Non-performing Loans In Kazakh Banking System Exceed Official Estimates, National Bank

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The real volume of non-performing loans in the banking system of Kazakhstan exceeds the value reflected in banks’ reports, the National Bank of Kazakhstan believes.

The National Bank of Kazakhstan is planning to conduct an independent assessment of the quality of the banks’ assets. The confirmation of the real situation in this sector will let the financial regulator more efficiently solve the problems of the banks, according to Deputy Chairman of the National Bank Oleg Smolyakov who said it in his interview with Kazakhstanskaya Pravda newspaper.

“The quality of the banks’ portfolios is one of the key elements which impact the future of the country’s financial market and its participants,” Smolyakov says.

As per the NB data, in early March 2017 the share of non-performing loans  (with delinquency period exceeding 90 days) made 7.32% or 1.1trln tenge that is 3.8trln tenge lower of the maximum level in 2014.

“In 2015, the country experienced strong macro-economic shocks which negatively influenced the financial situation and repayment ability of the borrowers. However, the banks do not want to accept losses on loans and offer ‘artificial’ restructuring of loans and postpone payout period. Such loans are called by financiers as ‘evergreen’. As a result, the unpaid loans are not included in the category of non-performing loans of the banks. Therefore, the National Bank has all the reasons to suppose that the real volume of non-performing loans in the system significantly exceeds the level stated in the banks’ reports,” Smolyakov explains.

Thus, as Smolyakov noted, the real quality of the banks’ assets require an additional evaluation because of low financial solvency of individuals, the practice of using ‘unsecured’ loans, certificates of insurance of affiliated companies, guarantees of individuals etc. as well as unrecoverable crediting of business of shareholders and associated persons.

“This situation is specific for Kazakhstan,” Smolyakov states. “Many regulators of the world face it. In order to settle the situation, the National Bank like the regulators of other countries plans to hold a comprehensive assessment of the quality of assets which is usually accompanied by a stress test,” he adds.