Transcript Visor Capital, *, eng

International Equity Investor Perspectives on the Kazakhstan Banking Sector
27 September 2007
Is it time to buy Kazakhstan banks?
 Overall, we believe that the Kazakhstan banking sector
offers great long term investment value due to the strong
macroeconomic and regulatory environment.
 But is the credit crunch going to cause further weakness
in banking stocks that have depended on foreign debt?
 Or has the potential for a financial crisis been
exaggerated, creating opportunities for inexpensive
equity shares?
 The answer is likely external, as opposed to based on
these banks, which still have strong fundamentals.
 We do believe there are interesting, specific investment
opportunities, regardless of the global climate.
2
The adoption of financial reforms and a strict
regulatory regime has outpaced that of other CIS countries
 European-style regulatory regime enforced by the National Bank
and AFN (the financial sector regulator)
 IFRS reporting since 2002 (versus late 2004 in Russia)
 KASE-listed companies required to publish quarterly financial
statements and submit monthly data to AFN
 Basel capital adequacy requirements have been implemented,
augmented by additional local capital rules
 10% minimum reserve requirements on foreign debt are due to be
implemented as of 9 October 2007
 Capital-based foreign debt limits being phased in after being
implemented as of 1 April 2007
 Credit bureau generating first credit history database in the CIS
should be fully operational by 2009
3
Before the recent liquidity squeeze, banks had been
experiencing faster growth rates than the overall economy
 As Kazakhstan’s real GDP has grown by more than 9% every year since
2000, bank assets have grown at more than 50% CAGR
 We expect the sector to reach maturity with slowing growth in the next few
years due to natural market forces and regulatory tightening
140%
13.5%
120%
9.8%
100%
10.6% 108%
9.2%
9.4%
9.4%
113%
12%
8.8%
91%
14%
121%
8.8% 10%
9.9%
80%
8%
59%
60%
40% 25%
31%
36%
6%
46%
4%
20%
2%
0%
0%
2001A
2002A
Assets / GDP
2003A
2004A
Loans / GDP
2005A
2006A
2007E
Deposits / GDP
2008E
2009E
Real GDP Growth (rhs)
Source: AFN, Statistical Agency of Kazakhstan, National Bank
4
Risk factors relate to both the possibility of
regulatory changes and the macroeconomic picture
 Increased cost of borrowing is likely to slow growth, and also could squeeze
margins. While we have already factored such issues increase into our
forecasts, we cannot precisely predict changes in international liquidity.
 Inflationary pressure may push regulators to continue to increase reserves
requirements, raise refinancing rates, further limit foreign borrowing or take
other measures that would slow sector growth.
 Asset quality has been strong, but there is the perception of a real estate
bubble that could lead to higher NPL rates. We do not, however, expect a
sharp decline in real estate prices because, despite abundant construction,
there is still a significant real estate shortage.
 We do not see a high risk level for the broader economy
 Oil production expected to nearly triple by 2015
 Gold & currency reserves > $38 billion (20 months of imports)
 Non-oil revenues cover all government budget expenditures
 Kazakhstan’s government debt remains minimal
5
Our valuation approach is comparable
since banks are still in their growth phase
 We use a comparative valuation methodology based on
forecast price/book ratios and return on equity of
Kazakhstan banks.
 We also adjust for overall franchise risks as well as share
liquidity.
 The comparative approach is more useful than traditional
models because only one of the eight banks we have
under coverage is currently paying dividends on common
shares (Halyk).
6
Most Kazakhstan banks now appear less expensive
than their emerging market peer group
4.5
2007E Price-to-Book Ratio
4.0
ATF Bank
Halyk Bank
3.5
Bank Caspian
Temirbank
3.0
Bank CenterCredit
2.5
Alliance Bank
Bank TuranAlem
2.0
Kazkommertsbank
1.5
1.0
10%
15%
20%
25%
30%
35%
Compounded Annual ROE 2008-09E
7