CONSUMER LENDING IN KAZAKHSTAN

CONSUMER LENDING IN KAZAKHSTAN Due to the globalization, thriving consumer society, and rapid development of the financial intermediation, consumer lending, which includes unsecured loans lent to individuals, has become a fastgrowing area of the banking services over the past ten years in developing countries, such as Kazakhstan. Moreover, as a result of the world financial crisis, some commercial banks decided to focus on consumer lending sector rather than previously highly growing sectors, such as mortgage, trade, and construction, which were seriously affected by the crisis. Consequently, in the last few years consumer lending sector has become one of the growth drivers in the banking system of the country. Regarding that consumer lending sector provides higher interest yield with lower risks, the share of consumer loans in total loans in the banking sector has increased from 12.2% to 21% since the beginning of 2012 until the mids-2014, for example. In 2012 the average interest rate for consumer loans was 24%, for mortgage loans and construction loans 11%, and for loans to non-banking legal entities 10% in Kazakhstan. Therefore, it is not surprising that the second-tier banks such as Kaspi Bank, Eurasian Bank, ATF Bank, Forte Bank, Home Credit Bank, and Nurbank started to focus on consumer lending. This step was a means of ensuring a stable pace of growth for these banks, especially for Kaspi Bank. The growth rate of Kaspi Bank held steady at 40% in 2012 and 2013, decreased to 17% in 2014 and then reached 24.4% in 2015, which allowed the bank to have 6.2% share of total assets in the banking sector. According to the financial statement of the bank, more than 79% of the bank’s portfolio consisted of consumer loans in 2015. It should also be admitted that since the high growth in consumer lending might have created a lending bubble in Ka-zakhstani banking system, the National Bank of Kazakhstan (NBK) decided to bind these loans to prevent the system from a financial bubble. Thus, in the beginning of 2014, the NBK introduced prudential norms, which would limit the growth of the consumer loans. The first prudential norm prohibited to lend a loan to an individual if the monthly loan payments are greater than 50% of the individual’s monthly salary. The second norm directly limited the growth rate of consumer lending. According to this second norm, the growth rate of the consumer loan portfolio should not exceed 30% in one year. These norms definitely have had a negative effect on the growth rate of consumer loans. The growth of consumer loans decreased from 47.87% in 2013 to 17.27% in 2014. However, the rapid decline in consumer lending took place in 2015. During that time, the consumer lending sector came under considerable strain growing only by 1.37%. Moreover, according to the monthly statistical bulletin of the NBK, consumer loans in Kazakhstan decreased by 6.23% in the first half of 2016. It is widely believed that the current decrease is a result of low economic growth, currency devaluation, high inflation and high interest rates in the financial markets, which were followed by a sharp decline in oil prices in the middle of 2014. The current macroeconomic fluctuations significantly decreased the purchasing power in the economy of Kazakhstan, affecting dramatically consumer lending sector. For instance, low economic growth negatively affected the unemployment rate and income level in the country. The second factor that decreased the purchasing power is high inflation, which is usually treated as the main detrimental factor for purchasing power. The other factor is August 2015 currency devaluation. Due to the fact that most of the non-food consumer products are imported, tenge devaluation made the consumer products too expensive to be consumed in the domestic economy. It should be highlighted that despite a sustained decline in interest rates on loans (22.9% in 2014, 21.7% in 2015 and 19.8% in 2016), the consumer loans decreased.

Thus, decreased consumer lending seriously affected the banks, which focused on consumer lending sector. According to the NBK, the profits of 5 out of 6 second-tier banks, which focused on consumer lending decreased in the first half of 2016 compared with the same period of 2015. Only the profits of Kaspi Bank increased, demonstrating a considerable growth rate by more than 20%. However, this increase in profits were mainly a result of the currency exchange and dealing operations rather than lending operations, which means that Kaspi Bank also has problems in consumer loans.

The decreased level of purchasing power affected not only the profitability of consumer loans but also significantly increased the level of Non-Performing Loans (NPLs). For instance, the share of NPLs in consumer loans increased rapidly from 14.5% in the beginning of 2015 to 23.0% at the end of June 2016. In conclusion, it is obvious that due to current macroeconomic fluctuations, the consumer loans sector in the economy of Kazakhstan faces some difficulties. However, the situation could be improved in case oil prices rise enough to increase oil production in the country and recommission the Kashagan oil field. A significant increase in oil revenues in national budget would positively affect the employment rate, households’ income level, the value of tenge and the interest rates in the financial market of the country.

Written by Daniyar Nurbayev, Eurasian Research Institute, Kazakhstan Politics, Foreign Affairs and Security      According to the Constitution of Uzbekistan, the Senate Chair, Nigmatilla Yuldashev, became the acting President of the country taking over the position after Islam Karimov’s death. Uzbekistan's President, Islam Karimov, who ruled the country for 27 years, died at the age of 78 after suffering a stroke. Heads and high-ranking officials of Eurasian countries attended the funeral ceremony of first Uzbekistan's President, who was buried in his hometown, Samarkand.

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Prepared by Lidiya Parkhomchik, Hayal Ayca Simsek, Daniyar Nurbayev.

Meiramgul Issayeva