DBK secured to finance farmers, but the bank has no money

Yesterday there was news that the Development Bank of Kazakhstan (DBK) will finance projects in the agro-industrial complex to the amount of 1.2 trillion tenge. The amount of financing is really impressive. For comparison, in 2023, investments in fixed capital of agriculture amounted to 981 billion tenge, of which only 269 billion tenge were borrowed. If the DBK can finance such an amount, it will be about 4.5 times the "annual norm" of the entire industry. But how realistic are these plans? An analyst from the World of NAN editorial board looked into it.   

Let's first look at how much money the DBK have according to the latest data. As at the end of 2023, the DBK had 642 billion tenge of cash on its books, excluding its subsidiary, the Industrial Development Fund. And including subsidiaries - KZT889 bln. Industrial Development Fund is engaged in leasing, so its money should not be taken into account in the analysis. It is obvious that right now the DBK will not be able to immediately finance projects worth KZT1.2 trln. DBK will not spend all KZT642 bln on it, as companies should always leave some comfortable level of cash for operating activities. And the CDB does not only finance the agribusiness sector.

In terms of sectors, it turns out that the agribusiness sector was not particularly favoured by the DBK before. Judging by the website, from 2016 to 2023, the DBK financed 11 agribusiness projects (9 different companies) totalling KZT125 bln. In comparison, the list of financed projects as a whole consists of 99 pieces and the total amount of loans disbursed at the end of 2023 is KZT2.2 trillion. Judging by the statements, out of this 2.2 trillion, DBK allocated KZT19.5bn to agriculture and KZT111bn to food production, which plus or minus coincides with the data on the bank's website. That is, the total share of the agribusiness sector in the DBK's loans is only 6 per cent.

Yes, DBK can increase financing in agribusiness, but it is clearly not ready to give KZT1.2 trillion now. Unfortunately, in the original news there was no information about how long it is planned to issue such amount. Nevertheless, the news mentions the President's message, which states the task to increase the share of processed products in the agro-industrial complex to 70% within three years. Perhaps, this amount will be issued within three years. In any case, even if we imagine that DBK will issue loans only to the agribusiness sector and nobody else, the possible scenario looks like this: right now the bank is issuing KZT300-400 bln, and the rest of the amount will be issued at an annual rate of KZT100-150 bln, as this is how much the bank generates annually in net profit from the loans already issued.  

Thus, the whole story may drag on for 5-8 years, and we remind you that this is on the condition that other sectors will not receive money at all. Or it will be necessary to attract external financing, so that the DBK could provide it to the agro-industrial complex. There may be problems with this, as for the last 4 years DBK managed to attract only KZT95 bln in the form of bonds at a concessional rate of 0.5%, and another KZT72 bln of contribution from ERG at a rate of 0.24%. That is, either someone will have to give DBK a lot of money at a low interest rate, or the bank will have to take money from the market at 12-13% per annum, which will lead to higher interest rates on loans and, consequently, to fewer approved projects in the agro-industrial complex.

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