Fitch: Kazakh banks’ capital ratios decline

Fitch: Kazakh banks’ capital ratios decline

Baku, Azerbaijan, March 4

By Elena Kosolapova - Trend:

Capital ratios of Kazakh banks declined in 4Q15, driven mostly by the expansion of foreign currency assets as tenge weakened 26 percent against the US dollar, Fitch Ratings' Report entitled Kazakh Banks Datawatch 4Q15 said.

The 4Q15 report consists of data in PDF and Excel formats, charts and Fitch commentary, and covers 27 of the sector's 35 banks, comprising 98 percent of the system assets, the report said.

The sector aggregate Tier I ratio fell to 12.7 percent from 13.3 percent (minimum 6 percent) and Total capital ratio dropped to 15.6 percent from 15.8 percent (minimum 7.5 percent), helped by some deleveraging. A proposed new deduction from Total capital of the difference between retail deposits and 5.5x equity (to be phased in 1H16) and the introduction of 150 percent risk weights on some retail loans granted after end-2015 could hurt banks with significant retail operations.

While NPLs fell slightly to 10 percent from 11 percent during the quarter, loan impairment charges rose to an annualised 4 percent of average loans from 0.4%, which, in our view, reflected a restructuring of delinquent or potentially problematic loans by many banks, the report said.

The NBK repo rate rise to 17 percent from 12 percent in 4Q15 had a predictably limited impact on bank margins. However, core and bottom-line profitability of some banks was negatively affected by losses on swap operations as swap rates intermittently hit triple digits in 4Q15. The sector's return on average equity fell to 13 percent in 4Q15 from 28 percent in 3Q15 on annualised basis.

Liquidity cushions remained robust across the sector, mostly in the form of foreign-currency deposits with NBK, with few exceptions. Liquid assets comprised 37 percent of total customer deposits at end-2015. However, the overall scarcity of cheap tenge funding forced banks to refrain from new lending, the report said.

Follow the author on Twitter:@E_Kosolapova

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