Kazakhstan looks set to be the CIS region’s biggest victim of the fallout from the problems in the US sub-prime mortgage market, with the country’s banks seen as the most vulnerable in the Commonwealth of Independent States to any reduction in global liquidity. In recent weeks, the country has been hit by ratings downgrades, whipsawing bond and equity prices, and pressure on the currency. Furthermore, the track record of the banking regulators – previously regarded as the best in the region – is now beginning to look tarnished.
As Reynold Leegerstee, managing director at Moody’s Investors Service in London, noted in a recent report entitled CIS Banking: Impact of the Global Liquidity Crunch: "Kazakhstan is undoubtedly the country in the CIS region that is set to feel the impact of the liquidity crisis on the world market the most." The report highlights the fact that of the banking sectors in the most important CIS economies, Kazakhstan’s is by far the most leveraged, and thus vulnerable to any sudden drying-up of liquidity and a reassessment of emerging market risk in the world market. For example, external bank debt as a proportion of total banking assets in Kazakhstan stands at 52.3%,