JPMorgan Chase Bank: Kazakhstan joins the credit crisis

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While financial markets have remained calm in most Emerging Market economies, Kazakhstan appears to be experiencing a credit crunchб says a report released JPMorgan Chase Bank (New York). Oil-rich Kazakhstan’s banking sector had been growing at an extraordinary pace thanks to abundant external financing. This led to unprecedented credit expansion and a substantial real estate boom. Domestic lending, however, is now grinding to a halt as external markets have closed and banks seek to preserve cash to meet liabilities maturing and potential deposit outflows, says teh statement.

Kazakhstan will now experience BoP outflows, as its banks’ external borrowing has grown rapidly. “We believe, however, that the macroeconomic authorities stand willing to take preemptive action to assist the financial sector and prevent a systemic crisis,” says teh report by JPMorgan. The National Bank of Kazakhstan has already provided banks the equivalent of US$9 billion in tenge liquidity and has used $5 billion of reserves to support the currency. It will also likely take steps to stimulate the real economy. For now, the authorities have enough resources to provide support, since high oil prices and cautious policies have resulted in a buildup of substantial savings in the oil fund and in international reserves, the two currently adding up to about US$37 billion (39% of GDP). However, the company cautions, the call on these resources could prove to be significant.