“This is because the banks’ foreign currency-denominated assets have materially increased, while their capital continues to be denominated in tenge,” said Stadnard & Poor’s credit analyst Annette Ess. “We believe that banks’ weak profitability and the limited ability and willingness of banks’ shareholders to provide additional capital cannot compensate for a fall in capitalization ratios.”

Banks with a share of foreign currency-denominated loans substantially above the already high system average of an estimated 35%-40% will be the most affected, the report says.

Since the National Bank of Kazakhstan (NBK) and the central government unpegged the tenge from the dollar on Aug. 20, 2015, the tenge has depreciated by approximately 50%.

Standard & Poor’s view on capitalization of the Kazakh banking sector is more conservative than the official regulatory statistics, due to different methodologies. According to our methodology, the capitalization of the banking sector of Kazakhstan is moderate at best, as evidenced by Standard & Poor’s average risk-adjusted capital (RAC) ratio of about 7% as of year-end 2014, calculated under our methodology for financial institutions. We expect the average RAC ratio for Kazakh banks to deteriorate to about 6.3%-6.6% as of year-end 2015 due to the impact of tenge depreciation, weak profitability, and limited new capital provided.

“The pressure on banks’ capital positions suggests that we cannot exclude the possibility of downgrades on certain Kazakh banks as reflected in current negative outlooks on several of those,” said Ms. Ess.

“In particular, negative rating actions could stem from reassessments of the capital and earnings position of those banks whose capitalization, as measured by our forecast RAC ratio, will be materially impaired by tenge depreciation in 2015, among other economic factors,” Ms. Ess continued.