KAZAKHSTAN: Fitch Affirms Kazakhstan at ‘BBB’; Outlook Stable

Wednesday October 25 2017

On 20th October 2017, Fitch Ratings affirmed Kazakhstan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB’ with a Stable Outlook. Key drivers for the rating included:

Kazakhstan’s IDRs balance strong public and external balance sheets, underpinned by large government savings and a substantial sovereign net foreign asset position, against high commodity dependence, a weak banking sector, weak governance indicators and volatile macroeconomic performance compared with ‘BBB’ peers. The economy’s adjustment to the oil price shock of recent years continues, facilitated by exchange rate flexibility, monetary policy reforms, restructuring of the banking sector and fiscal stimulus.

The banking sector is very weak relative to peers, with a Fitch-defined Bank System Indicator of ‘b’, but is being cleaned. The acquisition of the dominant bank, KKB, by Halyk Bank (BB/Stable), has been completed, leaving a more financially sound main player. The authorities are turning their attention to the next tier of banks. A central bank subsidiary has been created to support the recapitalisation of banks with minimum total capital of KZT45 billion, at a cost estimated by the government at KZT500 billion-KZT700 billion (1%-1.3% of GDP), contingent on existing bank shareholders providing new capital. Fitch believes that the cost may be higher due to a weak loan reporting framework and uncertainty over the source of capital injections by private shareholders. Recapitalisation needs are manageable compared with the sovereign’s assets.

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