MOSCOW (S&P Global Ratings) — S&P Global Ratings expects the Kazakh banking sector to switch to growth mode in 2021. That’s on the back of GDP growth of 3.2% in 2021, according to their forecasts, after a contraction of 2.6% in 2020.

For years, the loan portfolio of the Kazakh banking sector has been shrinking, and now constitutes only 23% of GDP compared to 55% in 2008. S&P believe that after the series of massive cleanups performed over the past several years, Kazakh banks will likely be in a position to focus on growing new business in 2021. That said, on the opinion of S&P analysts, the quality of this growth will depend significantly on underwriting standards because aggressive lending practices may require another cleanup of the riskiest players in the years to come, in our view.

Key Takeaways

• S&P expect the loan book of Kazakh banks to increase 8%-10% in nominal terms this year on the back of reviving economic activity, pension reform, and government support programs.
• The share of nonperforming loans will remain flat, in S&P’s forecast, balancing weaknesses from the protracted recognition of COVID-19-related problem loans and the benefits from the continuous sector cleanup of legacy nonperforming assets.
• Nevertheless, S&P expect credit costs will remain elevated, which will constrain the sector’s profit growth in 2021.
• S&P expect the performance of Kazakh banks will remain polarized, with profits considerably skewed toward the several largest banks.
• Governance and transparency standards in the Kazakh banking sector remain low, in S&P’s view, constraining the effectiveness of regulatory oversight and the banking sector’s weakening creditworthiness.
• S&P expect the average rating on Kazakh banks will remain in the B range in the next 12-18 months.