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Kazakh banking system: Kazakh banking system: Learning the grammar of global Learning the grammar of global

crisiscrisis

Banking penetrationBanking penetration Loans and deposits/GDP, 2007Loans and deposits/GDP, 2007

Source: NBK, EIU

Source: EIU, local central banks, FMSANote: Represents loans and deposits to individuals and non-financial

corporations Deposit s include SPV’s deposits

(% and USDm) (%)

32,65226,49213,9679,8618,1065,9344,008Deposits

73,35147,21324,87514,5438,7255,9494,208Loans

2007200620052004200320022001

Past Simple Tense

Loans and deposits/GDP, 2007Loans and deposits/GDP, 2007

• One of the most developed in a peer group of emerging European countries

• Assets/GDP ratio tripling in a span of five years only

• The most penetrated banking sector with a 71% loan/GDP ratio

• Comparably low 42% deposit*/GDP ratio means there is a still lots of cash “stashed away under mattresses”

• Aggressive targets for deposit gathering

• Credit ratings upgrade

• Public offerings and listing at LSE

• One of the most developed in a peer group of emerging European countries

• Assets/GDP ratio tripling in a span of five years only

• The most penetrated banking sector with a 71% loan/GDP ratio

• Comparably low 42% deposit*/GDP ratio means there is a still lots of cash “stashed away under mattresses”

• Aggressive targets for deposit gathering

• Credit ratings upgrade

• Public offerings and listing at LSE

CommentsComments

Present (Not) Simple Tense

Banking assets / GDP over last yearBanking assets / GDP over last year

(%)

Deposit, loan portfolios / GDP over last yearDeposit, loan portfolios / GDP over last year

• August 2007/July 2008 – decrease of banking assets / GDP, loans / GDP, deposits / GDP ratios with trend to flatten on the back of GDP decrease and slight assets increase

• Profitability indicators decreased all over the sector

• Huge amount of foreign debt to be paid and limited access to international capital markets caused by liquidity squeeze

• 3% decrease in external liabilities for the period January – July 2008

• Downgrades of sovereign and individual credit ratings

• August 2007/July 2008 – decrease of banking assets / GDP, loans / GDP, deposits / GDP ratios with trend to flatten on the back of GDP decrease and slight assets increase

• Profitability indicators decreased all over the sector

• Huge amount of foreign debt to be paid and limited access to international capital markets caused by liquidity squeeze

• 3% decrease in external liabilities for the period January – July 2008

• Downgrades of sovereign and individual credit ratings

13.7415.7717.8118.9619.622.1321.62RoAE

1.641.832.082.232.212.522.47RoAA

July 2008June 2008

May 2008April 2008

March 2008

February 2008

January 2008

Profitability over last yearProfitability over last year CommentsComments

Source: National Bank

Present Continuous Tense

Actions by banks:

■ Conservative approach to asset&liability management

■ Limited access to global capital markets in order to diminish the dependence from foreign markets

■ Liquidity management - Liquid assets to remain at 20-25% of the total assets

■ Switch from asset growth stage to quality development:

• Better understanding of concern as assets quality worsening

• Risk-management adjusted to current market conditions

• Slowdown in real estate/construction lending or cautious mortgage, real estate/construction lending

■ Proactive work with rating agencies on understanding the current performance of the banks

Actions by banks:

■ Conservative approach to asset&liability management

■ Limited access to global capital markets in order to diminish the dependence from foreign markets

■ Liquidity management - Liquid assets to remain at 20-25% of the total assets

■ Switch from asset growth stage to quality development:

• Better understanding of concern as assets quality worsening

• Risk-management adjusted to current market conditions

• Slowdown in real estate/construction lending or cautious mortgage, real estate/construction lending

■ Proactive work with rating agencies on understanding the current performance of the banks

Actions by authorities:

■ FMSA has strongly recommended banks to limit their foreign borrowings

■ NBK has offered short-term stand-by credit lines vs. banks’ reserve requirements

■ Government has pledged $ 1 bn in December and further $ 3 bn in 2008 to help finance the following sectors:

• SMEs;

• Mortgages (by capitalizing Kazakh State Mortgage Company to refinance bank’s mortgage portfolios)

• Infrastructure and import substitution (by refinancing through Kazyna Fund or DBK)

• Construction (by refinancing through Kazyna Fund or DBK)

■ Distressed Assets Funds – private and state

■ Working Group under Ministry of Finance in Kazakhstan assigned for collaboration with IFI’s

Actions by authorities:

■ FMSA has strongly recommended banks to limit their foreign borrowings

■ NBK has offered short-term stand-by credit lines vs. banks’ reserve requirements

■ Government has pledged $ 1 bn in December and further $ 3 bn in 2008 to help finance the following sectors:

• SMEs;

• Mortgages (by capitalizing Kazakh State Mortgage Company to refinance bank’s mortgage portfolios)

• Infrastructure and import substitution (by refinancing through Kazyna Fund or DBK)

• Construction (by refinancing through Kazyna Fund or DBK)

■ Distressed Assets Funds – private and state

■ Working Group under Ministry of Finance in Kazakhstan assigned for collaboration with IFI’s

Future Continuous Tense

Lessons of crisis

• Liquidity management

• Asset quality and risk management in high priority

• Emphasis on local funding sources

• Development of local interbank operations

• Maintain level of capitalisation

Lessons of crisis

• Liquidity management

• Asset quality and risk management in high priority

• Emphasis on local funding sources

• Development of local interbank operations

• Maintain level of capitalisation

Positive factors:

Government and shareholders support

Still high oil&gas prices

Assets restructuring

Local currency stabilisation to maintain confidence of population

Positive factors:

Government and shareholders support

Still high oil&gas prices

Assets restructuring

Local currency stabilisation to maintain confidence of population

++

As expected for YE 2008:

GDP about USD 132 bn

Banking assets/GDP ratio about 80%

Loans/GDP ratio about 57%

Deposits/GDP Ratio about 45%

RoAA about 1%

RoAE about 7%

As expected for YE 2008:

GDP about USD 132 bn

Banking assets/GDP ratio about 80%

Loans/GDP ratio about 57%

Deposits/GDP Ratio about 45%

RoAA about 1%

RoAE about 7%

For long – term period:

Strong quality and diversified asset performance for whole banking sector

Well developed local funding sources

Stable moderate profitability growth

Stable levels of credit ratings

Strong confidence from the Government, shareholders, investors and population

For long – term period:

Strong quality and diversified asset performance for whole banking sector

Well developed local funding sources

Stable moderate profitability growth

Stable levels of credit ratings

Strong confidence from the Government, shareholders, investors and population

Thank you for attention!Thank you for attention!Thank you for attention!Thank you for attention!