halyk finance - adjusting to slower growth - macro report 3q2013 - october 23, 2013
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8/13/2019 Halyk Finance - Adjusting to Slower Growth - Macro Report 3Q2013 - October 23, 2013
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0
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08 10 12 14 16 18
Economy growth, %YoY
4
6
8
10
08 10 12 14 16 18
Inflation, eop, %YoY
120
140
160
180
08 10 12 14 16 18
KZTUSD, eop
-4
0
4
8
08 10 12 14 16 18
Current account, % of GDP
Adjus t ing to s lower growth
October 23, 2013
Nurfatima Jandarova
[email protected](727) 330 01 57
Kazakh economy picked pace in 1H2013, posting growth of
5.1%yoy, but this is unlikely to push it away from the longer-
term deceleration trend. Industrial production in 1H was
supported by oil and base metal production. Service sector
continued to outpace the rest of the economy, with trade,
transportation and telecom in the lead. Private demand
benefitted from the deepening of consumer credit penetration,
but a sharp slowdown in public sector wages could heighten the
concerns about the credit quality. Investment demandcontinued to stagnate.
Low inflation reflects the broad-based deceleration of the
economy, but to be persistent it will require a more credible and
coherent exchange rate policy. Tight control of the exchange
rate will help to control credit and inflation, but under the
current exchange rate regime it can only be achieved at the
cost of high and volatile interest rates. Whether this strategy is
sustainable will depend on the ability of the National Bank to
communicate with the market effectively. A change at the helm
of the central bank made the challenge a bit more. Should the
National Bank devalue, inflation is bound to spike with little lag.
In September the National Bank switched to targeting the
currency basket (US dollar, Euro and Ruble), instead of USD.
The NBK will continue to „smooth the short-term fluctuations‟ ,
but now of the basket currency. We expect that the new target
will increase the volatility of USDKZT, improve the ability of
economy to respond to external shocks, reduce the need for
foreign exchange interventions. The stabilization of the
exchange rate will remain the main component and the
indicator of the monetary policy. Therefore, the problem of high
interest rate volatility remains unaddressed as well.
Bank lending has slowed in 1H2013 as well. Consumer lending
was the main driver of credit growth since 2011, whilecorporate lending decelerated. Funding conditions, particularly
the devaluation risk and unpredictable condition in the liquidity
markets, continued to curb the long-term credit growth. Higher
capital requirements for consumer lenders will contribute to the
slowdown of lending activity.
Fiscal deficit in 1H2013 was considerably less than planned,
mainly due to less spending. However, almost-zero growth of
tax-receipts and approach of the limit of guaranteed transfer
from the National Fund will, in our opinion, lead to the widening
of deficit in 2H2013.
Kazakhstan’s Quarterly Economic Report
3rd
quarter 2013
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Содержание
Long-term deceleration of growth ........................................................................................ 3
Monetary policy ................................................................................................................. 4
Inflation ........................................................................................................................ 4
Exchange rate regime ..................................................................................................... 5
Money market ................................................................................................................ 6
External balances ........................................................................................................... 6
Banking sector ............................................................................................................... 7
Fiscal policy ...................................................................................................................... 8
Sectors in graphs ............................................................................................................ 10
Agriculture .................................................................................................................. 10
Export-oriented industry ............................................................................................... 11
Industries oriented on domestic demand ......................................................................... 13
Construction ................................................................................................................ 15
Consumer demand ....................................................................................................... 17
Financial sector ............................................................................................................ 19
Public sector ................................................................................................................ 23
Quarterly forecasts .......................................................................................................... 25
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Slowing dow n
Kazakhstan‟s rapid growth in 2010-2011 was dependent on rising oil prices. When oil prices
began to stagnate, the economy began to decelerate. GDP growth fell from 7.0-7.5% in 2010-
11 to 5.0% in 2012 and 5.1% in 1H2013. In 1H2013 industrial output continued to grow
supported by oil and base metals. Service sector was growing faster than the rest of the
economy, with trade, transportation and telecoms in the lead. Demand was kept afloat by therapid expansion of consumer credit and despite a sharp deceleration of wage growth. As
households debt and will start to slow down over the next year to the extent that the level of
households‟ debt burden will reach the pre-crisis peak.
In the first nine months of 2013 industrial production increased by 2.1% yoy mainly thanks to
oil production (3.1% yoy). We expect that the volume of oil production in 2013 will reach
80.3mn tons (1.3% yoy). The long-awaited production at Kashagan started in September,
which, we expect, will support growth in 4Q2013. We expect that oil will remain the main
driver of growth in the medium term, but as consumption continues to grow the financing
capacity of current oil revenues will decline.
Extraction of copper ore (11.5% yoy) and production of refined copper (2.0%yoy) grew thisyear mainly thanks to the emergence of new producers, yet copper production is still 10%
below 2004-08 levels.
Production of ferrous metals remained at about two thirds of capacity. Production of steel in
9M2013 dropped by 17.8%yoy, and of rolled steel declined by 18.0%yoy. Production of
ferroalloys almost recovered (after the 2012 decline) to the level of the previous three years.
Construction in 9M2013 grew by 2.5% yoy, in line with the five-year trend of stagnation. Real
estate prices virtually ceased to rise in July-August, after the acceleration in 1H2013. Mortgage
lending continued to grow (6.1% yoy by the end of August 2013), but the ratio of the
mortgage portfolio to wage bill remained at a minimum.
