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HSBC to expand in liquidity - starved Kazakhstan

The global credit crisis may have shaken Kazakhstan’s banks this year but the world’s biggest bank HSBC sees a chance to crack a lucrative distant market long dominated by domestic players.

Until a year ago, Kazakh banks tapped global debt markets aggressively to fund growth, making it too hard for Western banks to gain more footing. But the credit crisis has changed the landscape, leaving local banks scrambling for cash. Simen Munter, chief representative in Kazakhstan for HSBC, told Reuters it was an opportunity not to be missed in Central Asia’s biggest economy and the region’s top oil producer.

“In the short term we clearly see that our competitors are struggling quite a lot. That’s a very good opportunity for a foreign institution that has capital and appetite,” he said. “You need to recognize that HSBC is a very conservative organization. Clearly we’re very selective... We see (Kazakhstan) at a growth story. We have appetite for good risk.”

He said HSBC, with its focus on emerging markets in Asia, opened its first branch in Kazakhstan in July to break into commercial banking and planned to open another two this year. “I think we’ll open 10 branches by the end of next year,” he said. “We aim to grow into a mid-size bank in Kazakhstan.”

Despite liquidity and refinancing concerns, Kazakhstan’s banking sector, with most banks’ profits still in the black, is an attractive emerging market investment destination. Oil accounts for 60% of Kazakhstan’s exports and, while broader macroeconomic concerns still exist, high global prices have played a crucial role in easing the impact of financial volatility on its highly leveraged economy.

 
KAZAKH BANKS

Its banking sector is concentrated among a handful of big players such as Kazkommerts (KKB) and Halyk. Foreign presence is less than a quarter of total assets -- a rare proportion compared with other emerging markets. Domestic players forecast very little or no growth this year as they need to repay external debt with limited refinancing opportunities. “Since most banks have the same strategy -- borrow a lot offshore, lend it here -- they are all kind of in the same boat. There isn’t enough competition really,” Munter said. “That means that in a number of transactions we see some extremely attractive margins relative to the risk. And that’s what’s driving our interest in this market.”

Other banks have recognized the opportunity too. Last year UniCredit acquired ATF Bank, the fifth largest by total assets. Austria’s Raiffeisen International said in July it would start a new banking business in Kazakhstan next year. But wider concerns still remain. The government, while saying there is enough liquidity in the system, expects economic growth to slow to 5.3% this year after years of averaging 10% annually, fuelled by booming commodity prices.

Financial volatility in neighboring Russia and global market turmoil are putting further strain on the economy. Munter offered a more optimistic view, saying resilient strength and high commodity prices have helped the system adjust well to a new environment since the trouble started in mid-2007. “I don’t think (my opinion) is rare,” he said. “Clearly there will be a ripple effect from the biggest trading partner (Russia). But the problems Russia is having now are currently less of a magnitude than the problems Kazakhstan has already gone through.” (Reuters)