Problem loans account for 20 percent of Kazakhstan’s banking portfolio, S&P claims

business and economy

Problem loans account for 20 percent of Kazakhstan’s banking portfolio, S&P claims

By SRI ⋅ July 11, 2008 ⋅

(SRI) - Standard & Poor’s international rating agency believes that the quality of Kazakh banks’ loan portfolio is worse than official statistics indicate.

Ekaterina Trofimova, a credit analyst at S&P, says that the ratio of “distressed loans” in the loan portfolios of the banks is as high as 15-20 percent.

“This estimate exceeds by far the overdue debt reported by banks,” she said. “To avoid showing high ratio of overdue debt, Kazakh banks restructure bad loans and extent grace periods.”

Distressed loans include all overdue loans (both performing and non-performing), all loans to insolvent debtors, restructured loans, mortgage property confiscated as a result of defaults and other assets seized as part of debt settlement.

S&P believes that the quality of their loan portfolios will become a determining factor in the banks’ creditworthiness, solvency, liquidity, and the longer-term health of the banking system as a whole. The agency blames poor risk management practices that accompanied the bank’s aggressive growth in recent years for the declining quality of their credit portfolios.

Trofimova is optimistic about the outlook of the Kazakh banking sector due to favorable macroeconomic conditions and government and regulatory support. Yet, the banks will need to change their business models and improve their risk management in order to treat the cause of the problem and not just the symptoms.

“Government support, high commodity prices, restructuring of problem loans and some relaxing regulations may help to reduce problems in the banking sector, but those factor are still unable to eradicate their source,” she said.