Jul-09. Sep-09. May-09. Nov-09

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1 Kazakhstan Lending resumes as LLP and NPL stabilize October 28, Sabina Amangeldi In tember bank credit to economy began to grow in nominal terms, three years after it stagnated, two months after the loan-loss provisions at the non-restructuring banks began to decline, and one month after the restructuring of BTA was completed. Encouragingly, the growth was driven by KKB, Halyk and ATF, the large lenders responsible for the bulk of LLP at the non-restructured banks. Whether this is a beginning of the new lending cycle or just a blip is not yet clear. The improvements in asset quality are slow -- at this pace it will take at least two more years for the losses on the pre-2008 loans to fully crystallize. But persistent credit growth is likely return sooner. Banking system Banking assets dropped by 0.3%, even as net loans rose by 2%, loans rose by 1.5% and loan-loss provisions declined by 0.4 ppts. Total deposits changed little, belying a rise in individual accounts (1.9%) and a 3.3% decline in corporate accounts. The NPL ratio declined by 0.5 ppts, driven mainly by recoveries at ATF and HSBC. The LLP declined by 0.2 ppts to 33.7% of loans. The overdue (+90 days) fluctuate at 25.8% of loans. Fig 1. Gross and net loans, % adjusted for exchange rate changes 5 0 Jan-08-5 Mar-08 May-08 Jul Nov-08 Jan-09 Mar-09 May-09 Jul Nov-09 Jan-10 Mar-10 May-10 Jul Gross loans Net loans Source: Financial s Supervision Agency Non-restructuring banks: slow progress on asset quality and frenetic lending by small banks By October, all three banks are officially out of the woods, with the international debt restructuring finally over for the last of the three. However, we believe it pays to look at these three and the rest of the banking system separately, as the difference due to the restructuring are likely to persist for some time. So, we will continue to disaggregate the banking system into the good and the bad banks. Bloomberg: HLFN <Go> eng.halykfin.kz 1/10

2 Fig 2. Asset quality indicators, banking sector, % of loans 37.9% 37.6% 36.4% 37.2% 37.7% 35.7% 37.0% 36.8% 36.7% 35.3%35.0% 36.5% 36.3% 35.9% 34.7% 35.9% 33.2% 36.2% 37.0% 32.7% 35.5% 35.4% 34.4% 34.2% 33.9% 33.7% 24.5% 19.7% 20.6% 21.2% 21.9% 17.5% 25.1% 26.1% 26.9% 25.3% 25.8% 25.6% 25.8% t 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug NPL (FSMA) 90+ days overdue` Provisions Source: Financial s Supervision Agency Total assets of the good banks, that is the system less BTA, Alliance and Temir, declined 0.3%. Assets declined at Halyk Bank (4.2%), ATF (3.6%), Sberbank (13.1%), RBS (11.6%), and Eurasian (2.7%). Asset contraction at these banks was partially offset by growth at Bank of China (30.5%), Alfabank (13.9%), HSBC (18.8%), and ICBC (30.0%). Net loans at Halyk rose by 2.4%, but the