Liquidity crisis hits Kazakhstan hard

The reserves of the National Bank of Kazakhstan decreased by 9.2% in August. The Kazakh reserves have lost more than $2 billion, and a new Renaissance Capital report predicts that the once-strong Kazakh tenge will slowly lose value through the end of next year.

According to the new report, the exchange rate of the tenge has been supported in recent months only by borrowing by Kazakh banks, some of it in Russia. An analysis of the credit default swaps between Sberbank of Russia and the Foreign Trade Bank of Kazakhstan, Khalyk, Turanalema and Alliance Banks reveals credit became significantly more expensive for them this month. The liquidity crisis, which forced the National Bank of Kazakhstan to sell hard currency, exposed a more general problem.

Although Kazakh authorities have not published balance of trade information for the H1 of the year yet, Renaissance Capital concludes that the country currently has a negative balance in current transactions. Considering that Various bodies will have to pay $8 billion in debts by the end of the year, problems with the tenge look likely, even though financial authorities may very well attract foreign speculative investment back to the country.

The situation in Russia is still far from that in Kazakhstan, but similar problems may arise in Russia in two or three years. Now Russian bankers are talking about which Kazakh banks will cut their operations in Russia first. The five largest Kazakh banks had a combined investment in transportation, land development and finance in Russia of no less than $5 billion at the beginning of the year, and that figure may have risen 25-30% since then. Kazakh banks borrowed $18 billion abroad in 2006, and they began refinancing that debt with Russian banks last month. (kommersant.com)