Despite slower growth of labor income, retails sales grew by 12.6%yoy in 9M2013, largely
supported, in our opinion, by consumer lending (+49.3%yoy for 8M2012). We expect that
consumer credit will decelerate within a year due to market saturation and regulatory
disincentives (higher capital requirements for consumer lenders), eventually affecting retail
sales and related activities.
Transportation sector in 9M2013 grew by 7.4%yoy, but the indicators of freight and passenger
turnover grew by just 2.9%yoy from a low base of 2012. Oil production at Kashagan should
support the development of the sector, but low metals production volumes will continue to
curb the growth of the sector.
Telecoms increased by 14.3% yoy, but slightly slowed down in 3Q. The growth was mainly due
to mobile sector amid declining tariffs, which ensured the solid growth rate despite a slowdown
in wage growth. Transfer of regulation of interconnect tariffs, which operators pay each other
for the connection to their customers, to the Agency for competition protection will, in our
opinion, lead to a reduction of entry barriers and increased competition. This will contribute to
the medium-term growth in the sector.
In 1H2013, investments in nominal terms accelerated to 12.4% yoy compared with the growth
of 9.4% in 2012, which is not sufficient to indicate the recovery of investment activity (Figure
1). In the breakdown by sectors of economy, the greatest acceleration in 1H2013
demonstrated investments in production of services - transportation, telecoms, financial and
business services. Investments in industry started to grow (8.9% yoy in 2012 and 13.1% yoyin 1H2013) due to increased investments in oil and gas, metallurgy and manufacturing.
Investments in oil and gas sector increased by 14.2% yoy in 1H2013 after falling by 22.8% in
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2011-2012. We attribute the acceleration in investments in mining and metallurgy to the
implementation of large projects by Kazakhmys and ENRC, the two companies which we
estimate to account about 70% of all investments in the sector.
Wages began to slow in 2H2012, but remained above inflation until June 2013. In June and
July real wage stopped growing (-0.1% yoy in July 2013). We expect that real wages will
continue to stagnate in the medium term taking into account tightening fiscal policy and
expected deceleration of bank lending.
Monetary po l icy
Inflation
Inflation declined to 5.4%yoy in September. We attribute it mainly to fiscal tightening, which
implied slower wage growth, and more rigid control of utility tariffs1, and the increasingly
adverse credit conditions. Soft agricultural prices have also helped to relieve the external price
pressure on food products. Bank credit to households kept demand for durables (almost all
imported) on a growth trajectory, but the dollarization of money (fed by the poorly managed
devaluation expectations) will soon began to constrain the lending activity. The hikes in water
supply and sewage tariffs (badly needed after decades of underinvestment) led to an increase
(seemingly one-off) in the price level.
At present, a steady decline of inflation below 5.0% is unlikely given the current exchange rate
regime, aimed at "smoothing the short-term fluctuations". On the other hand, tightening fiscal
policy will curb domestic demand, in particular, through the wages of public sector employees,
the most inflationary component.
The pressure on the exchange rate, we expect, will periodically result in higher interest rates
on the money market and will lead to a significant deceleration, if not to a complete halt, of
the monetary base. These adverse conditions in the money market, in our opinion, will lead to
a slowdown in lending. Another factor to limit credit growth is the tightening of capital
1 The Agency on regulation of natural monopolies restricted the contribution of regulated tariffs to inflation at 0.76% in2011 and 1.20% in 2012, considerably lower than the official government target of 1.58% in 2011 and 1.9% in 2012.
Figure 1. Investment grows moderately Figure 2. Nominal investments index in industry, sa,2006=1003-month trailing average
Source: SARK, HF estimates Source: SARK, HF estimates
-20
0
20
40
60
80
100
06 07 08 09 10 11 12 13
Nominal investments growth, % yoy
0
100
200
300
400
500
06 07 08 09 10 11 12 13
IndustryOil&gas productionMetals extractionManufacturing less metallurgyMetallurgy
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1.3%
9.6% 9.9% 9.5% 9.5% 9.8%
3.0%
7.5% 7.6%
0%
2%
4%
6%
8%
10%
12%
USDKZT USDRUB EURKZT EURRUB RUBKZT USDEUR
Historic Forecasted
* Average for the past three years 6-month volatility
requirements for consumer lenders (banks where consumer loans exceed 35% of the loan
portfolio), which has been the engine of credit growth in the past 18 months.
Exchange rate regime
On the part of monetary policy, we expect strengthening of the National Bank‟s mandate, in
particular, to control inflation. To perform this task, the NBK has already started to expand the
range of monetary and prudential policy tools. In particular, we expected a more active
participation of the NBK on the secondary market for government bonds, but still the
strengthening of the mandate was not accompanied by an increase of operational
independence of the central bank or by statements about the transition to a more flexible
exchange rate policy.
Currency basket
Starting September 2013 the National Bank of Kazakhstan switched to the policy of pegging
the national currency to the currency basket, consisting of US dollar (70%), Euro (20%), and
Russian Ruble (10%). Although this step will make the exchange rate more flexible and
sustainable to external shocks, the NBK will continue to track the exchange rate as closely as
before. The NBK will continue to intervene on the foreign exchange market to smooth short-
term fluctuations of the currency basket, which means that the problem of highly volatile
interest rates on the money market remains.
