principal 90 days overdue, Temirbank continues to fall far short of 100% coverage ratio by this standard.

We expect a negative share impact for the sector due to significant asset quality deterioration across most measures. We have all the above banks under formal research coverage, available to our clients. Renat Syzdykov