balance sheet declined because of a sharp drop in liquid assets (interbank deposits down T60.34 bn and deposits with the National Bank down by T50.0 bn). Growth at the Bank of China, ICBC, HSBC, and Alfa bank was a result of new lending. Total deposits of the good banks declined by 2.0%, driven by declines at Halyk Bank (-5.3%), where corporate deposits were nearly decimated (-8.9%). Deposits at KKB rose by 3.3%, thanks to 3.4% growth of corporate deposits and 3.1% growth of retail deposits. HSBC surprised again, with a 25.6% increase in retail deposits and a 22.7% decline in corporate deposits, betraying high degree of concentration in both. Much smaller VTB and Bank of China saw 151% and 46.2% growth in deposits, again mainly on retail side. NB Last week the Deputy Chairman of the NBK was quoted saying that 0.1% of retail deposit accounts hold a half of the amount. On the asset quality side, the trends were as expected and encouraging, with both overdues and LLP declining slightly. NPL barely changed at 19.3%, with a notable increase at BCC (by 0.9 ppts to 7.6%). Fig 3. Asset quality of non-restructuring banks *, % of loans 19.9% 20.3% 20.2% 20.1% 19.3% 19.4% 18.4% 18.5% 18.8% 18.8% 18.9% 19.2% 17.9% 18.4% 19.3% 17.0% 17.4% 17.4% 16.6% 17.1% 16.9% 16.2% 16.6% 18.4% 14.8% 15.2% 15.3% 17.7% 17.9% 16.8% 17.2% 16.7% 17.4% 16.3% 15.6% 11.0% 12.5% 13.1% 14.4% t 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 * System less BTA, Alliance, Temir Source: Financial s Supervision Agency Mar 10 NPL (FSMA) 90+ days overdue` Provisions Apr 10 May 10 Jun 10 Jul 10 Aug Bloomberg: HLFN <Go> eng.halykfin.kz 2/10

3 BTA, Alliance and Temir ready for sale The three bad ones are back into the game. The government that became a holder after the restructuring is eager to sell them to strategic investors. Meanwhile, the banks will participate on government programs and try to recover the loans that went sour in BTA, the biggest of the three, last Summer may have written off some of its non-performing loans, judging by the declines in loans and the matching declines in LLP. In tember, its assets shrank by 0.4% while the loans continued to decline (-0.6%). The NPL and provisions changed little, but an increase in overdue loans was quite sharp. The gap between the NPL and LLP on one hand and the overdue loans on the other remains wide and shows no signs of closing. Also, for the past 9 months BTA has lost more than any other bank (-8.9bn), largely due to a shortfall in interest income. Alliance balance sheet expanded by T2.05 bn (0.4%), mainly due to a decline in LLP (presumably due to a recovery of NPL) and a 3.38 bn rise in loans (apparently due to new lending). Consistently with this explanation, the overdue loans and the NPL declined to 69.5% and to 57.2%. Coincidentally, the bank reported the highest net income (T9.11bn) in the sector. Even