A few people have already mentioned this, but I wanted to add a few thoughts on this as well. The sub-prime lending crisis in the US and its global repercussions hit Kazakhstan’s foreign capital dependent financial sector quite drastically. As the crisis is still looming in many parts of Western markets, this story is by no means over yet for the Central Asian snow leopoard either.

First, KZBlog ran a great story yesterday. He says that S&P has downgraded Kazakhstan to the lowest-possible investment grade, BBB-. The government is already taking steps to avoid a full-blown financial crisis:

Now the President has announced that the government may buy back shares in Kazakhstan companies. This will create an increase in demand, driving up prices and possibly allow for the government to subsidize Kazakhstan companies once they are owned by the government. A number of banks such as Kazkommerts, Halyk Bank, and Alliance Bank are listed on the London Stock Exchange, as are KazMunaiGas and KazMyz, the copper company.

Such a share purchase plan would in the end cost the taxpayer dearly, and doesn’t really seem to be a viable solution to the problem taking into account the budgetary constraints. With investment re-rating, however, comes in another option that could boost liquidity for the troubled banks: European banks, always keen to get a doorkey to Kazakh growth, might as well buy up those banks which are valued “realistically” thanks to the credit crunch.

Reuters carried a story on this topic yesterday, quoting Raiffeisen CEO Butler:

“We remain intrinsically interested in that market, although one has to recognize that it is a large country with a small population, so one would not want to overpay,” Butler said.

“There is a much more sober assessment of real value in Kazakhstan now,” he said.

neweurasia ran some posts on the instability in the banking sector previously that might provide some good background on the current situation. A more macroeconomic look at money growth is here, while this post here from February casted some light on the Kazakh banks’ over-exposure to foreign capital. More to come as the story develops.