We believe that the volatility of USDKZT will increase, and the volatility of EURKZT and
RUBKZT, on the contrary, will decrease (Figure 3). The rise of USDKZT volatility is a result of
higher volatility of the basket itself, not of a more flexible exchange rate regime. Higher
volatility will weaken the speculative pressure on Tenge. A more flexible exchange rate will
reduce the necessity in foreign exchange interventions that lead to contraction of the monetary
base and to rise of short-term rates. The former will break the habit of stable exchange rate
expectations, while the latter will reduce the necessity to increase interest rates. But this step
in the right direction is very small: neither of these improvements solves the problem ofhighly-volatile money market interest rates.
Figure 3. Targeting currency basket will increase the USDKZT volatility and reduce the EURKZT and RUBKZTvolatilities
Source: Bloomberg, HF estimates
For our expectations of the exchange rate this means that USDKZT rate will depend also on
EURUSD and RUBUSD. If previously we attributed Tenge weakening to the oil price decline,
now in the base scenario where oil price remains stable at $100 – 110/bbl, we forecast the
gradual depreciation of Tenge. Our year-end forecast of the exchange rate for 2013 is
156KZT/USD with a subsequent weakening by 2% a year. At the same time, in case of
negative scenario where the oil price falls to $90/bbl and Ruble weakens to 38RUB/USD, the
devaluation pressure on Tenge will be too strong for the banking system to sustain it. In this
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case it is possible that Tenge will devalue to 160–165KZT/USD. However, the probability of
this scenario sharply declined due to the decision of the Fed to postpone tapering.
Money market
Devaluation expectations increased in summer, which continued strengthening as the
exchange rate was weakening, behaving as a self-fulfilling prophecy. In accordance with the
mandate of "smoothing the short-term fluctuations", the NBK intervened in the foreign
exchange market, which was accompanied by a drop in the supply of primary liquidity (Figure
4) and a rise of rates on the money market, especially on the repo and currency swap markets
(Figure 5). High interest rates slowed down the depreciation of Tenge, but increased the cost of
liquidity for banks. In August during the tax week, the shortage of Tenge liquidity aggravated
and rates reached 30% on the swap market, until the NBK provided liquidity through the repo
market.
In September, money market rates decreased substantially, which we attribute to the
transition of the NBK to targeting a currency basket and the weakening of the pressure on the
exchange rate amid the U.S. Fed's decision to postpone the tapering of monetary stimulus.
Despite the adoption of a more flexible regime, the stabilization of the exchange rate remains
the key focus of the monetary policy, while stabilization of money market conditions remains
subordinate to the task of exchange rate control. We expect that in the short term, this trend
will continue, as well as high volatility on the money market with a periodic rise of rates in
response to increased pressure on Tenge. We expect growth of interest rates at the end of the
year due to the issuance of government bonds to finance the repayment of short-term bonds
issued last year and the necessity to finance the budget deficit through the domestic public
debt.
External balances
In the 1H2013 the surplus of the current account decreased by $5.0bn yoy to $2.2bn. The
reduction was caused by the contraction of the trade balance from $25.9bn in 1H2012 to
$18.1bn in 1H2013. The FDI balance decreased from $7.1bn to $2.8bn mainly as a result of
the slowdown of FDI inflow. The BOP deficit amounted to $0.3bn. We expect, the balance ofpayment will remain low in the 2H2013 as the capital outflow will be partly offset by the export
revenues growth amid Tenge depreciation, higher oil prices and the start of production at
Kashagan field.
Figure 4. Excess bank reserves gradually declinedduring last two yearsThe excess reserves is calculated as the difference
between the bank deposits with NBK and reserverequirements
Figure 5. Short-term money market rates respondedto the new exchange rate regime by a rapid growth
Average weekly interest rates on the money market
Source: NBK, HF estimates Sources: IRIS, Bloomberg, HF estimates
0
200
400
600
800
00 02 04 06 08 10 12
Excess bank reserves, bn tenge
0
10
20
30
40
May 11 Jun 12 Dec 12 Aug 13
SWAP 1D REPO 1D NDF 1M
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By the end of 9M2013 international reserves of the NBK declined by $4.1bn mainly as a result
of foreign exchange interventions (currency reserves fell by $3.9bn). Gold reserves in nominal
terms almost did not change (-$0.3bn) amid the gold price decline of 19.7%ytd. External
assets of the National Fund rose by $8.9bn to $66.6bn. External debt of Kazakhstan rose by
$12.7bn yoy in the 2Q2013 as external debt of the real sector continued rising (+$15.4bn) and
external debt of banks continued declining (-$3.0bn).
Banking sector
Lending growth decelerated in the 1H2013. Consumer lending remained the major driver of
growth, while growth of corporate loans started to slow down. As the pressure on exchange
rate weakened, the dollarization of loans that took place in May – July 2013 stopped. The
profitability of banks continued to grow thanks to increase of interest rate margin, assets
profitability, fee and commission income and decrease of cost of risk.
Asset quality indicators stabilized and in the medium term we do not expect any significant
deterioration on historical part of the loan portfolio. Measures to stimulate the cleaning up of
balance sheets and asset restructuring, which the regulator adopted in 2012, are expected to
push banks to improve the reported asset quality indicators, but their impact on the creation ofeconomic value for banks and borrowers, according to our estimates, will be negligible. These
measures include the temporary exemption from a “write-off tax”, the possibility of the sale of
stressed assets to the state fund, and opportunity to gain control over the nonfinancial pledge
through the creation of special subsidiaries. Low participation on a voluntary basis was the
reason of introduction of compulsory measures. In 2013 the regulator imposed a restriction on
the share of overdue loans at 20% of the gross loan portfolio and will tighten it to 15% in
January 2014. We expect that by the end of 2013 this measure will accelerate the transfer of
stressed assets to subsidiary “bad banks”. Stressed assets w ill remain on the consolidated
balance sheets of bank groups, but will not violate the regulator requirements for banks.