though there was a 1.5% decline of net loans, Temirbank s total assets increased 1.1% last month. The increase of total assets was mainly driven by new investments in securities and increase in assets like: accrued interest income and due from National bank. Net loans declined due to 0.9% decline of loans and 0.3 ppts rise of provisions. Fig 4. Asset quality of the restructuring banks * 72.0% 72.6% 74.1% 74.5% 74.8% 73.9% 74.9% 74.1% 74.6% 74.0% 72.3% 74.7% 74.9% 74.4% 74.2% 74.4% 74.6% 74.5% 74.0% 71.9% 70.1% 68.6% 63.7% 69.8% 68.7% 63.5% 33.1% 34.2% 29.7% 34.2% 34.4% 39.8% 43.0% 44.8% 45.1% 45.4% 45.2% 46.2% 43.9% t 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug * BTA, Alliance, Temir Source: Financial s Supervision Agency NPL (FSMA) 90+ days overdue` Provisions Bloomberg: HLFN <Go> eng.halykfin.kz 3/10

4 Select asset quality indicators NPL(FMSA), bln KZT 90+ days overdue, bln KZT % of loans %of loans,ppts % of loans %of loans,ppts Kazkom (4.9) 20.2 (0.4) Halyk (12.71) 17.5 (1.5) BTA 1,421.6 (10.8) 73.8 (0.1) BCC 63.8 (2.63) 9.0 (0.4) ATF (0.6) (0.8) Alliance (0.1) (3.03) 69.5 (1.0) Eurasian (0.36) 8.4 (0.1) Kaspi Nurbank (0.81) 8.9 (0.5) Sberbank 10.4 (0.02) 7.3 (0.3) Citibank (0.1) Temir (0.82) (1.33) 58.4 (0.0) Tsesnabank (0.4) RBS 1.3 (0.74) 5.9 (0.4) - (2.02) - - HSBC (1.4) 4.1 (0.18) 4.4 (1.7) KazInvest (0.03) Eximbank (0.11) 1.3 (0.1) Zhilstroy 2.8 (0.05) 4.8 (0.2) 2.3 (0.06) 3.9 (0.2) Bank of China Alfabank 2.69 (0.25) 8.8 (3.5) (1.0) Delta (1.0) (1.0) ICBC Positiv 1.49 (0.00) Astana Finance 1.86 (0.15) Home Credit 0.87 (0.03) 9.7 (1.1) 0.77 (0.02) 8.6 (1.0) VTB KZI Asia Credit 0.22 (0.01) (0.17) 1.0 (3.2) Taib 0.11 (0.01) 9.4 (1.8) 0.06 (0.01) 5.1 (1.4) Kassa Nova Shinhan bank Metrocombank (9.6) (6.2) Zaman-bank 0.07 (0.05) 2.0 (1.6) (0.1) Senymbank 0.09 (0.02) 3.1 (1.00) (0.1) Danabank 0.03 (0.02) 4.3 (2.53) 0.03 (0.02) 4.2 (2.5) Bank of Pakistan 0.01 (0.00) 0.7 (0.16) 0.01 (0.00) 0.7 (0.3) KIC bank Al-Hilal BTA,Alliance,Temir 1,855.7 (10.3) 68.6 (0.1) 1, Sector exl. BTA, Alliance, Temir 1, ,142.8 (3.8) 17.4 (0.5) First dozen* 1, ,118.5 (4.8) 17.8 (0.5) Top 6** 2, (0.3) 2, Small banks*** (0.0) Sector 3, (0.2) 2, *From Kazkom to HSBC exluding BTA,Alliance,Temir **Kazkom, Halyk, BTA, BCC, ATF, Alliance ***From KazInvest to Al Hilal Bloomberg: HLFN <Go> eng.halykfin.kz 4/10

5 Select balance sheet and income statement items Net Income, bln KZT Provisions, bln KZT YTD % of loans %of loans,ppts Kazkom (26) Halyk (2) (0.2) BTA (8.90) ( ) (1) 1,265.3 (7.4) 65.7 (0.0) BCC (31) ATF (4.95) (0.06) (25.73) 37(37) (0.3) Alliance (38) (3.97) 60.3 (1.1) Eurasian (1.06) 9(7) 23.7 (0.01) Kaspi (0.38) 2(33) Nurbank (32) (0.1) Sberbank (35) (0.2) Citibank 0.03 (0.35) (4) 0.6 (0.05) 1.3 (0.3) Temir (36) (0.55) Tsesnabank (9) (0.0) RBS (1.21) (1.14) (0.89) 36(27) 0.7 (1.40) 3.0 (3.3) HSBC (30) (1.0) KazInvest 0.01 (0.00) (13) Eximbank (16) Zhilstroy 0.10 (0.64) (3) 2.4 (0.04) 4.1 (0.2) Bank of China (8) Alfabank (0.04) (0.24) (6) 3.00 (0.18) 9.9 (3.4) Delta (17) (0.5) ICBC (19) Positiv (0.016) 0.01 (0.10) 30(21) 1.46 (0.01) Astana Finance (1.66) 10(34) 1.93 (0.17) Home Credit (5) 0.87 (0.03) 9.7 (1.1) VTB (0.02) (0.22) 25(12) KZI (0.06) 16(28) 1.19 (0.02) Asia Credit (0.018) (0.08) (10) Taib (0.11) 24(20) Kassa Nova (0.019) 0.01 (0.23) 32(22) (0.4) Shinhan bank (0.006) (0.03) (11) Metrocombank (0.07) 0.04 (1.29) 35(29) 1.29 (0.00) 22.5 (9.7) Zaman-bank (25) Senymbank (0.04) 22(24) (0.02) 3.5 (1.0) Danabank (18) (0.02) 6.2 (2.5) Bank of Pakistan (15) (0.00) 0.6 (0.1) KIC bank (0.001) (0.01) (14) Al-Hilal (0.044) (0.00) (0.34) 34(23) BTA,Alliance,Temir 1.73 ( ) ,716.8 (11.9) 63.5 (0.2) Sector exl. BTA,Alliance,Temir , (0.1) First dozen** , (0.1) Top 6*** (2.29) (1156.7) , (0.3) Small banks**** (0.4) Sector 4.45 (1146.8) , (0.4) * rank as of 1 October and month earlier **From Kazkom to HSBC exluding BTA,Alliance,Temir ***Kazkom, Halyk, BTA, BCC, ATF, Alliance ****From KazInvest to Al Hilal Bloomberg: HLFN <Go> eng.halykfin.kz 5/10

6 Assets, bln KZT Owners' equity, bln KZT,%,% Kazkom 2, (1) (1) Halyk 1,993.9 (88.37) (4.2) (2) (2) BTA 1,949.7 (7.58) (0.4) (3) 96.7 (8.90) (8.4) 4(4) BCC 1, (4) (3) ATF 1,034.1 (38.69) (3.6) 8.7 5(5) 75.7 (4.97) (6.2) 5(5) Alliance (6) (8) Eurasian (9.38) (2.7) 2.8 7(7) (10) Kaspi (9) (9) Nurbank (6.06) (1.9) 2.7 9(8) (6) Sberbank (36.36) (13.1) (10) (7) Citibank (11) (11) Temir (13) (15) Tsesnabank (12) (14) RBS (17.05) (11.6) (14) 19.2 (1.21) (5.9) 13(12) HSBC (15) (19) KazInvest 73.7 (1.16) (1.5) (17) (17) Eximbank 68.7 (0.47) (0.7) (18) (16) Zhilstroy (16) (13) Bank of China (20) (18) Alfabank (19) (20) Delta (21) (22) ICBC (23) (28) Positiv (26) 5.2 (0.02) (0.3) 29(29) Astana Finance 17.1 (1.45) (7.8) (22) (33) Home Credit (25) (25) VTB (29) (21) KZI 11.8 (0.11) (1.0) (27) (27) Asia Credit (28) (26) Taib 6.2 (0.55) (8.2) (31) (34) Kassa Nova (30) 5.7 (0.02) (0.3) 26(24) Shinhan bank (32) 5.1 (0.01) (0.1) 30(30) Metrocombank (24) 6.9 (0.07) (1.0) 23(23) Zaman-bank 4.2 (0.15) (3.4) (34) (32) Senymbank (35) (35) Danabank (36) (38) Bank of Pakistan (38) (36) KIC bank 2.7 (0.30) (10.0) (37) 2.1 (0.00) (0.0) 37(37) Al-Hilal 4.9 (0.34) (6.5) (33) 4.7 (0.04) (0.9) 31(31) BTA,Alliance,Temir 2,598.8 (3.5) (0.1) (4.1) (2.7) Sector exl. BTA,Alliance,Temir 9,328.3 (36.9) (0.4) , First dozen** 8,775.0 (69.5) (0.8) Top 6*** 9,188.7 (59.3) (0.6) (4.4) (0.5) Small banks**** Sector 11,927.1 (40.3) (0.3) , * rank as of 1 October and month earlier **From Kazkom to HSBC exluding BTA,Alliance,Temir ***Kazkom, Halyk, BTA, BCC, ATF, Alliance ****From KazInvest to Al Hilal Bloomberg: HLFN <Go> eng.halykfin.kz 6/10

