Borat on banking

30 September 2007 By Angelina Rascouet

A helterskelter property boom has been financed by foreign currency borrowing. With global wholesale markets shut, the big banks have had to resort to central bank funding. Fortunately, the oil price has made Kazakhstan so rich that it won t have trouble paying for a bailout if one is needed.

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S&P downgraded Kazakhstan to BBB from BBB this week because of funding problems in the Kazakh financial system.

Kazakhstan's banking sector has grown at an average of 70% in the past four years boosted by borrowing on wholesale markets. In 2006, Kazakh banks raised $18bn overseas. Currently, Kazakhstan's banks have $40bn in external debt. Local deposits represent only a third of total funding.

Amid the international credit crunch, fund raising has become difficult. Credit spreads have widened by 100 to 200 basis points. In July and August, the country's central bank lent its banks about $11bn. Last month, it postponed a rise in banks' reserve requirements to January in a further move to soften the effects of the credit squeeze.

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