BUSINESS/FINANCE

Finance In Brief

Growth in the world oil prices has allowed to "Aktobemunajgaz" (Kazakhstan) to receive 540 million tenges of the net income in 1999

/IRBIS, April 7/

Oil extracting company Aktobemunaigaz (Aktobe, Kazakhstan) finished 1999 with the net profit of 540.2 million tenges in comparison with the 30.6 million tenges loss in the previous year. REUTERS was informed by a source from the company. He said that the Company improved its economic position in connection with growth of the world oil prices in the second half of 1999.

The shares of joint-stock company Aktobemunaigaz are traded on KASE in the sector "Non-listing securities" at the second admission level.

Capitalization of the market of Non-state Securities of Kazakhstan on April 7 - $2,205.3 million

/IRBIS, Apr.7/

On April 7 capitalization of the exchange market of Non-state Securities of Kazakhstan (A + B + N without the State Block of Shares) has amounted to $2,205.3 million.

For two weeks capitalization has decreased by $23,050 mostly due to excluding from the Non-listing Securities sector 30 shares of 29 non listed companies an also due to decrease in the prices of common shares of JSC "Temirbank" by 0.4% and of common shares of JSC "Corporation Kazahmys" by 25.0%.

Listing of the common and preferred shares of JSC "Almaty - Kuss" slightly countervailed dip of capitalization.

The deals can be made on KASE today in 21 tools of the 40 companies and 4 state blocks of shares.

Weeks volume of trades in Non-state Securities on KASE - $70,600

/IRBIS, April 7/

During 15th (April 3 - 9) on the Kazakhstan Stock Exchange 5 deals were made in Private Securities to the total sum of 70,600 dollars, which is 11.1 times less than in the previous week, when 24 transactions to the sum of 711,200 dollars were made.

In total 9,337 stock and bonds were purchased compared to 292,280 of the previous week.

The trade in common shares of JSC Temirbank (TEBN, official list, category �A�) were most liquid. They have occupied 94.0% from total number of deals.

Also deals were made in common shares of Kazakhmys Corporation (KZMZ, official list, category �B�).

All 5 transactions have been conducted in the KASE Quoted System, excluding automatic satisfaction of the counter auction applications. In the previous week 11 transactions were made in the KASE Quoted System and 13 in the counter auction mode.

Introduction of the Kazakhstani deposits insurance fund has increased banks' deposits by $22 million

/IRBIS, April 7/

Chairman of the National Bank of Kazakhstan Grigory Marchenko has declared today at the press-conference that the introduction of collective insurance of the banks' deposits has increased in February deposits of the Kazakhstani banks by $22 million, mostly at the expense of the cash dollars of the population.

While collective insurance covers only the fixed period deposits. It explains outflow of money from the call deposits in February.

By the data of the National Bank in February volume of all deposits in the banking system (including deposits of the legal persons) has increased by 3.8% and has made 174.5 billion tenges ($1.25 billion).

U.S. dollar market of Kazakhstan: day results

/IRBIS, Apr.7, 00/ - Following is the table of major indicators of Kazakhstani market for U.S. dollar (more than 98% of country's all currency market).

Trades in U.S. dollars at Kazakhstan stock exchange (KASE)

Indicative U.S. dollar quotations on interbank market in information system REUTERS at closing of KASE sessions (disregarding settlement dates)

Notes: Best bid and ask prices at closing of the trades are shown as the Exchange quotations.

Today exchange market was active. Reception of the first half of money on SS redemption of the current week has allowed the dealers to speculate for the dollar rise both on the main and on additional trades. On the basic session the resultant dollar rate growth was stipulated by the high market opening (during trades the rate did not vary essentially), on the additional session each deal was made at the higher price, than previous. In result by 3:30PM dollar price reached a level of 142.58 tenges for dollar.

The evening forward accounts trades were idle. It is possible that in the second half of a day the dealers switched to the off-exchange operations. The indicative quotations testified to rather fast dollar growth till the off-exchange market closure.

