Kazakhstan bank asset quality is improving as the economic outlook picks up and non-performing loans level off, UBS AG said. Shares in the country's two largest banks climbed, helping the benchmark stock index become the world's biggest gainer today.
"The period of rapid buffer creation against non- performing loans will be over before the end of the year and 2010 will see a return to normalized earnings," analysts including Dmitry Vinogradov at UBS wrote in a report today. They recommended buying shares of Halyk Savings Bank JSC and Kazkommertsbank.
Kazakhstan has invested $19 billion, or 14 percent of gross domestic product, to rescue its lenders and support the economy since the end of 2007. The country has about half of all emerging market distressed debt, according to David Spegel, head of emerging market strategy at ING Financial Bank NV in New York.
"The Kazakh economy has bottomed out and has already returned to growth. We project that the economy will expand 1.5 percent in 2009 and another 5 percent in 2010," UBS said.
Halyk Savings Bank, the third-biggest lender by assets, rose 8 percent to 324 tenge in Almaty trading, to the highest since Sept. 8 last year and bringing this year's gain to 277 percent.
UBS said Halyk is "well placed to expand its lending portfolio and protect margins," adding the stock's valuation is "appealing" relative to peers. The stock is valued at 6.6 times estimated 2010 earnings, a 57 percent discount to OAO Sberbank, Russia's largest bank, and 56 percent below the valuation for global emerging markets, UBS said.
Kazkommertsbank, the biggest lender by assets, rose 4.6 percent to 680 tenge to the highest since Aug. 22 last year, bringing this year's gains to 47 percent. "Near-term liquidity pressures have been largely resolved," UBS said. "However, funding constraint and a significant share of foreign assets make the bank a less preferred investment proposition" than Halyk.
Kazakhstan devalued the tenge by 21 percent in February after the government seized control of BTA Bank, the second- biggest bank. Its shares were delisted on Nov. 2, though it has been trading on the KASE Stock Exchange as an unlisted stock since Nov. 10. The KASE gained 2.3 percent today, making it the best performer in the world measured in local currency moves.
The former Soviet state, which holds 3.2 percent of world oil reserves, is benefiting from a 78 percent gain in the price of crude this year that's helping offset the impact of bank losses. Kazakhstan's oil production increased 7.8 percent in the first 10 months to 63 million metric tons, the statistics office said on Nov. 12.
"The strong rebound in commodity prices, strong production growth in the oil sector and government led anti-crisis spending have resulted in the reversal of negative economic trends in Kazakhstan," UBS said. The bank expects GDP to expand 1.5 percent this year and 5 percent in 2010.
A rise in output from the country's biggest oil producer TengizChevroil LLP probably supported a recent gain in oil and gas production, the Economist Intelligence Unit said on Nov. 13. The government's 2009 target of producing 75 million tons of oil, compared with 70.6 million tons last year, should be "comfortably achievable," according to the EIU.
Kazakhstan's central bank, which manages the tenge against a central target of 150 against the dollar, may allow the currency to appreciate, Governor Grigori Marchenko said on Nov. 11, after oil price gains attracted investors. The tenge has gained 1.1 percent against the dollar in the past month. The currency slipped 0.1 percent to trade at 149 against the dollar, its lowest since Feb. 13.
The regulator won't allow the tenge to strengthen beyond 145 per dollar until Feb. 5, Marchenko told reporters in Almaty today. After Feb. 5, the bank may allow a gradual appreciation if the currency is supported by demand, he added.
The bank will extend the trading band around the tenge's peg from 2010 and the currency "ought to appreciate," Marchenko said last week. The central bank must decide "whether the corridor will be 150 tenge minus 30 tenge and plus 20 tenge per dollar, or a different rate," he added.
The country is also benefiting from its grain harvests, which have exceeded previous years' crops. This year's harvest was a record 21 million tons, up 20 percent from 2008, President Nursultan Nazarbayev's office said on Oct. 2.
"The impressive harvest this year will provide some support to the rate of real GDP growth," the EIU said.
The economy of central Asia's biggest energy producer contracted 2.2 percent in the first nine months, compared with a 2.3 percent decline in the half year, the State Statistics Agency said yesterday. The office didn't provide quarterly numbers.