AFK forecasts slow down in retail lending

According to the Association of Financiers of Kazakhstan (AFK), last year commercial banks shifted their focus from retail lending to business loans. This tendency is going to continue this year as well.

The lending pace has slowed against the backdrop of shrinking benefit mortgage and car loan programs as well as a decline in the inflow of new borrowers to 411,000 in 2023, compared to 549,000 new borrowers in 2022. As a result, the retail lending pace dropped from 31.3% in 2022 to 26.7% in 2023 ($36.5 billion).

On the other hand, the amount of business loans grew by 16.7% to $24.5 billion due to more loans issued to small businesses (+53%). In this segment, only 2.5% of individual entrepreneurs have banking loans, while an increase in overall investment activities (+13.7%) and expectations that loans would become cheaper have also contributed to the lending boom in this sector.

As the AFK noted, loan rates were mostly higher last year than during the previous year. However, the softening of the monetary policy in Kazakhstan led to a slight lowering of rates by the end of 2023, especially in the sphere of lending of entities.

Interest margin in this sector (the difference between interest yields and interest costs to a bank’s assets) has grown from 5.75% to 6.34%. This growth was driven by growing asset yields compared to the cost of funding. The share of current accounts (26% out of all accounts by clients) and unchanged rates for deposits nominated in a foreign currency (23% out of all deposits) played an important role here.

High margins and growing business have also driven the banking sector revenue up. The sector reported that its assets grew by 15.4% to $112.5 billion; capitalization increased by 31% to $15.1 billion, while its net profit reached $4.8 billion (an increase of 2.4 times). The National Bank also reported this figure, although it estimated that growth at 49.4%. 

The loan portfolio has risen by 23.1% to $65.4 billion, while its quality increased (NPL dropped from 3.4% to 2.9%) as the banking sector has never stopped working on lowering the number of non-performing loans.

Individual deposits grew by 20.6% to $44.5 billion as the nominal wage rose and the government introduced a 10% compensation on deposits in tenge. On the other hand, corporate deposits reported just a tiny increase of 0.1% to $34.8 billion against the backdrop of a growing tax burden in some economic sectors and a decline in deposits nominated in foreign currency.

Among more positive trends, the AFK pointed out that the share of long money has increased from 6.3% to 7.5% out of all passive assets: savings deposits and bonds grew by $1 billion and $1.2 billion, respectively. The association believes that this will ease access of businesses to long-term lending facilities.

These positive trends in the banking sector were accompanied by a growing number of rating actions by S&P, Moody’s and Fitch. Ratings were improved in nine cases and revised with a better outlook in six cases versus four rating improvements and four rating revisions in 2022.

The AFK forecasts that retail lending is likely to continue slowing down due to less demand and tougher regulation. On the other hand, business loans are going to be expanded, driven by the improved monetary policy, regulatory incentives and release of pent-up demand. Businesses from the processing industry, trade and construction are showing the biggest interest in loans, according to the National Bank.