The influence of the economic crisis on the credit system of the Alliance bank in Kazakhstan, Алматы

The influence of the economic crisis on the credit system of the Alliance bank in Kazakhstan

Contents

Introduction

Chapter 1. Theoretical foundation of the influence of the economic crisis on the banking system

1. Formation and development of the economic crisis
2. The influence of the economic crisis on banks of Kazakhstan

Chapter 2. Analysis

2.1 Analysis of influence of the economic crisis on the Alliance bank in Kazakhstan

2.2 The Credit system of the Alliance bank

Conclusion

References

Introduction

Kazakhstan's economic performance over the past eight years was celebrated as one of the most impressive among emerging markets worldwide. Growth of Kazakhstan's gross domestic product (GDP) averaged 10% per year in 2000-2007 after contracting by 4.5% on average per year in 1992-1999. The external trade balance turned from a deficit of 5% of GDP on average per year in the first eight years of independence into a surplus of 11% on average over the following eight years. The turnaround was equally impressive in the areas of fiscal consolidation and monetary stabilization. Thanks to economic growth and a real appreciation of the local currency Tenge, GDP per capita increased from $1,000 per year in 1999 to $6,800 in 2007. Kazakhstan had established itself as a mid- income country at par with countries like Malaysia and Thailand. It was the Snow Leopard catching up with the East Asian Tigers.

The factors behind this success story were not only policies that attracted the foreign funds needed to substantially increase the extraction of hydrocarbons and bring them to the market- other resource rich countries in the region have been much less successful here—and the unprecedented increase in global commodity prices. Kazakhstan also stood out through professional macroeconomic management and bold structural and regulatory reforms. Points in case are the establishment of a fully funded pension system in 1998, which is still the most impressive in a transition economy (by 2007 yearly contributions increased to 1.8% of GDP and assets under management to 9.5% of GDP); Kazakhstan's response in 1999 to spillover from the Russian financial crisis; the subsequent cleanup of its banking system, which became the most dynamic in the CIS; the establishment of a national wealth fund named National Fund in 2001 to accumulate excess oil earnings and tax revenues (funds under management increased to $21 billion or 20.3% of GDP by end-2007); the establishment of the first consolidated financial services regulator in a transition economy in 2004; and the build-up of the new capital Astana, which was a major logistical feat. Meantime, social and political stability were maintained, which was also a major achievement.

However, Kazakhstan is among the emerging markets most affected by the global financial turmoil since August 2007. What went wrong? How serious is the situation?

In August 2007, the Kazakhstani banking system was hit by liquidity problems in the US- American and European banking systems, which effectively shut down international credit markets. The Kazakhstani banking system had become vulnerable for such an exogenous shock. Since Kazkommertsbank issued its first Eurobond in 1998, all leading Kazakhstani banks had gained access to international capital markets and became increasingly dependent on it. Thanks to favorable company credit ratings and abundant global liquidity, cheap finance from abroad was readily available, mostly in form of Eurobonds and syndicated loans. Since end-2002, Kazakhstani banks increasingly used foreign funds to finance an aggressive credit expansion at home. Foreign liabilities of the banking sector increased from $1.8 billion (or 2% of GDP) in December 2002 to 43.5 billion (or 20% of GDP) in July 2007 (Chart 1). 58% of these liabilities were short- and medium-term syndicated and bilateral bank loans.

Over the same period, private sector credit grew from 19% of GDP to about 56% of GDP. This was still lower than in Thailand (84%) or Malaysia (105%), but almost at par with the USA (60%) and much higher than in most other successful transition economies such as the new European Union member country Czech Republic (41%). About half of the credit expansion in Kazakhstan was funded from abroad. Bank deposits also increased. However, they did not keep pace with the credit expansion. This means that fewer and fewer credits were backed by deposits. The private sector credit to deposit ratio increased from 125% in 2002, which was already high from an international perspective, to 198% in 2007. For comparison, Thailand had a ratio of 94% in 2007, Malaysia 91%, and developed economies like the USA or Germany of 57% and 115%, respectively.

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