Fitch: Kazakhstani banks' future risky

Fitch Ratings said in a special report that Kazakhstani banks' rapid credit growth and reliance on foreign funding are sources of significant risk for the sector.

At the same time, the agency said, supervision is good for an emerging market, performance has been sound, loan impairment levels have been reasonable to date, liquidity is comfortable and capitalization is adequate. The banks' business models also are generally sound with low levels of speculative trading, related party operations and non-core activities.

The Kazakhstani banking sector assets and loans have grown very rapidly throughout the current decade, reflective of very high nominal GDP growth, the low starting base and the banks' aggressive expansion strategies. The banks' forecasts, collected and aggregated by Fitch, suggest more than three-fold growth in assets and loans and almost five-fold growth in retail lending during 2006 to 2009, which would result in the loans-to-GDP percentage rising to about 72% at the end of 2009 from 40% at the end of 2005.

The agency said meeting these growth targets will be challenging from a business origination perspective, but that such rapid ongoing and planned expansion - especially in areas that are intrinsically more risky - gives rise to substantial credit risks. High loan concentrations are also a source of concern, Fitch added.

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