Gross liquidity withdrawals by the national bank in August decreased by 17.3% mom (-10.4% ytd) and amounted to T3.4tn, which is comparable with 25% of the loan portfolio of the banking system. The volume of issue of notes in August continued to decline and amounted to T3.3tn (-T73bn -2.2% mom, +1.8% ytd). The rather strong reduction in the amount of liquidity withdrawn in August (-T724bn) was influenced by the decrease in tenge deposits placed in the national bank by T500bn and REPOs by T147bn. At the same time, the volume of placed notes has changed to a lesser extent (-T73bn, -2.2% mom).

The volume of liquid assets of the banking system in August decreased by 2.6% (-0.1% ytd) and amounted to T9.7tn, which is 40% (-1pp. mom) of the total aggregate assets of the banking system. The decrease in liquidity in August was mainly due to a strong outflow of deposits and a small increase in lending. At the same time, the reduction in liquidity in the banking system amounted to T258bn, while the Tenge liquidity, withdrawn by the national bank, showed a decrease of T724bn.

We see the replacement of previously written off problem loans with new loans, but the share of total loans to the economy from the forecast value of GDP for 2018 is 22.2% (24% in 2017), which is quite low and indicates the low role of the banking sector as a source of financing economy. At the same time, the banking system has all the available resources and the problem of low participation of the banking sector in the economy arises not because of the banking system itself and problems in it, but as a result of the general state and structure of the economy of Kazakhstan.

Since the beginning of the year, the outflow of foreign currency deposits of the population amounted to T441bn, while the inflow of tenge deposits amounted to T442bn. The outflow of foreign currency deposits of the corporate sector since the beginning of the year amounted to T551bn, while the outflow was also observed in the tenge deposits of the corporate sector by T62bn. On this basis, we believe that the observed dedollarization of corporate deposits is associated with the withdrawal of these foreign currency deposits from the Kazakhstan banking system to foreign banks. We described the main reasons for this in our analytical note “The policy of the National Bank facilitates the withdrawal of capital from Kazakhstan”. At the moment, according to the statistical bulletin, currency savings in the economy exceed currency loans by 160% (150% at the beginning of the year, 134% at the 2016).

At the moment, the struggle of the national bank with dollarization by current methods contributes only to the withdrawal of foreign currency from corporate depositors from the banking system. It also raises certain questions why, with a fairly good growth of the economy and growth of export earnings in the economy, there is no increase in deposits of both legal entities and the population. In our opinion, this situation is associated with the presence of structural problems in the economy, as well as with a strong dependence on commodity exports. With the growth of the economy, which is based on the inflow of foreign exchange earnings, which is almost impossible to use as credit resources, and placing it on foreign currency deposits is unprofitable for exporters, the only driver for the growth of the financial sector is the development of the domestic market, domestic production and solvency of the population. At present, the still unresolved structural problems in the economy lead to a decline in the role of the banking system in the development and growth of the economy, which is reflected in weak growth in lending, which is mainly due to increased lending to the population, as well as in general outflow of deposits, excessive liquidity and high credit risks for the banking system.

In August, there was a growth in lending by 0.5%  (+2.5% ytd). Corporate loans decreased by 0.2% mom (-2.1% ytd). In the sector of retail lending, there was an increase of 1.7% mom (+10.7% ytd). Consumer lending in August showed an increase of 2.7% mom (+7.5% ytd). The overall increase in lending is mainly influenced by the growth of loans issued to the population, while the corporate loan portfolio shows a decrease. But taking into account the troubled loans written off by the TOP-10 banks for 6 months in the amount of T520bn, mostly represented by corporate loans, the growth of the loan portfolio amounted to 6.8% since the beginning of the year.

According to official data, the quality of loans in the system improved, the share of loans with overdue loans over 90 days in August decreased by 0.6pp and amounted to 8.2% (-1.2pp ytd). The provisioning level in August decreased by 0.1pp and amounted to 13.86% (-1.6pp ytd).

In August, there was an outflow of deposits by 2.6%  (+0.4% ytd). Deposits of legal entities decreased significantly by 6% mom (-2.4% ytd), deposits of individuals increased by 1.3% mom (+4.9% ytd). The main influence on the total outflow of deposits (-T468bn) was due to the reduction in foreign currency (-T350bn) and tenge (-T229bn) corporate deposits. At the same time, deposits of the population showed an increase of T112bn, which resulted from the replacement of tenge deposits by -T157bn with dollar deposits by 269bn.

The conversion of tenge deposits of the population into dollar deposits and the outflow of foreign currency deposits of companies is caused by the continued weakening of the tenge rate. Moreover, if the population is limited by the options of foreign currency investments within the framework of the banking system, large companies prefer to withdraw their foreign currency deposits abroad to foreign banks, which can provide greater profitability with a lower risk level.

In August, the tenge weakened by 16.37 tenge against the US dollar. The weakening of the national currency is observed for five months. The total trading volume on the stock exchange in August showed an increase of 35% compared with the volume of the previous month.

The dollarization of household deposits in August increased by 1.4pp to 47%, the dollarization of deposits of legal entities as a result of outflow of foreign currency deposits decreased by 2.1pp to 41%. The total dollarization of deposits in August was 43.8% (-0.4pp for the month, -4pp ytd).

The volume of purchases of US dollars in exchange offices increased by 43%. In absolute terms, the volume of purchases by the population of US dollars is $673mn, which is 23% less than the value recorded in August 2017 ($877mn), but it is the maximum result in 2018. The growth of purchases of the US dollar is influenced by the growth of devaluation expectations associated with a significant weakening of the tenge, as well as a significant seasonal component (for three years, the purchase of dollars by the population in August shows maximum values).

The NIM and NIS indices in August again showed a decrease: NIM 5.14% (-0.04pp mom), NIS 4.12% (-0.08pp mom). The growth of the banks' interest margin (NIM) from the beginning of the year was 0.05pp; the reduction in the interest spread (NIS) from the beginning of the year was 0.05pp. The main influence on these indicators has an increase in interest assets with a smaller increase in interest income attributable to these assets.

In August, the profit of the banking sector amounted to T49.8bn (T418.6bn profits ytd). The main contribution to the result of August was made by two banks, which account for 81% of the total profit of the banking system in August: Halyk Bank (T49.8mn, 65% of the total profit of the system in August) and Kaspi Bank (T8.1bn, 16% of system profits in August). 

Appendix 2 provides more detailed information on the change in key indicators of each bank.   

  • Monetary policy and FX market;
  • Assets of the banking sector, deposits of the banking sector;
  • Loans of the banking sector and credit to economy;
  • Interest rates;
  • Banking sector's liquidity;
  • Banking sector's profitability;
  • Top 10 banks major changes.

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