The Analytical Center of the Association of Financiers of Kazakhstan (AFK) has released a report on the lending to business entities for the year 2024.
Key Trends
By the end of 2024, the banking sector provided businesses with 18.9 trillion tenge in new loans, which is an increase of 18.5% or 3.0 trillion tenge compared to 2023. Notably, 96% of the newly issued loans to businesses were granted by second-tier banks.
The main driver of credit growth for businesses was large enterprises (+23%), supported by a gradual decrease in the cost of borrowed funds for them (see below), an increase in average loan application sizes (rising to 8.8 billion tenge from 7.3 billion tenge at the beginning of the year), the implementation of investment projects, and pent-up demand from 2023, along with a higher approval rate (see below).
In terms of economic sectors, all growth for large businesses was concentrated in three industries: trade (+816 billion tenge), industry (+503 billion tenge), and transport (+104 billion tenge), against a backdrop of positive contributions to GDP (trade grew by 9.1%, industry by 2.8%, and transport by 8.5%) and significant shares in the economy (19%, 26%, and 6%, respectively).
The issuance of new loans in the small and medium-sized business segment increased by 15% and 18%, respectively, despite ambiguous changes in resource costs (see below), a decrease in loan applications (due to a temporary lack of funding under state programs due to the exhaustion of limits), worsening financial conditions, and a lower approval rate (see below).
According to statistical analysis by the National Bank of Kazakhstan (NBK), by the end of 2024, the share of stable enterprises among small businesses fell to 17.6% (down from 19.5% at the beginning of the year), and among medium-sized businesses, it dropped to 16.9% (from 17.4%).
Against the backdrop of large investment projects, a higher relative increase was observed in the acquisition of fixed assets (+37%), yet the key share still belongs to replenishing working capital (66% of all issued loans) due to still high interest rates in the system and the need to support operational activities (purchasing raw materials, materials, and goods, covering logistics costs, maintaining necessary liquidity levels, etc.).
Meanwhile, the pricing conditions for loans to large businesses were most sensitive to changes in the base rate (see below), while for SMEs, there was no clear transmission, likely due to available subsidized benefits and guarantees that significantly reduce the final cost of their loans.
With the availability of state programs, the majority of loans to small businesses are long-term loans (52%), whereas for medium and large businesses, their shares are significantly lower (see below).
In the current quarter, a decrease in demand for loans from SMEs is expected due to the temporary lack of funding under certain state programs and the traditional slowdown in business and consumer activity, though demand from large businesses may remain stable due to the implementation of major investment and infrastructure projects.
0 1 2 Summary
Double-digit growth in business lending continues across all segments (small, medium, large) and in nearly all sectors of the economy (a decline was only recorded in construction at 4.7%), supported by eased pricing conditions for loans (for certain entities), the launch of new products (collateral and unsecured scoring products for businesses were introduced to the market), and increased penetration of lending among entrepreneurs (the number of business borrowers grew to 531.7 thousand from 440.8 thousand at the beginning of the year), along with regulatory measures to stimulate business lending.
At the same time, two-thirds of the attracted business loans (66% of all loans issued to businesses) are intended for replenishing working capital due to the impracticality of taking "long" loans and the predominance of the trade sector in the economy (26%).
Following the increase in the base rate, assessments of enterprises regarding the pricing conditions for loans (interest rates, additional fees) and non-pricing conditions (loan amount and term, requirements for the borrower's financial condition and collateral) have worsened.
Additionally, high inflationary risks in the economy (due to rising prices for regulated services, increased business costs from the rising prices of raw materials, electricity, and imported components, high fiscal expenditures, and the ongoing transfer of currency depreciation into prices) are likely to hinder the normalization of monetary conditions in the first half of the year, limiting improvements in loan pricing conditions. However, in the current quarter, an increase in demand for loans is anticipated among enterprises in the manufacturing, agriculture, and construction sectors.