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. Last Updated: 07/27/2016

Loan Crisis Threatens Boom in Kazakhstan

Some Kazakh banks, struggling to borrow from abroad, have stopped lending to home buyers and builders, threatening the country's eight-year economic boom, the government said.

"The situation on the world market has led to a deficit of money in the domestic construction industry," Trade and Industry Minister Galym Orazbakov said last week. "Some banks have unilaterally raised interest rates and others have stopped lending altogether."

The fallout from the U.S. subprime mortgage market rout is made worse by an increase in borrowing costs worldwide, pushing up wholesale financing rates for banks, which pass on the higher costs to retail borrowers.

Kazakh Prime Minister Karim Masimov directed the government to consider the possibility of buying houses at cost to help construction companies with financing.

State-owned Kazakhstan Mortgage Company should sell bonds to pay banks about 11 billion tenge ($90.5 million) for mortgages related to a government-led program to provide officials with the apartments, Orazbakov said in discussing possible measures.

The ministry also recommended that "big domestic and foreign investors" buy land from the construction companies "to boost working capital."

"Taking into account highly liquid assets of the construction companies, we need to prompt them to sell those assets to complete building projects," the ministry said. Kazakhstan also must implement steps for companies to sell additional shares to raise the funds needed for construction projects, the ministry added.

The economy of Kazakhstan, the biggest energy producer in former Soviet countries after Russia, expanded a preliminary 10.6 percent to $80.4 billion last year, led by the building industry. Kuat, Bazis-A and Elite Stroy, headed by President Nursultan Nazarbayev's daughter Aliya, are among the leading construction companies in the country.

"Some of the biggest companies, controlling more than 80 percent of the commercial building market, have stopped work at some construction sites," Orazbakov said.

Kuat, Kazakhstan's biggest construction company by sales, "decreased the pace of sales growth as the international global credit squeeze affected consumer demand," spokeswoman Asel Kapasova said. The effect "is notable for all Kazakh construction companies, but there is no reason to panic. We continue to cooperate with our banks."

"There was no decision to stop lending to the construction companies, but we consider new projects more thoroughly," Larisa Kokovinets, a spokeswoman for Kazkommertsbank, said last week. The bank, Kazakhstan's largest lender, makes loans to the country's biggest builders, including Kuat and Bazis-A, she said.

"The new money cost is higher," Kokovinets added.

Irina Yagodina, Almaty-based Bazis-A's spokeswoman, declined to comment.

"Some banks stopped mortgage lending and others boosted the lending rate to at least 20 percent," Orazbakov said, without naming any companies.

"As a result, the number of home buyers slumped and the majority of people who can afford to buy property stopped doing so."