Consolidated reserves continued to fall in October due to NBRK interventions and NF expenditure

Elmira Arnabekova, Murat TemirkhanovNovember 13, 2017

Consolidated international reserves in October amounted to $88.1 billion, down by 1.1% mom (-2.9% since the beginning of the year). The main decrease was shown by NF FX assets by $0.58 billion to $56.2 billion (-1% mom, -8.1% since the beginning of the year). The reserves of the NBRK also fell by $0.36 billion and amounted to $31.8 billion (-1.1% mom, +7.8% since the beginning of the year).

The NBRK reserbes declined by $0.36 billion to $19.88 billion, while gold assets remained at the level of September, $ 11.96 billion (-0.6% m / m, -0.2% since the beginning of the year). It should be noted that after a sharp jump in July (related to conversion operations of the transfers from NF and other bank related operations) by $2.6 billion mom, the reserves in currency of the regulator again quickly declined in 3 months, returning to the level of the beginning of the year. The regulator in October spent $0.38 billion to support the national currency, which caused a decline in reserves. The tenge rate strengthened in early October from 345.0 to 335.54 in 4 days.

According to the latest data by IMF in September, the regulator's liabilities to banks decreased by 2.0% mom, mainly due to contingent liabilities (-1.9% mom), in our opinion, which include bank deposits in the NBRK in foreign currency. In September, the liquid reserves of the National Bank continued to decline (-3.6% mom) by $279 million. We note that the level of currency sales in net volume in September was only $70 million. Another $200 million decrease on the background of the reduction of NF assets and small participation NBK in the foreign exchange market may indicate an increase in the purchase of currency by the population and companies, which is possibly connected with the sale of foreign currency outside the exchange market. The level of liabilities to banks remains high (about 40% of the currency reserves of the regulator), while the most liquid reserve assets are at the level of 23% (at the end of the first half of the year it was 32%).

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The currency assets of the NF fell again by $0.58 billion to $56.2 billion, since the beginning of the year the expenditure has already amounted to about $5 billion (~Т1.6 trillion). In October, the decrease was due to the use of funds in the form of transfers - about $0.99 billion per month, while tax revenues from the oil sector amounted to only $0.17 billion. By the end of the year, according to the plan, the spending of NF funds for a targeted and guaranteed transfer will be around the level of $0.9 billion (93% of planned target and guaranteed transfers were used by October).

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Our opinion

In October, due to interventions in net volume of $380 million, the international reserves of the NBRK decreased, while the regulator previously reported that it could sell $1 billion for NF assets conversion operations.

In our opinion, the regulator used interventions to restore the exchange rate of the national currency to a fundamental level: after the exchange rate of the tenge to the dollar in the third quarter of this year significantly depreciated by 18.9 tenge to 341.19 (5.5%) and against the ruble by 0.46 to 5.9 tenge (by 8.5%) while the dynamics of the price of oil, was, on the contrary, upward moving (+ 4.2% per quarter to $53.6 per barrel). We positively assess these actions of the regulator.

The amount of revenues from the oil sector since the beginning of the year increased relative to the previous year by 77% due to the improvement in the price situation in the commodity markets, but is below the level of transfers. As a result, the level of external assets is declining from the second half of this year.

Without taking into account the allocation of funds to assist banks, the currency assets of the NF would show a decrease of $1.6 billion (~T0.5 trillion), which is comparable to the size of the increase in the amount of the guaranteed transfer by 36% compared to 2016 (T0.77 trillion).

We believe that the size of NF assets by the end of this year should remain at the current level. According to our expectations, the growth of tax payments in November-December at the level of $1.7 bn (if the rate of annual increase of revenues is maintained by 77%) for 2 months will be enough to cover transfers to the budget without the sale of external assets (the remaining transfers till the end of the year amount to $0.9 bn).