By indicative interbank quotations of the dollar in REUTERS information system, tenge lost 32 points in comparison with previous day closing on demand and 33 points on supply of the American currency.

There is an impression of high tenge liquidity of the bank of the second tier. As well as of the banks' desire to invest in dollar. MEKKAM-6 placement has had a limited influence on the dealers' behavior.

Quotations of the shortest tenge loans changed from 2/6 to 4.5/7.5-8% p.a.

In opinion of the IRBIS experts, the banks will be capable to keep today's dollar rate trend on Monday. However growth rate can be not so high. At the existing limited money base the USD market "overheating" can be reached rather fast.

Weekly Ministry of Finance of Kazakhstan balance on the SS domestic market - minus 2,153.6 million tenges

/IRBIS, Apr. 7, 00/ - The Ministry of Finance has finished 15th calendar week (April 3 � 9) in the State Securities primary market with the following results. At actual volume of redemption of 2.817.6 million tenges the emitter attracted 664.0 million tenges at the 4 auctions.

The week balance of the emitter is minus 2,153.6 million tenges.

According to the Ministry of Finance, AVMEKAM coupons will be paid on April 10 at the rate of $7.5 mln equivalent.

One year after Kazakhstan switched to free floating exchange rate of tenge � National Bank

/IRBIS, Apr.7/

The National Bank of Kazakhstan has published a special press-release devoted to one year results after the country switched to free floating exchange rate of tenge against the dollar (FFER). Considering the importance of the topic, following is the publication of the press-release by the agency IRBIS in its original form without any changes and corrections.

From April 5, 1999 the Government and the National Bank undertook a switch to free floating exchange rate. It was a forced measure caused by external economic situation that was settled at that time, first of all, by a sharp devaluation of Russian rouble in 1998.

The switch to FFER was not spontaneous. Prior to that, possible scenarios of further developments were analyzed, especially those in Russia, as well as possible ways the exchange rate of tenge could behave under different currency regimes. Pros and cons of each way were assessed: from the point of view of expected balance levels of tenge exchange rate, payment balance, gold and currency reserves, budget deficit, each segment of financial market, social indicators. Final decision was the necessity of FFER for open economy of Kazakhstan and unstable international financial and commodity markets.

Of course, fears regarding negative consequences remained. Therefore, the ways of reducing them, that were widely commented in the mass media, were thoroughly worked out.

The first results of the introduction of FFER was expected not earlier than half year later. And now a year has passed. Now we can answer the questions: what are real consequences of FFER, could any other economic condition be formed, what kind of consequences were prevailing: positive or negative?

The main positive trends: economic growth of the country in 1999 equaled 1.7%, payment balance of the country has significantly improved, gold and currency reserves of the country has grown, banking sector kept strengthening.

The main negative consequences: inflation � 17.8% in 1999 (against 1.9 in 1998), growth in proportion of dollars in monetary turnover up to 51% (from 42.1%), appearance of direct dependence of the state internal borrowing on the changes in exchange rate, worsening of the loan portfolios of the banks.

Now, let's consider degree of influence of the introduction of FFER on each of these factors.

1. Inflation and production. Growth in the world prices for oil and significant devaluation of tenge affected the growth in general price level in the country. At the same time, in February of current year inflation equaled 0.1%, and in March � 0%, i.e. wave of the inflation, caused by the events of 1998-1999, has finally vanished.

The growth in the economy of Kazakhstan was mainly determined by price conjuncture of the world commodity and raw material markets and favorable weather conditions (in 1999 growth in agriculture reached 28.9% as a result of the highest harvest during the last few years).

Devaluation of tenge had an impact on the growth in some import substitute industries (textile, sewing and a few food industries). If GDP of 9 months of 1999 is examined, its growth reached 5.3%, of which 3.6%, by our calculations, is net effect of the devaluation.

