The Association of Financiers of Kazakhstan (AFK) has reported a shift in the focus of commercial banks from retail lending to business loans in the previous year, a trend expected to persist this year. The pace of retail lending has decelerated due to a reduction in benefit mortgage and car loan programs, coupled with a decrease in the influx of new borrowers to 411,000 in 2023, down from 549,000 in 2022. Consequently, the rate of retail lending fell from 31.3% in 2022 to 26.7% in 2023, amounting to $36.5mn.
Growth in business loans
Conversely, the volume of business loans witnessed a 16.7% increase to $24.5mn, primarily driven by a surge in loans issued to small businesses (+53%). In this segment, a mere 2.5% of individual entrepreneurs have banking loans. The lending boom in this sector was further fueled by a rise in overall investment activities (+13.7%) and expectations of cheaper loans.
Despite loan rates being predominantly higher last year than the previous one, the easing of monetary policy in Kazakhstan resulted in a slight reduction of rates by the end of 2023, particularly in the sphere of entity lending.
The interest margin in this sector, defined as the difference between interest yields and interest costs to a bank’s assets, expanded from 5.75% to 6.34%. This growth was propelled by increasing asset yields relative to the cost of funding. The proportion of current accounts (26% of all client accounts) and stable rates for foreign currency-nominated deposits (23% of all deposits) played a significant role in this context.
Rising revenues and assets in banking sector
High margins and burgeoning businesses have also boosted the revenue of the banking sector. The sector reported a 15.4% growth in assets to $112.5mn, a 31% increase in capitalization to $15.1mn, and a net profit of $4.8mn, marking a 2.4-fold increase. The National Bank also reported this figure, albeit estimating the growth at 49.4%.
The loan portfolio rose by 23.1% to $65.4mn, with an improvement in its quality as the Non-Performing Loan (NPL) ratio dropped from 3.4% to 2.9%. The banking sector has consistently worked towards reducing the number of non-performing loans.
Individual deposits saw a 20.6% increase to $44.5mn, driven by a rise in the nominal wage and the government’s introduction of a 10% compensation on tenge deposits. Conversely, corporate deposits reported a marginal increase of 0.1% to $34.8mn, amid a growing tax burden in some economic sectors and a decline in foreign currency-nominated deposits.
Among the more positive trends, the AFK highlighted that the share of long-term funds has increased from 6.3% to 7.5% of all passive assets. Savings deposits and bonds grew by $1bn and $1.2bn, respectively. The association believes that this will facilitate businesses’ access to long-term lending facilities.
These positive trends in the banking sector were accompanied by an increasing number of rating actions by S&P, Moody’s, and Fitch. Ratings were improved in nine cases and revised with a better outlook in six cases, compared to four rating improvements and four rating revisions in 2022.
The AFK anticipates that retail lending is likely to continue decelerating due to reduced demand and stricter regulation. On the other hand, business loans are expected to expand, driven by improved monetary policy, regulatory incentives, and the release of pent-up demand. Businesses from the processing industry, trade, and construction are showing the most significant interest in loans, according to the National Bank.
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