BAKU, Azerbaijan, June 1
By Nargiz Sadikhova - Trend:
The slowdown in the Kazakh economy will significantly weak banks' asset quality and performance, as state support measures will not offset the impact on economic activity, Trend reports with reference to the corresponding report of the Fitch Ratings.
The published Kazakh Banks Datawatch for 1Q2020 report covers 24 banks which represent 99 percent of the country's banking assets.
The report assesses key data from the banks' regulatory financial statements and disclosures, sourced primarily from the National Bank of Kazakhstan (NBK) and Kazakhstan Stock Exchange.
Fitch revised the Outlook on the Kazakh banking sector to Negative from Stable in March 2020 to capture emerging pressure from the slump in oil prices, the coronavirus pandemic and its economic implications, the 18 percent depreciation of the Kazakh tenge in 1Q2020 and a projected 1.5 percent real GDP contraction in 2020.
“The slowdown in the Kazakh economy will significantly weak banks' asset quality and performance, as state support measures will not offset the impact on economic activity,” the report said.
The report said that the weaker economic environment has not yet been captured in 1Q2020 data because the economic downturn, most quarantine measures and their implications for the banking sector only started to be felt in late March and April.
“Most banks' credit metrics were stable in 1Q2020, but we expect them to deteriorate in the coming months. We expect sector loan impairment charges to surge to 5-7 percent of average gross loans in 2020, from a moderate 2 percent (annualized) and 1.5 percent in 1Q2020 and 2019, respectively. Unsecured retail and SME loans are particularly vulnerable. Some banks also have considerable legacy problem loans which may require deeper provisioning,” the Fitch said.
Fitch expressed opinion that the banking sector's resilience to economic shocks has recently improved.
“Most banks have ample capacity to absorb losses due to good pre-impairment profitability or significant capital buffers. Only a few relatively weak or small banks (representing 15-20 percent of sector assets) remain following the regulatory clean-up of the sector in 2017-2019. Customer funding contracted by 1 percent in 1Q2020, adjusted for inflation of foreign-currency deposits,” the report said.
Fitch noted that further moderate deposit outflows are possible at some banks, but their substantial liquidity buffers mitigate liquidity risks.
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