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Kazakh banks shrug off renewed investor worries

Reuters - Friday, September 26

By Olzhas Auyezov

ALMATY, Sept 25 - Kazakh banks, congratulating themselves for overcoming the latest bout of market turmoil and gloomy analyst forecasts, are shrugging off a record slump in their debt prices.

Central Asia's largest economy became one of the first victims of a global credit crunch last year when the central bank pumped billions of dollars into the system and ratings agencies came out with a spate of downgrades.

But as global markets pushed through another week of volatility, Kazakh bankers appeared confident at an annual industry conference, mocking analysts for their pessimistic views and poking fun at Western credit rating agencies.

"I think the worst is behind us," Roman Solodchenko, the Chief Executive of Kazakhstan's largest bank BTA <BTAS.KZ>, told reporters at this week's conference. "We've learnt our lesson."

The 2007 squeeze triggered a severe domestic credit crunch that put an end to the economy's annual average growth of 10 percent between 2000 and 2006. Gross domestic product growth is now officially forecast at 5.3 percent this year.

But banks have been able to repay their debts and most have remained profitable, although some have reported shrinking assets and raised loan loss provisions.

"We are in better shape now than a year ago, we have become stronger," said BTA Chief Financial Officer Khalil Kamalov.

But the broader market does not share the banks' optimism. Spreads on credit default swaps for Kazakh banks' debt widened by about 50 basis points on Thursday, meaning the cost of insurance against default has reached record highs.

"With this distressed debt fund, maybe the banking sector is not as healthy as people anticipated," said Paul Timmons, an analyst at Commerzbank, referring to the $6 billion distressed loan buyout plan announced by the government on Wednesday.

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Kazakh bankers said the latest CDS movements reflected general market sentiment and not their financial state.

"I think we have been less volatile than our respected U.S. colleagues," said Magzhan Auezov, managing director at No.2 bank Kazkommerts <KKGByq.L>.

The government appears to believe the bottom has been hit. "Despite what some analysts predict, we have managed to navigate through all the reefs," Prime Minister Karim Masimov told the conference.

Kazakh bankers would not comment on the state loan buyout plans, focusing instead on regulation, which they think could be relaxed to free up more money held in reserves.

But, echoing the government's resolve to play a key role in steering the economy, Yelena Bakhmutova, head of the state financial watchdog, said her agency would do everything to avoid a repeat of what she described as the pre-crisis "euphoria" on Kazakh markets.

"We plan to tighten gradually." she said.

BTA's Solodchenko responded ironically: "If banks (like Lehman Brothers) had been overseen by the Kazakh regulators, there would have been no such failures." (additional reporting by Carolyn Cohn in London; Editing by David Cowell)

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