Kazakhstanis show less appetite for consumer loans due to shrinking mortgage market

According to analysts of the Association of Financiers of Kazakhstan (AFK), the tempo of issuing mortgage loans has dropped from 28.8% to 9.9%, which has a negative impact on customer lending as Kazakhstanis are showing less appetite for loans. Over the period from January to September 2023, the country’s banks issued $33.4 billion worth of household loans.

«As the 2022 financial stability report showed, more than half of those who have taken a mortgage loan also take a customer loan within the next three months,» the analysts said in a survey of the banking sector of Kazakhstan for the first nine months of 2023.

The loan portfolio of Kazakhstani banks has grown twice as fast as the overall assets of the banking system (14.2% vs 7.5%). At the same time, the share of highly liquid assets has lowered from 30.2% to 29.6%.

«The growth of retail loan portfolio has slowed to 18.5% compared to 21.5% last year against the backdrop of a smaller inflow of new borrowers (327,600 compared to 373,300 last year), fulfillment of deferred demand, fewer soft mortgage loans and last year’s high base,» the AFK said in the survey.

Banks also reported a 7.5% increase in assets to $102.5 billion, while retail deposits grew by 10.1% and reached $38.9 billion. The AFK analytics believe that the total balance (assets plus passives) of banks is continuing to grow despite the acceleration of GDP growth to 4.7%, slowing down of inflation to 10.8%, high demand for borrowed resources, increase in people’s actual income by 1.9% and budget incentives by the government.

«The economic growth accelerated to 4.7% that supported customer and investment demand for borrowed resources which has been quite high despite relatively tough financial situation,» the survey said.

Bank interest is shifting toward businesses in terms of lending

Banks have become more active in terms of lending to entrepreneurs; the growth rate of business loan portfolios has accelerated from 5.2% to 6.6% year-on-year. The association explains this situation with more loans issued to small and medium-sized businesses (+45%) as well as an overall increase in investment activity in the economy.

«Over the first months of this year, the number of applications from businesses grew from 576,000 to 1.2 million, while applications from retail customers grew from 22.7 million to 35.2 million (+55%). Unsecured customer loans accounted for the lion’s share of retail loans (99%), while 99% of businesses that applied for a business loan were small businesses. The two segments are going to continue to drive further growth of the banking sector,» analysts said.

On the other hand, banks seem to be more eager to lend money to businesses as the rate of credit approvals for businesses has grown to 37% compared to 31% last year, while the same indicator for retail customers declined from 35% last year to 29% now.

What has driven lending activities?

The lending activity was funded at the expense of banks’ increased equity capital (+19.4%), retail deposits (+10.1%) and placement of bonds (+36%). In addition, the share of long money in liabilities has also increased from $5.7 billion to $7.9 billion year-on-year which will facilitate issuing long-term loans to businesses, the AFK said.

«The funding of lending activities first and foremost was conducted at the expense of growth in retail deposits (+$3.6 billion), growth of equity capital of commercial banks (+$2.1 billion) and placement of bonds (+$1.2 billion). In terms of positive trends for liabilities we can distinguish an increase in the share of long money as savings deposits grew by $706 million,» analytics said.

Experts also pointed out the high quality of the loan portfolio as the share of non-performing loans grew by just 3.1% ($194 million) and reached $1.9 billion in total. According to analytics, this is a very small increase. This situation reflects high standards of lending and overall growth of the loan portfolio, the survey said. As a result, the cost of risks hasn’t changed much, the experts underlined.

They also noted that planned changes to tax and budget policy as well as restrictions in retail lending should be made very carefully because they could have serious consequences either for the entire economy or for certain sectors. For instance, the AFK noticed that corporate deposits have decreased by $1.7 billion since the beginning of the year due to increased tax burden in some economic sectors. Moreover, household expenditures reached 48.3% of the GDP compared to 46.3% over the period from January to June 2023 and 43% between January and September 2022. This dynamic may indicate a growing demand for customer loans.