In regard to new portfolio there is a rise of risk of quality deterioration of consumer loans.Consumer lending growth not backed by the growth of households‟ income could lead to
quality deterioration of consumer loans, which now constitute 17% of the gross loan portfolio
of the sector. Given the current pace of wage and household debt growth, their ratio will reach
the pre-crisis levels in 12–18 months. International comparisons of this ratio reveal that
consumer lending has large potential for growth, but it does not take into account much higher
interest rate burden of Kazakh borrowers. The National Bank is planning to tighten the
requirements for banks aiming to curb the consumer lending growth, but it will not help to
decrease interest rates. Reduction of interest rate would allow the demand for consumer loans
to grow significantly without increasing systemic risks.
Another risk factor for the banking system is the risk of credit condition deterioration on
money market as a result of the exchange rate defense through the reduction of primary
liquidity supply.
Funding remains a major constraint to the growth of long-term corporate lending. Tight
regulation of lending and funding in foreign currency decreased the appetite of healthy banks
for the use of cheap long-term money on foreign capital markets. In the 1H2013 the external
debt of banks decreased from $13.6bn to $11.5bn.
Deposits continued to substitute external debt in the capital structure, but could not replace it
as a source of long-term funding. The deposit stock grew rapidly in the last three years thanks
to the growth of wages (retail deposits) and the return of assets of national companies from
off-shore bank accounts (corporate deposits). Retail deposits growth decelerated from 23.6%
by the end of 2012 to 19.9% by the end of July 2013, while the corporate deposits growth
accelerated from 1.7% to 6.7%.
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The process of reduction of interest rates on retail deposits was completed in 2012 as the
inflow of deposits slowed down and competition for deposits from fast-growing banks
increased. Meanwhile deposits remain expensive source of funding and often have a high
concentration, short-term maturity and a high risk of early withdrawal. The ability of banks to
carry out the maturity transformation is limited because of the unwillingness of the National
Bank to act as a lender of last resort. This trend will continue in the medium term, in our
opinion, at least as long as the exchange rate remains fixed. The process of further reduction
of interest rates on deposits and the formation of a healthy deposit market is interfered with
the presence of some banks lacking liquidity and ready to attract funds on terms that are
attractive only for participants with very short investment horizon or for the banks engaged in
consumer lending.
Attempts to regulate retail deposit interest rates by Kazakhstan deposit insurance fund (KDIF)
in the summer 2012 had a limited effect. On September 16, 2013 KDIF lowered the maximum
interest rates on retail deposits in foreign currency from 5.5% to 4.5%. Interest rate on Tenge
deposits remained at 9.0%. We believe that this step was taken in order to reduce the
speculative pressure on the exchange rate. However, if devaluation expectations will grow
again, for instance in case of an oil price falling to $95–$100/bbl or a more dynamic weakeningof Ruble, the interest rate differential of 4.5% may not be sufficient to deter the conversion of
Tenge deposits to foreign currency.
Bank lending by the end of August 2013 increased by 14.8% yoy, faster than 13.4% by the
end of 2012, continuing to outpace nominal GDP (+13.2% in 1H2013). Credit growth
continues to be driven mainly by growth of consumer loans (+49.6%), which has become
more attractive for banks because of better maturity matching and thanks to the growth of
household income and their confirmed ability to repay debts in adverse economic conditions.
Corporate loans grew by the end of August by 9.8% yoy, lagging the retail loans due to lack of
long-term funding in local currency and the continued vulnerability of certain corporate
borrowers. In May–July 2013 there was a sharp increase of foreign currency loans (on averagegrew by 59.1% annualized), but with the weakening pressure on Tenge dollarization of loans
completed in August (-0.7 % yoy), in our opinion.
Corporate loans rates declined slowly in 1H2013, continuing the trend of the past four years.
The consumer loans rates growth stopped at an average level of 23%. Interest rates on
mortgage loans did not change significantly. In the short term interest rates will depend on the
availability of long-term funding in Tenge, as mentioned above.
We expect that in 2013 the assets of the system will grow by 6-7%, lagging the nominal GDP,
while the credit stock will rise about 14%, slightly faster than the nominal GDP, with a
subsequent deceleration to 10%. Thus, the competition for quality should increase both in
corporate and retail segments.
Fiscal pol icy
The YtD performance of the budget (cash deficit) was better than expected, but mainly
because of the intra-year reallocation of spending and revenues. This leaves our expectation of
2013 deficit unchanged at 2.5%: we expect spending to accelerate in the second half of the
year, tax receipts to stagnate (they already decelerated in the last three months), and
transfers from the National Fund to reach the limit in September-October.
Budget revenues in January-August 2013 rose 5.1% yoy to 4.30 trln tenge. Tax receipts grew
14.9%yoy, albeit from the low base. Collections of profit tax have been on decline for the lastthree years due to a slowdown in industrial production. VAT receipts have flattened after a
spike in late 2012 (apparently, deferred from mid-2012). Revenues from taxation of
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international trade grew rapidly in 1H2013, which we attribute to an increase in the oil export
duty from $40/ton to $60/ton.
During 9M2013 the government withdrew T1,325bn from the National Fund, pretty much up to
the limit (T1,380bn).
