Embassy of Kazakhstan

Kazakhstan has put together a $4bn (€2.7bn, £1.9bn) stabilisation fund to help its economy weather the credit squeeze stemming from the US subprime mortgage crisis, the Kazakh central bank governor has told the Financial Times.

The fund, $1bn of which will be dispensed this year, will be available to commercial banks at favourable interest rates set by the government.

It will focus on helping small- and medium-sized businesses and the construction and property sectors, where a prolonged recession could unleash popular discontent, Anvar Saidenov, chairman of the National Bank of Kazakhstan, said in an interview.

A liquidity shortage, accompanied by rising inflation and a sudden currency devaluation, had come as a shock after seven years of growth driven by rising oil prices, Mr Saidenov said. “It is like balancing between three very shaky stools all directly and indirectly connected to one another,” he said.

Construction has been hit particularly hard – companies in the sector are reducing investment after lending from over-leveraged Kazakh banks dried up. Property prices, which have risen by 900 per cent in big cities in the last four years, have begun to fall in some areas. Mr Saidenov said:

“It is clearly a bubble and it has to burst but we are trying to control the way the burst happens.”

Government funds will aid the completion of some construction projects, although there will be “no 100 per cent bail-out of construction companies”, he said.

Kazakh banks, facing $12bn worth of international debt repayments next year, can turn to the government for short-term assistance in refinancing loans. Kazakhstan’s state mortgage company is also prepared to buy the obligations from struggling banks.

Mr Saidenov said: “The overall message to the banks is they should stand on their own feet. These are difficult times for them and next year will be difficult too.”

Kazakh banks are being encouraged to increase their capitalisation by divesting foreign assets and selling shares. Although bond markets will probably be closed to Kazakh banks for a year, some syndicated loans and bilateral deals are still forthcoming from foreign banks.

Arman Dunaev, chairman of Kazakhstan’s Agency for Regulation and Supervision of the Financial Market, said restrictions on foreign borrowing would be tightened in January.

He said the credit squeeze would provide Kazakh banks with a valuable lesson in risk management. “There have always been crises and always will be.”

Officials said the acquisition by UniCredit, an Italian bank, of ATF, a mid-sized Kazakh bank, last week would increase public confidence in the banking sector.

Mr Saidenov said the tenge, the Kazakh currency, which fell sharply in August amid a sudden exit of foreign speculative funds prompting the national bank to intervene, appeared to have stabilised in recent weeks. The sale of dollars by oil companies at the end of the year to pay taxes would buoy the tenge, he said.

Officials said the government’s decision last week to downgrade its forecast for economic growth next year was possibly over-cautious given Kazakhstan’s record oil export earnings.