7 Gross Loans, bln KZT Net Loans, bln KZT,%,% Kazkom 2, (1) 1, (1) Halyk 1, (3) (2) BTA 1,926.0 (11.2) (0.6) (2) (3.78) (0.6) (4) BCC (5) (5) ATF (4) (3) Alliance (6) (7) Eurasian (1.93) (1.0) (10) (1.91) (1.1) 2.8 9(9) Kaspi (7) (6) Nurbank (9) (8) Sberbank (11) (10) Citibank (17) (17) Temir (2.25) (0.9) 2.6 8(8) (1.69) (1.5) (12) Tsesnabank (12) (11) RBS 22.2 (10.44) (32.0) (18) 21.6 (9.04) (29.5) (18) HSBC (13) (13) KazInvest (16) (16) Eximbank 58.4 (2.29) (3.8) (14) 50.6 (2.60) (4.9) (15) Zhilstroy (15) (14) Bank of China (30) (30) Alfabank (20) (20) Delta (19) (19) ICBC (37) (37) Positiv 3.4 (0.07) (2.1) (28) 2.0 (0.07) (3.3) (29) Astana Finance 9.1 (2.13) (19.0) (21) 7.1 (1.96) (21.5) (21) Home Credit (22) (22) VTB (32) (31) KZI 4.1 (0.12) (2.8) (24) 2.9 (0.10) (3.4) (26) Asia Credit 4.7 (0.44) (8.6) (23) 4.4 (0.45) (9.3) (23) Taib (34) (34) Kassa Nova (26) (24) Shinhan bank (38) (38) Metrocombank (25) (27) Zaman-bank (27) (25) Senymbank (29) (28) Danabank 0.73 (0.04) (4.9) (35) 0.69 (0.02) (2.3) (35) Bank of Pakistan (33) (32) KIC bank 1.53 (0.21) (11.8) (31) 1.46 (0.22) (12.9) (33) Al-Hilal 0.37 (0.21) (36.6) (36) 0.37 (0.21) (36.6) (36) BTA,Alliance,Temir 2,704.4 (10.0) (0.4) Sector exl. BTA,Alliance,Temir 6, , First dozen** 6, , Top 6*** 7, , Small banks**** Sector 9, , * rank as of 1 October and month earlier **From Kazkom to HSBC exluding BTA,Alliance,Temir ***Kazkom, Halyk, BTA, BCC, ATF, Alliance ****From KazInvest to Al Hilal Bloomberg: HLFN <Go> eng.halykfin.kz 7/10

8 Deposits(less SPV), bln KZT SPV, bln KZT,%,% Kazkom 1, (5) Halyk 1,340.5 (75.52) (5.3) (5) BTA (5) BCC (6.51) (0.8) (1) ATF (17.62) (3.3) (3) Alliance (0.72) (0.4) (4) Eurasian (24.14) (9.8) (5) Kaspi (5) Nurbank (7.74) (3.6) (5) Sberbank (38.08) (17.3) (5) Citibank (5) Temir (5) Tsesnabank (2) RBS 99.6 (15.92) (13.8) (5) HSBC 87.5 (19.71) (18.4) (5) KazInvest 59.9 (1.05) (1.7) (5) Eximbank 21.9 (2.24) (9.3) (5) Zhilstroy (5) Bank of China (5) Alfabank (5) Delta (5) ICBC (5) Positiv (5) Astana Finance 9.6 (1.76) (15.5) (5) Home Credit (5) VTB (5) KZI (5) Asia Credit (5) Taib 1.0 (0.57) (35.9) (5) Kassa Nova (5) Shinhan bank 0.4 (0.13) (25.5) (5) Metrocombank (5) Zaman-bank 0.07 (0.24) (76.8) (5) Senymbank (5) Danabank 0.75 (0.03) (3.3) (5) Bank of Pakistan (5) KIC bank 0.45 (0.24) (34.7) (5) Al-Hilal (5) BTA,Alliance,Temir Sector exl. BTA,Alliance,Temir 5,780.1 (120.90) (2.0) First dozen** 5,484.9 (148.08) (2.6) Top 6*** 4,963.0 (51.80) (1.0) Small banks**** Sector 6,730.7 (118.16) (1.7) * rank as of 1 October and month earlier **From Kazkom to HSBC exluding BTA,Alliance,Temir ***Kazkom, Halyk, BTA, BCC, ATF, Alliance ****From KazInvest to Al Hilal Bloomberg: HLFN <Go> eng.halykfin.kz 8/10