Figure 6. Tax receipts, 3m trailing average, bntenge sa
Figure 7. Budget expenditures, 3m trailing average,bn tenge sa
Source: MinFin, HF estimates Source: MinFin, HF estimates
According to MinFin disbursement data, government spending has been tightened more than
planned. In the first eight months of 2013 budget expenditures rose 8.2%yoy, considerably
less than in the budget plan (13.4%yoy). Social security was the greatest contributor to
growth, while all other types of outlays virtually stagnated (Figure 7). As a result, fiscal deficit
on cash basis in 8M2013 was only T97.7bn, much less than the planned T870bn for the wholeyear. However, we expect that the deficit to rise sharply in the remaining four months.
0
40
80
120
05 06 07 08 09 10 11 12 13
Profit tax Individual income taxVAT Tax on international tradeOther
0
50
100
150
200
250
05 06 07 08 09 10 11 12 13
Defense and public order EducationHealthcare Social securityOther
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Sectors in graphs
Agr icu l tu re
80
100
120
140
160
180
200
-40
-20
0
20
40
60
80
06 07 08 09 10 11 12
Seasonally-adjusted index
YoY growth, % (rhs)
Real value added index, 1Q2006=100
Source: SARK, HF estimates
50
100
150
200
250
300
06 07 08 09 10 11 12
Global price of wheat, index
PPI of meat, saPPI of dairy products, sa
Price indices, 1Q2006=100
Sources: SARK, Bloomberg, HF estimates
100
150
200
250
300
350
400
15
20
25
30
35
40
45
06 07 08 09 10 11 12
Loans to agriculture, bn tenge eop
Ratio of loans to agriculture VA*, % (rhs)
Stock of loans to agr iculture
Sources: SARK, NBK, HF estimates
10
12
14
16
18
06 07 08 09 10 11 12
On loans to agriculture, %
Interest rate on loans
Source: NBK
80
90
100
110
120
130
140
-10
0
10
20
30
40
50
06 07 08 09 10 11 12
Employment, sa, th people
Wage in agriculture, %YoY (rhs)
Wage in Kazakhstan, %YoY (rhs)
Labor market
Source: SARK, HF estimates
0
10
20
30
40
50
06 07 08 09 10 11 12 13
Debt instruments Foreign investments
Own funds Budget
Investments financing, bn tenge/qtr sa
Source: SARK
*VA - value added
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Export-or iented indu stry
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Export-or iented industry (con t inued)
150
200
250
300
350
400
450
4
6
8
10
12
14
16
06 07 08 09 10 11 12
Stock o f credit to EO sector, bn tenge eop
Ratio of loans to VA(1), % (rhs)
Stock of loans to EO industries
Sources: SARK, NBK, HF estimates
6
8
10
12
14
16
06 07 08 09 10 11 12
Mining Metallurgy
Interest rates on loans, %
Source: NBK
40
45
50
55
60
65
70
0
10
20
30
40
50
60
06 07 08 09 10 11 12
Employment, th people
Wage in o il production, %YoY (rhs)
Wage in EO sector, %YoY (rhs)
Wage in Kazakhstan, %YoY (rhs)
Labor market in oil production
Source: SARK, HF estimates
50
60
70
80
90
0
10
20
30
40
06 07 08 09 10 11 12
Employment, th people
Wage in ore mining, %YoY (rhs)
Wage in EO sector, %YoY (rhs)
Wage in Kazakhstan, %YoY (rhs)
Labor market in ore mining
Source: SARK, HF estimates
80
90
100
110
120
130
140
-10
0
10
20
30
40
50
06 07 08 09 10 11 12
Employment, th people
Wage in metallurgy, %YoY (rhs)
Wage in EO sector, %YoY (rhs)
Wage in Kazakhstan, %YoY (rhs)
Labor market in metallurgy
Source: SARK, HF estimates
(1) Value added of resource sector of industry
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Kazakhstan’s economic report for 3 rd qu arter 2013
13
Indus t r ies o r iented on dom est ic demand
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Kazakhstan’s economic report for 3 rd qu arter 2013
14
Indus t r ies o r iented on dom est ic demand (cont inued)
0
20
40
60
80
100
06 07 08 09 10 11 12 13
Debt instruments Foreign investments
Own funds Budget
Investments financing in manufacturing withoutmetallurgy, bn tenge/qtr sa
Source: SARK
320
360
400
440
480
520
560
0
5
10
15
20
25
30
06 07 08 09 10 11 12
Employment, th people
Wage in NEO sector, %yoy (rhs)Wage in Kazakhstan, %yoy (rhs)
Labor market
Source: SARK, HF estimates
0
40
80
120
160
06 07 08 09 10 11 12 13
Debt instruments Foreign investmentsOwn funds Budget
Investments financing in utilities, bn tenge/qtr sa
Source: SARK
-40
0
40
80
120
160
0
50
100
150
200
250
06 07 08 09 10 11 12
Food process ing Chemica l p roductionMachinery Utilities (rhs)
