Kazakh banks see asset quality decline in H1 2008

ALMATY, March 5 (Reuters) - Kazakh banks expect their asset quality to weaken this year in the aftermath of the global liquidity squeeze and will tighten lending rules accordingly, a survey by the central bank showed on Wednesday.

The liquidity crunch has left the Central Asian country's banks facing massive debt repayments, with few sources of fresh funding, and led to a considerable slowdown in economic growth.

"Banks expect credit risk to rise somewhat in the first half of 2008, which will be seen in a higher number of restructured loans and repossessions of collateral," the central bank said in a statement.

Most banks, especially the top five -- Kazkommerts (KKGByq.L), BTA BTAS.KZ, Halyk (HSBKq.L), Alliance (ALLBq.L) and ATF ATFB.KZ -- have already tightened their lending rules and plan further adjustments, the central bank said.

Property is the most common form of collateral in Kazakhstan and its continued devaluation is putting pressure on asset quality.

"About 80 percent of those surveyed expect the average real estate price to decline," the central bank said.

Banks also see the liquidity risk as persisting, it said. Kazakh banks need to repay $12 billion of foreign debt this year. (Writing by Olzhas Auyezov, editing by Elizabeth Fullerton)