Kazakhstan: Rising External Borrowing by Banks and Sovereign Rating Implications

The deterioration in the banking system’s net external position is
not currently exerting downward pressure on the sovereign rating.
Although it is above the ‘BBB-’ median, the system’s net debt
position is not out of line with those in some other similarly-rated
credits. Moreover, despite its rapid growth, the banking system is
still relatively small. As such, it represents a manageable
contingent liability for the sovereign, which currently has a smaller
general government debt burden and a far stronger, and improving,
net external asset position than all of its ‘BBB-’ rating peers, and
therefore flexibility to take on additional liabilities if necessary.
Nonetheless, the banking sector’s increasing reliance on external
funding does create some additional risks that need to be well
managed and Fitch will continue to monitor the situation. If its net
external position were to continue to weaken at the pace set in
2004 it could start to become a larger concern.