As the crisis deepened on the global oil markets Kazakh mining companies increased their debt to both local banks and foreign creditors. At the end of July 2016 total loans Kazakh banks issued to extractive companies stood at KZT370bn, 26% up year on year.
Traditionally, extractive companies took fewer credits from local banks when they could attract greater sums at more favourable interest rates on foreign capital markets. The mining sector’s loans taken from Kazakh banks fluctuated around KZT300bn. However, in the second half of 2015 extractive companies started increasing demand for local credit which resulted the sector’s debt growing to KZT456bn at the end of 2015.
This year the volume of total loans to local banks started decreasing, losing 19% in the first seven months of 2016.
Demand for local credit is growing on the back of extractive companies’ return to foreign capital markets. It is worth noting that since the 2007-2009 crisis Kazakh producers of hydrocarbons and metal ores decreased their debt to $10.2bn at the end of September 2014.
However, in 2015 the sector’s foreign debt started growing sharply, increasing by 13% to $11.7bn in the first half of the year. In the entire 2015 it grew by 16% to $12bn.
In 2016, the growth continued and the sector’s foreign debt reached $12.2bn at the end of March.
Extractive companies most actively obtained loans from local banks in February-April. They received loans worth KZT75bn, with the highest amount of loans received in March when it totalled KZT36bn.
After April the issuance of new loans to the sector decreased by 16% year on year in May and 29% year on year in July, but increased by 24% year on year in June.
In total, the volume of new loans to mining companies stood at KZT121bn in January-July, 14% up year on year.
The structure of loans shows that mining enterprises obtain loans in Kazakhstan to fund short-term spending, not to invest in long-term projects. Out of KZT121bn of new loans issued in the first seven months of this year, KZT73bn was short-term loans, or 60%.
Nevertheless, demand for short-term cash from extractive enterprises is falling as the volume of short-term loans decreased by 23% year on year in January-July 2016.
In turn, the volume of long-term loans to the sector jumped by 300% from KZT12bn to KZT48bn in the past year.
One of the reasons for slowdown in loaning the sector is the timely servicing of loans by mining companies. At the moment, the share of overdue loans is 16%, including 16% on long-term loans and 19% on short-term loans.
This is below than a year ago (24%) but higher than a limit of 10% set by the regulator.
By the end of 2015 the level of overdue loans fell by 10% but the quality of loans to the mining sector started deteriorating again at the beginning of 2016.