2. Payment balance. In 1999 following remarkable events took place. For the first time in last four years the trade balance equaled positive 344 mln U.S. dollars (in 1998 the deficit was 801 mln U.S. dollars). Deficit of operations of current accounts decreased 171 mln U.S. dollars (1.1% of GDP), which is 7 times less than that of 1998 (1,224.6 mln U.S. dollars, or 5.5% of GDP).

Such results were achieved only due to the second half of 1999, i.e. when the effect of the devaluation was obvious and the world prices for oil and other commodities were growing. Deficit of current account changed into an active balance (in the II quarter exports grew 38% compared to similar period of last year, and imports fell almost 14%).

As a whole, imports (FOB) fell to 5,644.8 mln U.S. dollars (15.4%), and exports (FOB) grew some to 5,988.5 mln U.S. dollars (2%).

Trade with CIS countries is more dependent on the real exchange rate of tenge, whereas exports to other foreign countries are more dependent on the dynamics of the world prices.

Reduction in the volume of attracted foreign capitals, which followed the Russian financial crisis, became more important immediately after the devaluation of tenge. And only by the end of the year resumption of economic growth and improvement in the conjuncture of the world commodity markets were affecting the inflow of external financing significantly. As a result, in 1999 net inflow from the operations with capitals and finances decreased to $1,065 mln (1.7 times less than in 1998).

Under the condition of limited access to private markets of capitals and significant reduction of inflow of official loans external financing was sustained mainly by direct investments of strategic investors into oil and gas and energy industries. Sharp growth in external borrowing took place in IV quarter of 1999, when sovereign bonds of Kazakhstan for $300 mln were launched on international capital markets, and after signing an agreement with IMF under EEF program the World Bank has granted a total of $175 mln loan to conduct pension and structural reforms. Net inflow of direct foreign investments in Kazakhstan was registered at $1,583.0 mln (in 1998 � $1,143.3 mln).

By the estimates of the National Bank, gross external debt as of December 31, 99 fell $330 mln to $7,893.0 mln. State loans and the loans granted under the state guarantee reached $4,055.6 mln, almost unchanged since the beginning of the year. External debt, not guaranteed by the government, grew slightly during that period � from $2,737.1 mln to $2,837.4 mln. Accounts receivable of the enterprises was accepted as of Sep.30, 99 - $1,000 mln, was at $1,485.3 mln at the beginning of the year.

External debt servicing norm (proportion of repayments and servicing of external debt to exports of goods and services) equaled 27.3% in 1999. Proportion of gross external debt to GDP and to exports of goods and services were 49.9% and 114%, respectively.

3. International reserves. Introduction of new exchange rate of tenge began to positively influence the dynamics of international reserves from the second half of 2000.

Despite significant expenses related to servicing state external debts and the loans granted under the state guarantee and the obligation of the National Bank to convert the deposits of the population and legal entities that were voluntarily left for 6 and 9 months, the National Bank increased gross reserves to $2,002.7 mln (25.3%) from April through December, 1999, and from April, 1999 through March, 2000 � to $1,872.7 mln (17.2%).

4. Monetary aggregates. From April, 1999 through March, 2000 (by preliminary estimates) monetary base expanded 55.8%, to KZT101.6 bln. growth in international reserves of the National Bank and repayment of pensions, allowances by the Ministry of finance in December were the major factors of the expansion.

During that period monetary mass grew more than twice (104.3%) to KZT272.4 bln. Positive trend of increasing deposits in the banking system in the structure of monetary mass was continuing (from 56.7% to 66.7%).

5. Financial market and banking system.

Currency market. More stable dynamics in the exchange rate of tenge fluctuation and the decline in currency risks after eliminating overvalued exchange rate of tenge were the positive moments of the introduction of FFER. If devaluation was 4.9% in the first quarter, in the 2nd - 50.2% (introduction of FFER), in the 3rd - 5.9% (adaptation period), then in the 4th quarter revaluation was observed - (-)1.3%. Average monthly devaluation in the 1st quarter of 2000 fell from 1.6% to 0.9% compared to similar quarter of 1999.

