Fixed Income Analysis /

Kazakhstan banks: Watch this space

    Tolu Alamutu
    Tolu Alamutu

    Credit Research Analyst, Banks

    Tellimer Research
    1 July 2019
    Published by

    Kazakhstan’s new President, Kassym-Jomart Tokayev, signed a decree last week cancelling fines and penalties imposed on some individual creditors by banks. The decree targets ‘large families, families receiving payments on the occasion of the loss of the breadwinner, families with disabled children, disabled since childhood above 18 years old, recipients of state-targeted social assistance, orphans, children left without parental care, under the age of twenty-nine, lost their parents before the age of maturity.’ For some debtors, the reports suggest that loans will be written off completely. The decree comes after reports of protests and arrests during and after Kazakhstan’s presidential elections. A Bloomberg article cited Tokayev stating that the initiative could cost ‘a bit less than US$1bn’.

    Separately, Tokayev has stated that he does not support bank bailouts. These comments are important because:

    • Kazakhstan appears to be changing the recently-adopted stance on support. In the last 2-3 years, authorities have provided support to the former KKB (which made acquisition by Halyk possible) and extended subordinated loans to several lenders, including ForteBank and ATF Bank. Before these packages, there had been a number of rounds of restructuring at Kazakhstan banks, in which foreign bondholders participated in losses.
    • The regulator is still expected to carry out an asset quality review, which could lead to some banks requiring additional capital. In the absence of extraordinary government support, there may be concerns about the implications of this asset quality review for some bondholders. It is worth noting that the comments from Tokayev come after former president Nazarbayev called Kazakhstan lawmakers ‘cowards’ for not adequately addressing banks’ problem loans. It is also worth noting that at First Heartland Jysan Bank (formerly Tsesnabank), KZT-denominated securities were restructured (though reports suggest these securities were primarily held by state-owned entities).

    Kazakhstan banks now only have a handful of eurobonds outstanding, most of which yield less than at the start of this year. In addition, according to the latest figures from the National Bank of Kazakhstan (NBK), the key eurobond issuers are all profitable. At Halyk bank (HSBKKZ), strong liquidity and capital metrics mean there should be little concern about the HSBKKZ bonds. Halyk has said a return to the eurobond market is unlikely in the near term and has even revised its dividend payout ratio (100% payout now possible), showing that capital is not a concern. At ForteBank (ALLIBK), recent performance has been good, and the bank was upgraded to B+ by S&P earlier this month. Moody’s assigned a positive outlook to ALLIBK, suggesting that an upgrade is also possible there. ATF Bank (ATFBP) only has one US$100mn eurobond, and NBK data show the bank recently recorded a KZT6.7bn net result, which was up on the previous period. However, the bank’s ratings have been downgraded by S&P and Fitch this year (though Moody’s still maintains a positive outlook on its ratings). Bank CenterCredit (CCBNKZ) also has just one eurobond – a US$81mn perpetual security – outstanding. The bank recently raised US$100mn in its local market, suggesting that the market is still open to this issuer. Ratings assigned by Fitch have been withdrawn following a downgrade to B- in March. The outlook on both the Moody’s and S&P ratings is stable.

    Having said all this, much will depend on the specifics of the asset quality review, and on how long banks are given to boost buffers (if/where this is required). With this in mind, we think Kazakhstan’s banking sector is still worth watching.