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LONDON. July 4. KAZINFORM. Fitch Ratings says the very aggressive growth strategies of Kazakhstani banks are giving rise to heightened credit and structural risks. In a report published today, Fitch also notes that expansion seems likely to remain rapid, at least in the short-term, based on revised forecasts collected from rated banks. Such growth presents an important test of the banks’ credit risk management capabilities and any significant deterioration of asset quality could result in negative actions on banks’ Individual ratings, Kazinform has learnt from Fitch Ratings press service. “Relatively new retail lending and loans to the potentially cyclical construction and real estate sectors are the main growth drivers, with exposures to Russian borrowers also substantial at certain banks,” says Alexei Kechko, Associate Director in Fitch's Financial Institutions group. “In addition, loan books remain highly concentrated, while tenors and the share of foreign currency loans are increasing. Therefore, while asset quality is at present reasonable, lending at most banks is primarily secured and economic growth is currently strong, in Fitch’s view, credit risks are substantial.” Banks are increasingly tapping international capital markets to fund their rapid growth. “Most of the large banks are heavily funded from abroad and are vulnerable to resultant foreign currency lending, refinancing and interest rate risks,” says James Watson, Senior Director in Fitch's Financial Institutions group. “Medium-sized and smaller banks will likely increase their capital bases to comply with a new regulation, which ties the permitted amount of foreign funding to regulatory capital, while larger banks will not be significantly affected. As a result, Fitch does not expect the regulation to have a significant impact on foreign funding volumes or sector growth rates.” The Long-term foreign currency IDRs of the six largest banks remain underpinned by the potential for sovereign support. Two of the country’s largest banks, Kazkommerts (“KKB”) and Halyk (both have Long-term foreign currency Issuer Defaut ratings (“IDR”) of ‘BB+’/Positive Outlook), have made public share offerings in Q406/Q107 to support ongoing growth, and Alliance Bank (Long-term foreign currency IDR ‘BB-’(BB minus)/Stable Outlook) plans to make an offering of existing shares. The tapping of public equity markets represents a further source of capital flexibility for Kazakhstani banks and is a credit positive. ATF Bank (Long-term foreign currency IDR ‘BB-’ (BB minus)/Rating Watch Positive) is set to become the first major bank to be acquired by a foreign buyer, following the recent agreement with Italy’s Unicredito (IDR ‘A+’/Positive Outlook), and this may serve as a catalyst for other banks to be sold.


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