Overhead expenses of switching to FFER were significantly reduced by using the complex of "prophylactic" measures. However, some overhead expenses of currency market participants remained. Payments of loans in foreign currencies have increased for the lenders who have only inflows in tenge.

Presently, most of currency deals are made on interbank currency market again. Volume of currency transactions at the Exchange equaled $2.2 bln from April 5, 1999 through March, 2000. Weighted average rate of tenge at the Exchange was at KZT141.95 per U.S. dollar in late March of this year, 2.7% increase from the beginning of the year. Since the inflation was also 2.7% in the first quarter, then real rate of tenge towards the dollar was stable.

Monthly growth rates of the deals between the banks-residents reached 14 � 31% on average. Total amount of deals made by the banks-residents from April, 1999 through February, 2000 equaled $1.9 bln.

At the same time volume of net sales of cash hard currencies to the population decreased 11.4% relative to January-February of 1999.

Market for state securities. In general, introduction of FFER caused the market for state securities of the Ministry of finance denominated in tenge to shrink - from April, 1999 through March, 2000 in circulation volume of the securities of the Ministry of finance denominated in tenge fell to KZT47.2 bln (23.9%). However, due to the introduction of currency instruments circulation volume of state securities increased to KZT11.8 bln (68.6%) in terms of tenge.

Negative consequences were as follows: cost of state borrowing became dependent on the change in the exchange rate of the U.S. dollar, increase in the National Bank's expenses were based on the regulation of the liquidity of the banks. During April, 1999 through April, 2000 volume of tenge notes of the National Bank rose to KZT5.0 bln (41.9%), expenses related to servicing currency notes equaled $0.14 mln.

Depository market. Under the condition where external borrowing was getting expensive commercial banks were getting more active in increasing their resources: the competition between the banks for attracting free funds of the population and that of the enterprises has become strong, the number of depository services has increased, as well as the quality of services has improved.

Increase in total amount of deposits in banking system means that the trust of the population in banking system has increased, which can be attributed to conversion of deposits of private persons and legal entities by the National Bank and the government in the first place. Of course, creation of an insurance system for time deposits of private persons, and adoption of the law on bank secrecy played an important role.

From April, 1999 through February, 2000 deposits grew more than 2.4 times (excluding exchange rate difference the growth was 94.2%), at KZT174.5 bln. Deposits of the population increased by 94.0% (excluding exchange rate difference the growth was 48.7%).

However, significant devaluation of tenge caused the process of increasing the proportion of dollars in the country to intensify. Proportion of currency deposits within total amount of deposits rose from 42.1% to 51%.

Loan market. Growth in bank liabilities, especially in their basic component � deposits, allowed the banks to maintain their previous loan activities at the same level. From March, 1999 through February, 2000 volume of bank loans in the economy grew by 60.7% (excluding exchange rate difference the growth was 28.8%) and equaled KZT154.1 bln. With that, weighted average interest rate on tenge loans fell from 22.2% to 21.5%. The policy of the National Bank to decrease official refinancing rate has made a downward impact on general level of market rates of the loans in the economy of the country. Thus, from the time FFER was introduced official refinancing rate fell from 25% to 16%, official refinancing rate for REPO operations - from 23% to 19% and official refinancing rate for "overnight" loans - from 27% to 21%.

Proportion of mid- and long-term loans has increased (from 38.9% to 50.1%) in the structure of all loans, caused mainly by an increase in the number of time deposits attracted and prolongation of their terms.

Devaluation Has A Positive Effect on the Kazakhstan economy - National Bank

In March inflation was 0%

Kuanysh ZHUMANGAZINOV

ALMATY, Apr 10

(THE GLOBE)

�On the whole, the tenge's devaluation has had a positive effect on the national economy and on the stock market of Kazakhstan,� the National Bank's Chairman announced on Friday in Almaty, summing up results on the first anniversary of the free-floating tenge rate (FFTR).