FDI inflow to NEO industries, bn US dollars/qtr
Source: NBK, HF estimates
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Kazakhstan’s economic report for 3 rd qu arter 2013
15
Const ruct ion
80
100
120
140
160
180
-20
0
20
40
60
80
06 07 08 09 10 11 12
Seasonally-adjusted indexYoY growth, % (rhs)
Real value added index, 1Q2006=100
Source: SARK, Hf estimates
150
200
250
300
350
400
450
06 07 08 09 10 11 12
On primary marketOn secondary market
Real estate prices in Almaty, th tenge/sqm
Source: SARK
0
400
800
1,200
1,600
2,000
40
60
80
100
120
140
06 07 08 09 10 11 12
Loans to construction companies, bn tenge eopRatio of loans to construction VA*, % (rhs)
Stock of loans to construction companies
Sources: SARK, NBK, HF estimates
0
200
400
600
800
1,000
1,200
20
25
30
35
40
45
50
06 07 08 09 10 11 12
Mortgage loans, bn tenge eopRatio of mortgage loans to wage bill, % (rhs)
Mortgage loans
Sources: SARK, NBK, HF estimates
*VA - value added
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Kazakhstan’s economic report for 3 rd qu arter 2013
16
Const ruct ion (cont inued)
8
10
12
14
16
06 07 08 09 10 11 12
On loans to construction companies, %On mortgage loans, %
Interest rate on loans
Source: NBK
170
180
190
200
210
220
230
-10
0
10
20
30
40
50
06 07 08 09 10 11 12
Employment, sa, th peopleWage in construction, %YoY (rhs)
Wage in Kazakhstan, %YoY (rhs)
Labor market
Source: SARK, HF estimates
0
5
10
15
20
06 07 08 09 10 11 12 13
Debt instruments Foreign investments
Own funds Budget
Investments financing, bn tenge/qtr sa
Source: SARK
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Kazakhstan’s economic report for 3 rd qu arter 2013
18
Consumer demand (cont inued)
0
400
800
1,200
1,600
2,000
20
30
40
50
60
70
06 07 08 09 10 11 12
Consumer credit, bn tenge eop
Ratio o f loans to wage b ill, % (rhs)
Stock of consumer credit
Sources: SARK, NBK, HF estimates
16
18
20
22
24
26
06 07 08 09 10 11 12
Interest rate on consumer loans , %
Interest rate on consumer loans
Source: NBK
320
360
400
440
480
520
560
0
5
10
15
20
25
30
06 07 08 09 10 11 12
Employment, th people
Wage in sector, %YoY (rhs)
Wage in Kazakhstan, %YoY (rhs)
Labor market
Source: SARK, HF estimates
0
100
200
300
400
500
06 07 08 09 10 11 12 13
Debt instruments Foreign investments
Own funds Budget
Investments financing in sectors of
domestic demand, bn tenge/qtr sa
Source: SARK, HF estimates
(1) Sector of domestic demand includes trade, hotels&restaurants, transportation and telecom
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Kazakhstan’s economic report for 3 rd qu arter 2013
19
-40
0
40
80
06 07 08 09 10 11 12
Financial sector Rea l GDP
Growth of financial sector, %yoy
Source: SARK, HF estimates
-50
0
50
100
150
06 07 08 09 10 11 12 13
Total Corporate RetailLong-term Short-term
Credit growth, %yoy
Source: NBK, HF estimates
0
10
20
30
40
06 07 08 09 10 11 12
WC* financing Capital inv. financingConstruction loans Mortgage loansConsumer loans Securities purchaseOther purposes
Loans structure, % of total
Source: NBK, HF estimates
4
8
12
16
20
24
06 07 08 09 10 11 12
Corporate in KZT Corporate in USDRetail in KZT Retail in USD
Interest rate on loans, %
Source: NBK
-20
0
20
40
60
80
100
06 07 08 09 10 11 12 13
Total Corporate Retail
Deposit growth, %yoy
Source: NBK, HF estimates
0
10
20
30
40
50
60
06 07 08 09 10 11 12
Corporate in KZT Corporate in USDRetail in KZT Retail in USD
Deposit structure, % of total
Source: NBK
* WC - workin ca ital
Financia l sector
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Kazakhstan’s economic report for 3 rd qu arter 2013
20
Financia l sector( cont inu ed)
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Kazakhstan’s economic report for 3 rd qu arter 2013
21
Financia l sector( cont inu ed)
0
10,000
20,000
30,000
40,000
50,000
06 07 08 09 10 11 12
TONIA TWINAInterbank deposits in tenge NBK notes
Interbank deposits and volume of TONIA and
TWINA transactions, mln US dollars/qtr
Source: KASE, NBK
0
4
8
12
16
20
JAN-10 JAN-11 JAN-12 JAN-13
TONIA TWINAKazPrime Interbank deposits in tenge
Short-term interest rates, %
Sources: KASE, Bloomberg, NBK
0.0
0.5
1.0
1.5
2.0
2.5
06 07 08 09 10 11 12
