The report, titled "Banking Industry Country Risk Assessment: Kazakhstan" says that, in Standard & Poor’s opinion, problem loans in the sector are likely to peak in the second half of 2010.

"We expect limited ratings upside potential for Kazakh banks in the near term, at least until economic pressures ease considerably and fundamental imbalances are restored," said Standard & Poor’s credit analyst Mikhail Nikitin, who wrote the report.

Positively, the report says that Standard & Poor’s expects Kazakhstan’s economic prospects to improve over the medium term, as a result of the country’s general hydrocarbon wealth, which is likely to encourage an eventual recovery of asset quality of the country’s banks.

However, Standard & Poor’s has no expectation that bank asset-quality indicators will recover to levels last seen before mid-2007 for at least two years.

"We believe that the growth in Kazakh banks’ capitalization and development dynamics in 2010-2011 is likely to lag the long-awaited turnaround in the overall economy. We expect a return to more normalized operating metrics only after 2011, said Standard & Poor’s credit analyst Ekaterina Trofimova, who contributed to the report.

"The current market turmoil should reinforce stronger players with more sustainable business strategies and more conservative financial profiles. We believe that midsize banks are likely to be the main asset growth drivers, at least in the next 12-15 months," Mr. Nikitin added.