9 Retail Deposit, bln KZT Corporate deposits(less SPV),bln KZT,%,% Kazkom (2) 1, Halyk (1) (87.46) (8.9) BTA (5) (7.65) (1.6) BCC (3) (8.46) (1.7) ATF (4.59) (2.2) 9.4 5(4) (13.03) (4.0) Alliance (8) (3.31) (2.5) Eurasian 96.9 (3.97) (3.9) 4.5 7(7) (20.17) (14.0) Kaspi (6) Nurbank 32.4 (1.70) (5.0) (10) (6.03) (3.3) Sberbank (13) (39.44) (20.6) Citibank (19) Temir (12) 32.2 (0.4) (1.3) Tsesnabank (9) RBS 2.3 (2.32) (50.6) (17) 97.3 (13.60) (12.3) HSBC (15) 73.1 (22.65) (23.7) KazInvest (0.00) (0.0) (14) 40.2 (1.05) (2.5) Eximbank (37) 21.9 (2.24) (9.3) Zhilstroy (11) Bank of China 2.28 (0.02) (0.8) (21) Alfabank (16) Delta (18) ICBC (25) Positiv (23) Astana Finance 0.58 (0.11) (15.6) (26) 9.0 (1.65) (15.5) Home Credit 0.63 (0.01) (1.9) (27) VTB (33) KZI (22) Asia Credit (24) Taib 0.36 (0.08) (18.2) (30) 0.7 (0.49) (42.7) Kassa Nova (37) Shinhan bank (32) 0.32 (0.13) (30.0) Metrocombank (20) Zaman-bank (36) 0.06 (0.25) (81.0) Senymbank 0.57 (0.01) (1.4) (28) Danabank (29) 0.22 (0.03) (12.2) Bank of Pakistan 0.16 (0.03) (15.5) (31) KIC bank - (0.02) (100.0) (34) 0.45 (0.22) (32.9) Al-Hilal (35) BTA,Alliance,Temir (11.40) (1.8) 13.9 Sector exl. BTA,Alliance,Temir 1, ,957.3 (146.37) (3.6) 86.1 First dozen** 1, ,741.1 (171.93) (4.4) 81.4 Top 6*** 1, ,299.7 (86.66) (2.6) 71.8 Small banks**** Sector 2, ,593.6 (157.77) (3.3) 100 * rank as of 1 October and month earlier **From Kazkom to HSBC exluding BTA,Alliance,Temir ***Kazkom, Halyk, BTA, BCC, ATF, Alliance ****From KazInvest to Al Hilal Bloomberg: HLFN <Go> eng.halykfin.kz 9/10

10 Disclaimer Halyk Finance, a subsidiary of Halyk Bank. For contact details see the information on Halyk Finance website or contact Halyk Finance office. All rights reserved. This document and/or information has been prepared by and, except as otherwise specified herein, is communicated by Halyk Finance. This document is for information purposes only. Opinions and views expressed in this document do not necessarily represent the opinions and views held by Halyk Finance, or other subsidiaries of Halyk Bank. The differences of opinion stem from different assumptions, sources information, criteria and methodology of valuation. Information and opinions expressed herein are subject to change without notice; and neither Halyk Finance, or Halyk Bank, or any of its subsidiaries or affiliates are under any obligation to keep them current. This document is not an offer or an invitation to engage in investment activity. 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Economics Sabit Khakimzhanov, 7 (727) sabitkh@halykbank.kz Madina Kurmangaliyeva, 7 (727) madinaku@halykbank.kz Equity Research Mariyam Zhumadil 7 (727) MariyamZh1@halykbank.kz Financial Sector, Fixed Income Securities Roman Assilbekov, 7 (727) romanas@halykbank.kz Sabina Amangeldi, 7 (727) SabinaA@halykbank.kz Bakytzhan Khochshanov 7 (727) BakytzhanH@halykbank.kz Oil and Gas Maulen Burashev 7 (727) maulenb@halykbank.kz Address Halyk Finance 19/1, Al-Farabi Ave., Nurly-Tau Business Center, Suite 3b Almaty, Republic of Kazakhstan, Tel. +7 (727) Fax.+7 (727) Bloomberg: HLFN <Go> eng.halykfin.kz 10/10