The year of 2024 has brought complex challenges to Kazakhstan’s banking sector stemming from both internal and external factors.
According to the Financial Sector Review for July 2024 the banking system has shown asset growth, but declining profitability and rising credit risks are causes for concern. In this article, we will take a detailed look at the key changes in the banking sector’s structure, the risks faced by financial institutions, and the potential opportunities for future growth.
Dynamics of Bank Assets and Liabilities
As of August 1, 2024 the total assets of second-tier banks amounted to 56.788 trillion tenge, an increase of 2.6% compared to July. The main contribution to asset growth was made by highly liquid assets, which grew by 5.6%, reaching 17.168 trillion tenge. This indicates that Kazakhstani banks have managed to strengthen their liquidity base, enabling them to respond quickly to economic fluctuations.
At the same time, bank liabilities increased to 49.019 trillion tenge (+2.5%), with 78.5% of liabilities coming from client deposits. This highlights the banking system’s significant dependence on deposits. Notably, deposits from legal entities grew by 5.1%, indicating a recovery of corporate sector trust in the banking system.
Bank Profitability and Capital
Despite the growth in assets, profitability indicators are showing a downward trend. Return on Assets (ROA) decreased from 4.6%to 4.5%, while Return on Equity (ROE) fell from 37.5% in July 2023 to 33.2% in 2024. These figures indicate a decline in the efficiency of banks’ resource use, which in turn reduces their profitability and stability.
Nevertheless, banks’ equity increased by 3.7%, reaching 7.8 trillion tenge, primarily due to the accumulation of undistributed profits. This suggests that, despite the decline in profitability, banks continue to accumulate profits, allowing them to maintain a sufficient capital reserve to cover risks.
Loans to the Economy. Structural Changes and Risks
The volume of loans issued to the economy amounted to 30.519 trillion tenge, an increase of 1.4% in July, 2024. The structure of loans is divided into three main directions:
- Loans to businesses – 38.6% of total loans.
- Mortgage loans – 18.4%.
- Consumer loans to individuals – 43.0%.
Loan growth was primarily driven by mortgages and consumer loans, reflecting high domestic demand. Loans to individualsgrew by 2.2% in July, reaching 18.741 trillion tenge, with an increase of 12.3% since the beginning of the year. However, this growth rate presents significant risks.
Credit Portfolio Risks
Despite the growth in the credit portfolio, the share of problem loans is increasing. As of August 1, 2024 the volume of loans overdue by more than 90 days amounted to 3.1% of the total loan portfolio or 1.020 trillion tenge. In January this figure was lower at 2.9%. It is important to note that 3.9% of overdue loans are held by individuals, demonstrating increasing debt burdens and potential risks for banks.
Loans to businesses are also facing certain difficulties. While the total volume of loans to legal entities decreased by 0.4%, loans to individual entrepreneurs increased by 3.2% in July, indicating increased activity among small businesses. However, the level of overdue loans in the business sector remains high at 2.1%.
Growth Opportunities
Despite the risks, the banking sector continues to offer opportunities for growth. The volume of long-term loans increased by 1.1% to 26.142 trillion tenge, and short-term loans grew by 2.9% to 4.378 trillion tenge. In July 2024, the volume of new loans issued amounted to 3.098 trillion tenge, 18.4% more than in the same period last year. This growth indicates the continuation of credit expansion, which supports domestic demand and economic activity.
Deposit Market
The stability of the banking system is also ensured by the growth of deposits. As of August 1, 2024, residents’ deposits in deposit organizations increased by 2.1%, reaching 36.503 trillion tenge. The level of deposit dollarization continues to decline and stands at 21.9%, a positive signal indicating increased confidence in the tenge.
It is worth noting that deposits in tenge grew by 2.7% to 28.503 trillion tenge, offsetting the slight increase in foreign currency deposits. This trend reduces the banking system’s dependence on exchange rate volatility and strengthens the domestic financial market.
Conclusion
Kazakhstan’s banking sector demonstrates resilience in the face of global economic uncertainty and internal pressures. However, the growth in non-performing loans and declining profitability highlight the need for stricter credit risk management. At the same time, the high pace of loan growth and the stability of the deposit market provide opportunities for banks to continue growing and adapting. It is important for market participants to strengthen risk management and focus on the quality of their credit portfolios to avoid potential financial shocks in the future.
Sultan Valikhanov
expert at Economy.kz portal