NPLs in sector ex 2*Overdue loans in sector ex 2*Provisions in sector ex 2*
Provisions, overdue loans and NPLs,
trln tenge eop
Source: FMSC NBK
0
50
100
150
06 07 08 09 10 11 12
Government BanksReal sector
External debt, bn US dollars eop
Source: NBK
50
60
70
80
90
100
110
-20
-10
0
10
20
30
40
06 07 08 09 10 11 12
Employment, th people
Wage in fin.sector, %YoY (rhs)Wage in Kazakhstan, %YoY (rhs)
Labor market in financial sector
Source: SARK, HF estimates
-4
0
4
8
12
16
2006 2007 2008 2009 2010 2011 2012 2013
Debt instruments Foreign investments
Own funds Budget
Investments financing in fin.sector,
bn tenge/qtr sa
Source: SARK
* Sector excluding BTA and Alliance Bank
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Kazakhstan’s economic report for 3 rd qu arter 2013
22
Financia l sector( cont inu ed)
5
10
15
20
25
30
35
1
2
3
2008 2009 2010 2011 2012 2013
Government securities (rhs)
Foreign securities (rhs)
Other securities
Total nominal volume of securities, trln tenge eop
Source: KACD
0
1
2
3
4
2008 2009 2010 2011 2012 2013
Total Held by corporate sector
Held by private sector Held by depositors
Held by residents Held by non-residents
Government securities, trln tenge eop
Source: KACD
0
100
200
300
400
500
600
2008 2009 2010 2011 2012 2013
Total Held by corporate sector
Held by private sector Held by depositors
Held by residents Held by non-residents
Foreign securities, bn tenge eop
Source: KACD
0
10
20
30
40
2008 2009 2010 2011 2012 2013
Total Held by corporate sector
Held by private sector Held by depositors
Held by residents Held by non-residents
Other securities, trln tenge eop
Source: KACD
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Kazakhstan’s economic report for 3 rd qu arter 2013
23
Publ ic sector
-4
0
4
8
12
16
06 07 08 09 10 11 12
Public sector, real value addedReal GDP growth
Growth of public sector*, %yoy
Source: SARK, HF estimates
0
400
800
1,200
1,600
06 07 08 09 10 11 12
Profit tax Personal income taxVAT Customs duties
Other tax revenues
Tax revenues breakdown, bn tenge, sa
Source: MinFin, HF estimates
0.0
0.4
0.8
1.2
1.6
2.0
06 07 08 09 10 11 12
Education Healthcare
Social security Other
Budget expenditures breakdown, trln tenge, sa
Source: MinFin, HF estimates
-10
-8
-6
-4
-2
0
2
06 07 08 09 10 11 12
Budget balance Non-oil budget balance
Budget deficit, %GDP
Source: MinFin, SARK, HF estimates
* Public sector includes public administration, education and healthcare
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Kazakhstan’s economic report for 3 rd qu arter 2013
24
Publ ic sector(cont inued)
0
2
4
6
8
10
0
400
800
1,200
1,600
2,000
06 07 08 09 10 11 12
Government bond yield 1 year, %Government bond yield 5 years, %
5Y sovereign CDS spread, bp (rhs)
Government bonds interest rates and sovereign
CDS spread
Source: Bloomberg, HF estimates
0
50
100
150
200
0
2
4
6
8
06 07 08 09 10 11 12
External NF assets, eopInflow per quarter (rhs)
Transfers per quaerter (rhs)
National Fund assets, bn US dollars eop
Sources: MinFin, NBK, HF estimates
1.2
1.3
1.4
1.5
1.6
0
10
20
30
40
06 07 08 09 10 11 12
Employment, th people
Wage in public sector, %yoy (rhs)
Wage in Kazakhstan, %yoy (rhs)
Labor market in public sector
Source: SARK, HF estimates
-40
0
40
80
120
06 07 08 09 10 11 12 13
Debt instruments Foreign investments
Own funds Budget
Investments financing in public sector,
bn tenge/qtr sa
Source: SARK
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Kazakhstan’s economic report for 3 rd quarter 2013
25
Quarter ly forecasts
2011 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 2013 2014 2015 2016 2017 2018
GROSS DOMESTIC PRODUCT
Nominal GDP , KZT bn 27 301 30 347 6 817 7 189 9 074 11 248 34 328 38 967 44 378 50 516 56 966 65 389
Nominal GDP , USD bn 186.2 203.5 45.2 47.6 59.3 72.6 225.2 245.8 274.0 308.2 343.4 389.5
Nominal GNP , USD bn 158.4 175.5 38.6 42.1 51.6 65.6 198.0 217.0 241.7 272.0 304.2 346.0
Nominal GDP growth, %YoY 26.1 11.2 14.1 9.6 15.7 12.8 13.1 13.5 13.9 13.8 12.8 14.8
Real GDP , %Q oQ sa - - -0.4 2.0 2.1 1.0 - - - - - -
Real GDP , %YoY 7.5 5.0 4.6 5.5 6.7 4.8 5.4 5.1 5.1 5.2 5.1 5.7
PRICES
Deflator, %YoY 16.5 3.9 5.5 7.1 8.5 7.7 7.2 8.0 8.3 8.2 7.3 8.6
P rice of oil, Brent, USD/bbl 111.1 112.0 112.8 103.0 110.0 108.3 108.5 107.0 106.0 103.0 93.5 90.0
