Medium and large Kazakh businesses prefer “short” loans

According to the results of the first quarter of 2024, the country’s banking sector issued new loans to businesses for 4 trillion tenge. This is 33%, or 1 trillion more than for the same period a year ago. The trend towards easing the monetary policy by the National Bank, which began at the end of last year, is becoming one of the factors in the growth of loans.

Loans are not for everyone

In terms of lending entities, there was a double-digit increase in all areas: by 37% for small entrepreneurs, 21% for medium-sized ones, and 33% for large ones. The AFK Analytical Center review notes that such dynamics were supported during the quarter by high demand for borrowed resources against the backdrop of still low lending penetration – according to a survey of enterprises in the real sector of the economy by the National Bank, 55% of enterprises have no debt to banks. Of course, the growth of lending is affected by a decrease in the cost of credit resources, as well as the resumption of financing under state programs.

It should be noted that the pricing conditions for loans improved for small businesses (by 40 bp) and medium-sized businesses (by 90 bp). But for large businesses, on the contrary, these conditions worsened somewhat (by 80 bp) against the backdrop of a rather cautious reduction in the base rate. Thus, the volume of loan applications remained in positive territory for SMEs with growth of 6.3% and 7%, respectively. But for large businesses, there was a decrease in applications by minus 6.1%, but the percentage of their approval was much higher. In this case, it should be understood that the economic feasibility of waiting for more favorable conditions is much higher due to the large volumes of loans than in the case of SMEs. That is, the “big guys” are waiting for further improvement in pricing conditions for loans.

But banks are not in a hurry to easily hand out loans. Thus, the share of loan approvals by banks for applications received has decreased in all entities. This reflects both the increased credit risk of business borrowers and the high base of the previous quarter (at the end of last year, some banks launched collateral and unsecured scoring products for businesses). Experts point out that, according to the results of statistical analysis by the National Bank of the Republic of Kazakhstan, in the first quarter the share of sustainable enterprises decreased as a whole to 17.8%, only in the medium-sized business segment it increased.

High-quality selection of applications with a virtually unchanged loan portfolio ensured that the level of overdue debt remained low at 2.3%.

Short term loans are preferable

Thus, in the first quarter, the steady growth of new loans issued to entrepreneurs continued. And if in terms of business entities, a double-digit increase was observed in all areas, then in terms of industries, the dynamics were uneven. Thus, there was a decrease in construction, non-production and individual activities, and growth in communications, agriculture, transport, trade and industry.
At the same time, the dominance of two sectors – industry and trade – in the issuance of loans (75% of all new loans) and in the loan portfolio (62%) remains. This is due to the high concentration of their shares in the GDP structure – 28.8% and 16.6%, respectively. In particular, the growth in industry is formed by loans for the production of food products, including beverages and tobacco products, metallurgy, the production of cars and other vehicles (60% of all industrial loans).

The quality of demand for corporate loans has slightly worsened, which is reflected in a decrease in the share of approvals. The portfolio of loans to businesses showed neutral dynamics largely due to the preference for short-term loans by medium (70% of new loans have a term of up to 1 year) and large businesses (81% of new loans are attracted for a term of up to 1 year) against the background of expectations of a decrease in rates.

In this context, we note that due to the economic inexpediency of taking long-term loans now, most of the loans were attracted to support current activities, and not to ensure the structural transformation of the economy. Thus, the overwhelming majority of business entities (69%) attracted loans to finance working capital, including the purchase of materials, raw materials, semi-finished products. About 1.5% of businesses turned to banks to purchase fixed assets (purchase of buildings, structures, vehicles, equipment, another 1.7% – for investments and the acquisition of securities.

In the long term, the factor of favorable inflation statistics (the monthly growth of the CPI in the country dropped to the required level of 0.41%) opens up space for a further reduction in the base rate at the next meetings of the NBRK. Accordingly, the potential for further improvement of financial conditions remains high and will act as a factor stimulating demand for loans from businesses. According to a survey by the National Bank, a further increase in demand for money from medium and large businesses is expected in the second quarter.

Wing Sarin