National Bank of Kazakhstan Cuts Base Rate to 9%

The regulator has also narrowed interest rate collar to +/- 1.5 p.p.

Photo: Askar Akhmetullin

On July 20, the National Bank of Kazakhstan decided to cut the base rate to 9% as well as narrow the interest rate collar to +/- 1.5 p.p. Thus, the rate for operations on liquidity provision now is 10.5% and for operations on liquidity taking is 7.5%. 

According to the regulator, the decline of the base rate is determined by the weakening of inflation risks and the shrinking of the national economy in the first half of the year that was stronger than anticipated for the period of May and June. The second lockdown measures in Kazakhstan also might have an anti-inflation impact.

“Core inflation (trimmed mean) and medial inflation in June show modest dynamic - 6.1% and 4.4% respectively. However, both indicators were slightly accelerated from the start of the year (in December 2019 – 5.2% and 4.3% respectively). At the same time, the slower growth of core inflation compared to headline inflation signals about modest growth of monetary component of inflation,” the regulator said in its written note.

The main risks of inflation in this year are fiscal and quasi-fiscal impacts for inflation processes, low demand due to disruptions in supply chains caused by quarantine measures and higher prices for imported goods as the tenge (the currency of Kazakhstan) has weakened.

As the regulator noted, the role of the US dollar in the national economy is much lower now, which gives an opportunity for a further rate decrease. To secure assets nominated in tenge, the National Bank took some very urgent measures. As preliminary data show, in the first half of the year the share of deposits in the US dollars had been reduced from 43.1% to 40%, which is pretty good for the base rate reduction. 

The decision to cut the base rate also addresses risks of variance from projections, the uncertainty of external sector recovery, and higher than expected damage for the Kazakhstani national economy by COVID-19. These factors might affect consumer demand and have an additional disinflation effect. 

According to the National Bank, the narrowing of the interest rate collar is necessary because the situation on the financial markets is stable and the economy is adapting step-by-step to the new normal. The decision will help move the money market rate close to the base rate and will create more sustainable expectations of the market players. 

“The new level of the base rate will help compensate higher credit risks by downsizing the value of loans. This decision will cushion the negative impact of the second lockdown to Kazakhstan and will support the recovery of the national economy,” the regulator press release says.

In April and June, the National Bank didn’t change the base rate but noticed the global economy is stable and some commodities and financial markets have rebounded. With some indicators of China’s economic recovery, European countries and the US emerging from the lockdown, the global oil consumption starts to grow again. 

As the regulator noted on June 6, further decisions in the area of monetary regulating will be based on global commodities market performance, speed of recovery of the business activity in the country, and level of variance of the real inflation dynamic from the projections.

The next decision on the base rate will be announced by the National Bank on September 7, 2020, at 3PM (Nur-Sultan time).
 

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Uzbekistani Bank Has Placed Eurobonds On LSE for the First Time

Demand for the bank’s securities turned out to be high

Фото: Shutterstock.com

Uzbekistani joint-stock commercial bank Uzpromstroybank placed international bonds on the London Stock Exchange (LSE) for the first time on November 25, the bank’s press office says.

“JSCB Uzpromstroybank issued international bonds on the London Stock Exchange, thus becoming a participant of the international capital market. Eurobonds worth $300 million were highly regarded by the investors,” the bank’s press release says.

Demand for the bank’s securities turned out to be high. The initial interest rate for the five-year international bonds was set at 6.5%, and within one and a half hours, order volume reached $300 million, equaling the entire issue volume. By 1:05 p.m., order volume reached $1.2 billion, translating to an oversubscription by four times. At the same time, the interest rate of the bonds was lowered by 0.125% to 6.375%.

“Thanks to such high demand, the deal was sufficiently profitable and was closed at 5:00 p.m. London time with a coupon rate of 5.75%,” Uzpromstroybank’s press release noted.

International investment banks such as JP Morgan, Citigroup, Commerzbank, and Raiffeisen Bank served as financial consultants of the deal on the issue of corporate Eurobonds.

JSCB Uzpromstroybank is one of the oldest financial institutions in Uzbekistan. The bank was founded in Tashkent in 1922 as the Central Asian office of Promyshlennyi Bank. Presently the bank lends to large investment projects, basic sectors of the economy, and small and private businesses. Major shareholders of the bank are the Finance Ministry of Uzbekistan and the Fund of Reconstruction and Development of Uzbekistan (together they own 82.18% of the shares), as well as a partially government-owned company group (national holding company Uzbekneftegaz, JSC Uzbekenergo, JSC Uzkimyosanoat, and JSC Uzbekiston Temir Yullari). An unknown foreign investor owns 0.48% of the bank’s shares. Another 3.98% are owned by other entities and individuals.

In August 2018, the bank served 960,500 clients. According to the results of the third quarter of 2019, the bank’s net profit was more than 327 billion Uzbekistani som ($34.4 million). Uzpromstroybank has a credit rating of ‘BB-’ and the outlook is stable, according to the international rating agency Fitch Ratings.

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