Kazakhstan experienced trade diversion upon joining the Customs Union in 2010, but this initial impact may be abating. As of end 2012, Kazakhstan’s exports to the Customs Union (CU) partners show a steady decline, most likely accelerated by and associated with a period of adjustments to new regional regulations, as reported by Kazakh businesses. On the other hand, overall Kazakh exports are still driven by demand from petroleum products and by a rebound in the European Union (EU) demand and increased exports to the rest of Europe and Central Asia (ECA), includingTurkey (Figure 11). China remains a solid client. On the import side, while Kazakhstan experienced an initial surge of imports from the CU partners in 2010-2011, the longer term dynamics of Kazakhstan’s imports remain multilateral. First, much of the import surge from the CU appears to be thanks to a doubling of transport equipment from 6 percent of total imports to 12 percent of total imports share (HS-2 import category). Secondly, there was a rather pronounced shift of import partners from the EU to China as far back as 2005 (Figure 12). This shift was accentuated after the creation of the CU: it impacted negatively the EU-27 exports to Kazakhstan in almost all HS-2 import categories, while China made inroads in almost all the same sectoral markets. This shift is a projection of how competitive China remained in view of new CU tariffs affecting its imports compared to the EU. Finally, the role of smaller suppliers, such as North America and the rest of Asia, remains steady in the import structure of Kazakhstan.
The growth of the banking sector, which dominates Kazakhstan’s financial sector, has resumed with an uncertain outlook due to high problem loans and low profitability. Growth in total credit has slightly improved to 14.8 percent y/y in August 2013 compared with 13.4 percent in August 2012 (Figure 13). Credit to individuals was the main contributor to this improvement, with an increase of 28 percent y/y in August 2013 (of which the consumer lending segment was up by 50 percent), compared to 19 percent in August 2012. Banks’ liquidity has remained comfortable with the loan to deposit ratio at 108 percent in August 2013. Meanwhile, non-performing loans (NPLs) remain high, showing only a marginal decrease from 37 percent in May 2012 to 35 percent in May 2013 despite the large increase in the overall level of lending (Figure 14). The average banking capital adequacy ratio has remained above minimum regulatory requirements (17.5 percent by end-2012); however, it will remain under pressure due to the weak capacity of banks to generate capital. Profitability measured as return on assets has remained low and it is expected to stay at 1 percent on average during 2013.
Duetoa limited progress with problem loans in the banking sector, the National Bank decided to postpone imposing a NPL ceiling for each bank. The National Bank of Kazakhstan planned to impose a ceiling for NPLs (90 days overdue) at 20 percent of each banks’ loan portfolio in 2013; this has now been postponed for a year, until 2014.1 This decision was made based on a limited progress with NPL write-offs by at least six large and medium-sized banks that do not meet this criterion so far: Kazkommertsbank (25 percent of NPLs over 90 days overdue), BTA Bank (78 percent), ATF Bank (43 percent). Alliance Bank (46 percent), Nurbank (28 percent), and Temirbank (44 percent). The aggregate ratio of NPLs (overdue of 90 days and over) amounted to 30 percent in July 2013.