BAKU, Azerbaijan, Nov.13
By Nargiz Sadikhova - Trend:
Kazakhstan’s banking sector's non-performing loans (NPL) ratio was almost flat in 3Q2019 at 11.3 percent of gross loans, Trend report with reference to the Kazakh Banks Datawatch for 3Q2019 published by Fitch Ratings.
“We believe that the real amount of problem assets is at least twice as high, as according to International Financial Reporting Standards (IFRS) 9 disclosures the sector average ratios of Stage 3 and Stage 2 loans are 22 percent and 7 percent, respectively,” the report said.
However, Fitch notes, the magnitude of asset-quality risks relative to banks' capacity to absorb impairment losses is very uneven across the sector.
"A significant share of high-quality liquid assets also contributes to overall asset quality at some banks," the agency said.
“By the end of this year the National Bank of Kazakhstan plans to complete its asset-quality review (AQR), which may reveal more impaired loans and result in significant additional provisioning needs at some of the banks,” the report said.
According to the report, based on IFRS 9 at end-2018, the agency estimates that there are a few banks with significant legacy problems.
“These include net Stage 3 loans (600 billion tenge or $1.5 billion), net Stage 2 loans (250 billion tenge or $642.1 million) and non-core assets (150 billion tenge or $385.2 million) totaling 2.7x equity of these banks,” the report said.
As noted in the report, according to the Head of the National Bank of Kazakhstan, a support program is possible in 1Q2020, although its scope and volume are as yet uncertain.
“We believe that some banks could receive state support either in the form of subordinated debt from the NBK or in the form of problem asset buy-outs. It is unclear, however, if such a state support package would be combined with a bail-in of state-owned creditors. It will most likely depend on the significance of capital needs at the affected banks,” the report said.
Thus, sector average credit metrics remained stable over the quarter, although there is large divergence between banks, particularly in profitability and capital adequacy, the agency noted.
“Annualized return on average equity (ROAE) equaled a high 28 percent in 3Q2019, and 16 out of 24 banks posted double-digit annualized ROAE in 3Q2019, supported by an ongoing gradual reduction of funding costs in the banking sector. Sector average Tier 1 ratio equaled 17.7 percent at end of 3Q2019, although some banks have much weaker capital buffers, especially if their capital adequacy is considered in the context of potential asset-quality issues,” the report said.
Furthermore the agency noted that liquid assets equaled a high 50 percent of the sector's total liabilities, and we believe that liquidity is generally reasonable across the board except for few very small banks.
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