Kazakhstan's banking deposits reached a historic low in dollarization, as of February 1, the National Bank of Kazakhstan reported. The rate for individuals stands at 22.2%, the lowest in 26 years, while for entities it is at 24.2%, a low not seen in the last 16 years.
What does the dollarization process mean?
Dollarization is when a country begins recognising the U.S. dollar as a medium of exchange or legal tender alongside or in place of its domestic currency.
The decline in the dollarization rate was driven by a significant difference in interest rates between tenge and foreign currency deposits, as well as the mutual volatility of the exchange rate. The inflow of new tenge deposits and the outflow of foreign currency deposits also contributed to this decline. As of February 1, the overall dollarization rate of deposits was 23.1%.
Foreign currency deposits decreased by 15.5% due to low interest rates. This led many deposit holders to switch to tenge deposits or alternative financial instruments that offer higher returns. The strengthening of the tenge, which appreciated by 1.9% in 2023, has further contributed to this shift.
Foreign currency deposits reached a 15-year low for entities and an 11-year low for individuals in September 2023. Despite a 73.1% m/m increase in Q4 2023, these deposits fell in January due to seasonal factors. On the other hand, tenge deposits from individual clients and entities grew by a third and 14.6% y/y, respectively.
In January 2024, demand deposits accounted for 59.7% of all national currency deposits, while the share of savings deposits rose to 11.1%. Both demand and savings deposits saw a year-on-year increase of 42.3% and 48.3%, respectively. According to the National Bank’s survey, 27% of Kazakhstanis had deposits in January 2024, the highest figure since 2016.
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