Over this period the country's balance of payments, which in the fourth quarter of 1999 had been US$420 million, has significantly improved. �At this rate, for the first time in the history of independent Kazakhstan, a positive balance for the year 2000 is possible,� Grigory Marchenko said.

The NB chairman also announced that the introduction of a FFTR had helped Kazakhstan to kick start economic growth, which, over the last 9 months of last year had been 5.3% (of which 3.6% was a direct consequence of devaluation).

Such healthy figures for Kazakhstan's economy were caused mainly by rising oil and metal prices: the two being the country's main exports. Another important factor was the stabilisation of the economic and political situation in Russia.

However, Mr. Marchenko said that the tenge's devaluation had also resulted in some negative consequences. The first of these is inflation. �In comparison with the year before last, in 1999 inflation increased to 17.8%; although this inflation wave has now mostly died out,� the NB director said. In March 2000 the inflation rate continued to fall. According to monthly results, it was 0%: mainly due to successful monetary-credit policy. On the whole, for the first quarter of this year, inflation was 2.7%, and devaluation of the exchange rate � 2.71%.

Secondly, devaluation has sped up the process of �dollarisation� in the economy, standing at 51% of the annual turnover (earlier 41%).

Thirdly, the value of the national domestic debt has become directly dependent on fluctuations in the currency's exchange rate.

Speaking of latest achievements in the banking market, the National Bank Chairman also pointed out the issuing of a new law on banking secrets. It took into account almost all of the suggestions made by the National Bank, the Association of Kazakhstan's Financiers and the Association of Banks. Thus, banking secrets have been protected for individuals.

Mr. Marchenko said that various trends had been observed in the country's banking sector following the introduction of the FFTR. On the one hand, it was profitable to banks, as most part of their assets were held in foreign currency. On the other hand, banks lost out because of the reduced quality of their credit portfolio. On the whole though, Kazakhstan's banking system remained stable and completed the test of strength.

Due to mergers and restructuring amongst finance houses, the number of banks has fallen from 71 to 53. Grigory Marchenko said that second-level banks would perhaps be submitted to audit checks by the �big five� companies (Arthur Andersen, Deloitte & Touche, Ernst & Young, KPMG, Price WaterhouseCoopers) At present only first-level Kazakhstani banks need undergo such checks.

U.S. dollar market of Kazakhstan

ALMATY, Apr 10 (IRBIS)

Following is the table of major indicators of Kazakhstani market for U.S. dollar (more than 98% of country's all currency market).

Trades in U.S. dollars at Kazakhstan stock exchange (KASE)

I

Indicative U.S. dollar quotations on interbank market in information system REUTERS at closing of KASE sessions (disregarding settlement dates)

Notes: Best bid and ask prices at closing of the trades are shown as the Exchange quotations.

Today exchange market was active. Reception of the first half of money on SS redemption of the current week has allowed the dealers to speculate for the dollar rise both on the main and on additional trades. On the basic session the resultant dollar rate growth was stipulated by the high market opening (during trades the rate did not vary essentially), on the additional session each deal was made at the higher price, than previous. In result by 3:30PM dollar price reached a level of 142.58 tenges for dollar.

The evening forward accounts trades were idle. It is possible that in the second half of a day the dealers switched to the off-exchange operations. The indicative quotations testified to rather fast dollar growth till the off-exchange market closure.

By indicative interbank quotations of the dollar in REUTERS information system, tenge lost 32 points in comparison with previous day closing on demand and 33 points on supply of the American currency.

There is an impression of high tenge liquidity of the bank of the second tier. As well as of the banks' desire to invest in dollar. MEKKAM-6 placement has had a limited influence on the dealers' behavior.

Quotations of the shortest tenge loans changed from 2/6 to 4.5/7.5-8% p.a.

In opinion of the IRBIS experts, the banks will be capable to keep today's dollar rate trend on Monday. However growth rate can be not so high. At the existing limited money base the USD market "overheating" can be reached rather fast.

All Over the Globe is published by IPA House.
© 1998 IPA House. All Rights Reserved.