The National Bank of Kazakhstan (NBK), alongside the central government, untethered the tenge from the dollar, on 20 August 2015, enabling it to float freely. As a result, the tenge has fallen by about 25% so far.

“We assume that Kazakh banks’ business prospects will feel constrained over the remaining part of 2015 due to the worsening macroeconomic environment, deteriorating borrowers’ creditworthiness, and the sharp weakening of the tenge. We project that Kazakh banks may face both volatile customer funding and limited opportunities to invest foreign-currency denominated funds into income generating assets of acceptable credit risk,” the agency said.

The agency said that in 2015, Kazakh banks’ profitability will likely bow under the pressure of the tenge’s drop and negative macroeconomic trends. “We expect credit risks in Kazakhstan’s banking sector will increase in the next one to two years amid the worsening macroeconomic environment and weakened local currency,” it added.

“Tenge liquidity will likely remain tight in the banking sector in the second half of 2015, despite the government’s efforts,” the agency underlined.

“Banks’ pronounced currency mismatch between loans and deposits will likely complicate their lending growth and overall business prospects in the absence of readily available long-term market instruments to hedge foreign currency risks,” Standard & Poor’s said.

“We anticipate that the dynamics of the banking sector loan portfolio will be almost flat in 2015 (adjusted for the BTA Bank deconsolidation from the sector),” it added.

“We currently rate 19 commercial banks in Kazakhstan. In our opinion, the country’s banking industry is exposed to very high risks, according to our Banking Industry Country Risk Assessment of ‘8’, which ranges from ‘1’ for lowest risk to ‘10’ for highest risk. Plus, we see the industry risk trend as negative. We will carefully monitor the development of the banking sector operating environment and its potential impact on the credit ratings of Kazakh banks going forward,” Standard & Poor’s concluded.