Kazakh banks will record large losses from currency revaluation in 2015 - S & P

Almaty. October 5. Silkroadnews - Kazakh commercial banks will show significant losses from currency revaluation in 2015, said the rating agency Standard & Poor's.
"According to our forecasts, the Kazakh banks will face shortage in the liquidity of national currency and demonstrate significant losses from currency revaluation in 2015. Despite the fact that the external debt of Kazakhstan's banking system does not exceed 10% of its asset base, we believe that the banks are very sensitive to a sharp weakening of the tenge. Risks appear because of significant gap in the currency structure of assets and liabilities, as well as the high level of dollarization of deposits, and we believe that the deterioration in asset quality of foreign currency loans lead to an increase in risk", - says the article of S & P "Devaluation of national currencies in the emerging markets of EMEA causes an increase the risks for the banks".
The S&P noted that Kazakh banks carry out operations with a very significant mismatch between foreign currency assets and liabilities by maturity and repayment of demand.
According to analysts of the Agency, in August 2015 almost 50% of liabilities of the banking system were denominated in foreign currency, while foreign currency assets amounted to only about 20-25% of banks' balance sheets at the same date.
"Banks actively used currency swaps with the National Bank of Kazakhstan (NBK) on attractive terms to hedge their currency positions. However, the maturity of these swaps occur in the 2nd half of 2015 and in 2016, and there is considerable uncertainty whether the NBK will renew them. Taking into account the fact that swaps are practically the only currency risk hedging tools available for Kazakh banks, we note the high risk if the controller does not give banks these or similar tools", - said in the article.
"We also expect a further weakening of asset quality and increase the share of problem loans in the portfolio of foreign currency loans to corporate borrowers. As of June 1, 2015, approximately 30% of all loans were denominated in foreign currencies. We believe that for Kazakh banks it will be difficult to fulfill the requirement of the regulator, according to which the share of problem loans should not exceed 10% by the end of 2015, as the share of problem loans is already close to 10% in many banks. We expect significant increase in credit losses in the current year ", - reported in the S&P.
The agency noted that, given the high dependence of Belarus and Kazakhstan on the sources of funding in foreign currency (among other reasons), funding of the banking sector in these countries is characterized by "very high risk" and "high risk" resectively.
S&P analysts include banking risks in Kazakhstan with Russia, Georgia, Azerbaijan, Hungary and Croatia to a group of 8 on a scale from 1 to 10, where 10 - the maximum risk.