UPDATE 1-Kazakh Alliance bank sees assets shrinking

(Adds asset decline forecast, CFO comments)

ALMATY, March 25 (Reuters) - Alliance (ALLBq.L) ASBN.KZ, Kazakhstan's fourth-largest bank, reported a surge in 2007 net profit on Tuesday but said its assets would shrink more than expected this year.

Last year's global liquidity squeeze hit Alliance as well as other Kazakh banks that relied heavily on foreign borrowing to fund rapid growth.

Alliance's net profit more than tripled in 2007 to 42.7 billion tenge ($348 million), it said. Assets grew 26 percent to $9.7 billion.

But this year the bank will have to use money from maturing loans to repay external debt, since refinancing would cost too much.

"We have two scenarios: a pessimistic one and an optimistic one," Alliance Chief Financial Officer Abylkasym Mamyrbekov said during a conference call on Tuesday.

"The pessimistic scenario provides for a 9 percent decline in assets in 2008, while the optimistic one projects a 7 percent decline."

The bank's loan book would decline by the same amount, he said.

Retail-focused Alliance had earlier projected a decline in assets of up to 5 percent.

(Reporting by Mariya Gordeyeva; Writing by Olzhas Auyezov; Editing by Erica Billingham)