Exchange rate KZT/USD, eop 148.5 150.4 150.9 151.8 153.8 156.0 156.0 161.0 162.9 164.9 166.9 168.9
Exchange rate KZT/EUR, eop 192.5 199.2 193.3 197.5 208.1 210.6 210.6 217.4 220.0 222.6 225.3 228.0
Exchange rate KZT/RUB, eop 4.62 4.93 4.86 4.62 4.75 4.77 4.77 4.78 4.77 4.75 4.74 4.72
REER, 2000 = 100 107.1 112.7 112.4 113.7 111.0 111.6 112.2 111.1 111.8 112.8 113.4 114.2
C PI, % change, for quarterly % saar - - 6.1 3.9 4.9 6.4 - - - - - -
C PI, % change, eop, YoY 7.5 6.0 6.8 5.9 5.4 5.3 5.3 5.2 5.0 5.0 5.2 5.6
NBK refinancing rate, eop 7.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5
Money market rate (Kazprime), eop 1.1 3.1 0.4 1.3 3.9 3.0 3.0 3.0 3.0 3.0 3.0 3.0
KZT depos it rate, ave 3.4 3.7 4.0 4.2 4.6 4.6 4.3 4.3 4.3 4.3 4.3 4.3
KZT corporate depos it rate, ave 2.8 2.4 2.7 3.2 3.8 3.8 3.4 3.4 3.4 3.4 3.4 3.4
KZT retail depos it rate, ave 6.3 6.4 6.4 6.3 6.1 6.1 6.0 6.0 6.0 6.0 6.0 6.0
KZT lending rate, ave 13.6 13.3 13.0 12.3 13.1 13.1 12.9 13.3 13.3 13.3 13.3 13.3
KZT corporate lending rate, ave 11.9 11.1 10.2 9.8 10.7 10.7 10.4 10.4 10.4 10.4 10.4 10.4
KZT retail lending rate, ave 20.4 21.0 21.1 19.5 20.0 20.0 20.2 20.2 20.2 20.2 20.2 20.2
MONETARY
Money base, KZT bn, eop 2 836 2 890 3 045 3 095 2 782 2 777 2 777 3 005 3 257 3 559 3 919 4 274
FX reserves of the NBK, USD bn eop 29.3 28.3 28.1 26.1 24.2 23.0 23.0 24.0 25.4 27.4 30.2 34.2
National Fund, USD bn eop 43.7 57.8 59.8 63.5 66.6 69.1 69.1 80.6 92.8 104.8 115.8 126.1
M3, KZT bn, eop 9 751 10 522 11 078 11 579 11 108 11 200 11 200 12 677 14 384 16 642 19 252 22 457
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Kazakhstan’s economic report for 3 rd quarter 2013
26
2011 2012 1Q 2013 2Q 2013 3Q 2013 4Q 2013 2013 2014 2015 2016 2017 2018
C redit to economy, KZT bn, eop 8 781 9 738 10 118 10 545 10 865 11 101 11 101 12 766 14 553 16 445 18 418 20 444
Pension funds, KZT bn, eop 2 651 3 183 3 306 3 407 3 546 3 713 3 713 4 258 4 854 5 507 6 229 7 033
Pension funds, %GDP 9.7 10.5 10.6 10.7 10.7 10.8 10.8 10.9 10.9 10.9 10.9 10.8
FISCAL
Public debt, KZT bn, eop 3 267 3 828 3 843 3 861 4 001 4 576 4 699 5 641 6 619 7 583 8 571 9 563
Budget revenue inc l. transfers 5 371 5 813 1 504 1 644 1 571 1 520 6 240 6 799 7 087 7 549 7 857 8 334
Transfers from the National Fund, KZT bn 1 160 1 380 380 435 510 49 1 406 1 530 1 380 1 380 1 380 1 380
Budget outlays 5 423 6 269 1 419 1 789 1 807 2 095 7 110 7 741 8 065 8 513 8 845 9 325
Budget balance -569 -890 85 -145 -236 -575 -871 -942 -978 -964 -989 -991
Budget balance, %GDP -2.1 -2.9 1.1 -1.8 -2.8 -6.5 -2.5 -2.4 -2.2 -1.9 -1.7 -1.5
Non-oil budget balance,%GDP -6.3 -7.5 -3.7 -7.1 -8.7 -7.1 -6.6 -6.3 -5.3 -4.6 -4.2 -3.6
LABOR MARKET
A verage wage, KZT th/month 89.9 102.1 102.2 107.2 109.6 113.7 108.2 116.1 125.5 136.1 148.6 163.9
Real wage, %YoY 7.1 6.9 0.7 0.7 0.3 -1.0 0.7 2.0 2.9 3.3 3.7 4.5
Employment, th people 8 303 8 507 8 546 8 591 8 608 8 630 8 601 8 696 8 791 8 888 8 986 9 085
Unemployment rate, % 5.4 5.3 5.3 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2 5.2
LFPR, % 71.7 71.8 71.5 71.8 72.1 71.9 71.9 72.0 72.0 72.0 72.0 72.0
Population, mln people 16.7 16.9 17.0 17.0 17.1 17.1 17.1 17.3 17.5 17.7 17.9 18.1
BALA NCE OF PA YMENTS
C urrent account, $bn 12.3 6.2 1.9 -0.2 0.9 0.9 3.4 5.1 5.8 6.4 3.1 2.6
Export of goods and services, $bn 91.9 96.9 21.4 22.1 26.8 26.8 97.2 104.2 115.1 127.6 136.2 150.2
Import of goods and services, $bn -51.7 -61.7 -12.7 -15.9 -17.9 -18.7 -65.3 -69.4 -76.0 -84.0 -92.9 -103.1
Income balance, $bn -27.8 -28.1 -6.6 -5.4 -7.7 -7.0 -26.8 -28.8 -32.3 -36.2 -39.2 -43.5EXTERNAL DEBT
External debt of Kazakhstan, $bn 125.2 137.1 140.0 145.4 145.7 148.6 148.5 171.2 198.3 235.6 282.5 330.2
External debt of government, $bn 5.1 5.5 5.2 5.3 5.3 5.3 5.3 5.8 6.4 6.7 7.3 8.3
External debt of banks, $bn 14.6 13.6 12.7 11.5 11.4 11.4 11.4 9.9 8.3 6.8 5.6 4.7
External debt of real sector, $bn 105.5 118.0 122.1 128.6 129.0 131.9 131.8 155.5 183.5 222.1 269.6 317.2
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Kazakhstan’s economic report for 2nd qu arter 2012
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Equity Research
Mariyam Zhumadil, 7 (727) [email protected]
Bakai Madybayev, 7 (727) [email protected]