Timely measures of National Bank, Financial Supervision Agency and Government provided ?soft landing? for banks: D. Akishev

ALMATY. January 5. KAZINFORM. /Daniyar Sikhimbayev/ The main event of the previous year for the world economy became the world financial crisis which did not pass by Kazakhstan – a full-fledged participant of the world financial system as well. Deputy Chairman of the National Bank of Kazakhstan Daniyar Akishev shares his view upon main results of the country?s financial development including state measures for minimization of crisis consequences in 2009 in the interview with a Kazinform correspondent.

The previous year was the year when the world was shocked by the financial crisis and external markets closed for Kazakhstan. How do you estimate the vulnerability of our financial sector to the external threats? Indeed, the years of 2007 and 2008 burdened by the world financial crisis will leave their imprint on the economy of Kazakhstan. The year 2008 became an examination both for the financial system of the country and national economy as a whole. The difficulties in the world financial market affected the economy of Kazakhstan. The country?s economic growth is slowing down. But there is no any recession and the economic growth is expected to be at 5 % level following the results of this year. The main reason of decline in economic activity became the change in prices for primary products exported by Kazakhstan. It influenced the volumes of domestic production that was followed by dampening of economic activity in related branches. Another reason is the crash in the world financial markets whereby national financial institutions have no access to the world capital markets. Then appears a problem with debt service - the banks cannot refinance external liabilities on the same terms as before. As for the stability of the banking sector, the national banks successfully overcome the shock caused by the global liquidity decline. No bank admitted default neither in domestic nor in foreign obligations. The banks demonstrated that they are liable for their external obligations and able to attract additional recourses from abroad. So the banks? assets increased up to 2.3% and their own capital up to 8.9% over 11 months. Those positive events would not have taken place without active support of the state. Timely and adequate measures taken by the National Bank of Kazakhstan, Agency for Financial Supervision and Government aimed at provision of financial stability had positive effect and provided the so called ?soft landing? for the national banks. The stable situation and absence of negative dynamics in the banking sector testify to it. To what extent are our banks ready to work and serve external obligations next year? How will the state support the second-tier banks in the nearest future? You know that the National Bank and Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Market and Financial Organizations evaluate the external debt service. The National Bank as a state body responsible for delivering of statistics upon the external debt publishes such information on a regular basis in accordance with the world standards. But there is a great delay with information supply connected with some peculiarities. We possess information to June 30, 2008, but taking into account the present situation we do not think these indices undergo significant changes. According to the National Bank?s forecast dated June 30, 2008, the external debt service of Kazakhstan?s banks before nonresidents will require USD 10.6 bln in 2009 (out of which USD 8.1 bln - for principal redemption and USD 2.5 bln - for future per cents). Continuing world financial crisis serves a natural limiting factor for external loans of commercial banks. On the one hand USD 10 bln is a big amount for the banking system. On the other hand it can be served by the economy in the whole. Under present conditions the lack of refinancing of external loans can be covered at the expense of external debt assets of the banks estimated at USD 21.5 bln to June 30, 2008; where 60.4% were loans issued to nonresidents, about 27% - deposits and 11.3% - bonds. Besides, the part of funds, allocated to the economy within the Anti-Crisis Program of the Government, National Bank and Agency for Financial Supervision, can be used for repayment of external debts both directly and indirectly. That is why we can say for sure that the banks will repay external debts and will not let defaults. Can we expect that following the results of December 2008, inflation rate will reach an expected level of 10%? Today we see a slowdown of inflation in Kazakhstan?s consumer market. Herein, the slowdown started in September 2008. So, the level of inflation for January-November of 2008 amounted to 9.2 % as compared to 16.5% for January-November 2007. This tendency is caused by the absence of any significant factors that could strengthen inflation pressure. What is the situation around the balance of payments? According to the preliminary results over 9 months of 2008, the balance of payments formed with proficit. The current account amounted to about USD 9 bln. Following the results of the year we expect the proficit of balance of payments as well. We expect the current account at the level of USD 7 bln. We expect decline of the balance of payments? position in 2009 in terms of price-fall for export goods. According to different scenarios, the deficit of the current account can make up about 3 % of GDP at the oil price of USD 40 per barrel. But if in a year the oil price falls down to USD 25, the deficit of the current account can make up 10 % of GDP. What steps should Kazakhstan make within the framework of the antirecessionary program developed by the Government, Financial Supervision Agency and the National Bank of Kazakhstan to overcome crisis in 2009? As is known, the Government, National Bank and Financial Supervision Agency adopted the Joint Action Plan on stabilization of economy and financial system for 2009-2010. According to this Plan the following measures will be taken for stabilization of the financial sector. First of all, this is the additional capitalization of the banks through acquisition of simple and privileged shares including provision of subordinate loans. Secondly, the Fund of Stress Assets was established. Its activity will be directed to the improvement of quality of credit portfolios of Kazakhstan?s banks. Thirdly, the additional sources of liquidity will be presented to provide timely debt service for banks. Fourthly, the state regulation in the financial sector will be improved. To protect interests of the pension funds depositors the Government will provide safety of deposits in pension system, as well as a high level of transparency for depositors, and raise their financial awareness. A special program of mortgage crediting and housing sector development will be launched through ?SamrukKazyna? Fund to deal with housing problems of citizens and activation of real estate market in the cities of Astana and Almaty. In addition, the support of small and medium businesses will continue in terms of reduction of economic financing from the side of national financial institutions. USD 1 bln will be allocated for it in 2009. The second-tier banks will be operators of all lending programs for small and medium businesses. The limit for financing of one project will be increased from USD 3 up to 5 mln within the framework of the funds allotted by ?SamrukKazyna?. What lessons can Kazakhstan learn from the present situation in world financial markets? The current crisis has demonstrated how balanced should be the policy of the banks in relation to the funding sources as well as credit portfolio management. This concerns not only Kazakhstani banks. I think that the state as a conservative participant of these processes should give a pessimistic forecast in order not to underestimate the situation. The state should adhere to the antirecessionary policy for a long period of time even if there are forecasts of revival of economic activity in 2010. If crisis processes turn to be deeper, the consequences can become more negative than we expected. Thank you for the interview.