S&P: Borrowing limits positive for Kazakhstan

Standard & Poor's said that proposed restrictions on international borrowings by Kazakh banks might have a positive impact on the sovereign ratings on the Republic of Kazakhstan (foreign-currency BBB/stable/A-3) if the various potential impacts on the economy are limited or well-managed.

The Kazakhstan bank regulator is proposing to restrict international borrowing to a multiple of banks' regulatory capital. The aim is to moderate the banks' continuing high loan growth rates, as international borrowings have largely funded the extension of these loans, S&P said. The proposed measures could take effect as early as March and are likely to partially address the less benign consequences associated with Kazakhstan's booming economic growth, the agency added.

The proposals could slow the buildup of foreign indebtedness in the banking system, which has resulted in the sector's net external debt position rising to 36% of current account receipts in 2006, from 14% in 2003. This is one of the highest levels of banking sector external indebtedness among rated sovereigns, S&P said.

The proposals also would temper the excessive rate of credit growth, which should help prevent any overheating in the economy and support the authorities' efforts to keep inflation under control. As these factors have been significant constraints on the sovereign ratings in the past, the proposals are potentially positive from a sovereign ratings perspective, the agency said.

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