Kazakhstan is one of the fast-growing economies in Central Asia. Its GDP has been growing over 4% annually for several consecutive years and the rate of unemployment has fallen below 5%. The economic expansion goes hand in hand with the development of the credit market. This is partly the reason why, at the end of May, we let the Tez Lombard LLP company, which operates as a pawnshop, in our Bondster platform.
Most Czechs and Slovaks don´t know much about Kazakhstan, which is really a pity. From the territorial perspective, Kazakhstan is the ninth biggest country in the world. However, its population doesn´t even reach 20 million. The huge territory provides the country with extensive mineral wealth and a great potential hidden in the form of vast agricultural area. Since gaining independence from the Soviet Union in 1991, Kazakhstan has seen a significant increase of its GDP per capita; however it is still lagging behind the developed OECD countries. The Kazakh economy is greatly dependent on oil exports, which constitute a half of its overall export. When oil prices plummeted in 2014 and 2015, the impact on country´s economy was severe. Between 2013 and 2016 the GDP fell from 240 billion USD to 140 billion USD respectively. Since then the economy has been quickly recovering again.
The time required to start a business has decreased by a half
The government and municipalities want the economy to grow as fast as possible. Which is one of the reasons why Kazakhstan ranked 28th on the business environment list published by the World Bank, a good result indeed. For comparison, the Czech Republic ranked 35th and Slovakia 42nd. Independent observes appreciate especially quick and cheap development of the electricity grid, which allowed the development of rural areas and smaller towns. The process of obtaining a planning permission has been considerably simplified as well. The time required to start a company has decreased to a half since 2017.
Private debt to GDP ratio is 30%, which is much lower than the OECD countries average of 150%. Such low level of debt is common for all former Soviet Union countries. Low indebtedness, on the other hand, creates future opportunities for banks or non-banking credit companies to issue more loans to households and businesses.
Why is the debt market in Kazakhstan still quite underdeveloped?
Prior to the global financial crisis in 2008 and 2009, the banking sector was one of the Kazakh economy growth drivers. However, the crisis and the oil prices drop revealed a number of serious issues in banks. They had been issuing loans carelessly and had often been involved in unfair practices and corruption. As a result, the government had to nationalize the biggest bank - Bank Turan Alem - and lend a helping hand to other banks. Also, a fund to buy out non-performing loans from banks was established a year ago. The central bank has also tightened its standards since many Kazakh banks used to report lower than actual ratio of non-performing loans.
The problems in the Kazakh banking sector had an adverse impact on the volume of loans issued. For instance, the volume of loans issued to SMEs decreased by 12% last year, regardless the governmental support of up to 50% of the interest paid. The growth of consumer loans last year was minimal too. Nevertheless, the situation is getting better, partially thanks to the government´s and central bank´s interventions. As a result, the volume of consumer loans issued in April already increased by more than 8% year-over-year (see the following picture).
Both the International Monetary Fund and the World Bank are expecting an economic expansion in Kazakhstan in the next few years, which will be followed by the increase of households’ income. Over the last ten years the average wage in Kazakhstan has more than doubled. Even though a significant share of this growth was eaten up by inflation, the real income of Kazakh households is gradually growing.
If we take a look at the pawnshops market, in which also Tez Lombard operates, we can see that pawnshops issued a total of 90.000 loans last year. It is estimated that the number of loans issued by pawnshops this year could double. The pawnshops´ credit market share in Kazakhstan is now about 8% with an average of 87% of all collateral used being jewellery (especially gold).