CONFERENCE CALL: Kazakh bankers' take on crisis: "Been there, done that"

By bne IntelliNews October 3, 2008

Clare Nuttall in Amaty -

For the second year running, BTA Bank's Almaty Interbanking Conference opened in the midst of a financial crisis. Last September, the Kazakh banking sector had recently been plunged into turmoil; this year, the conference opened after a 10-day firestorm that had devastated global financial markets.

Any relief on the part of the Kazakh banks that the direst predictions for their sector haven't been realized was tempered by new uncertainty about the future. With the financial crisis taking its toll on banks in New York and London, a re-opening of the international capital markets had become a distant mirage.

This resulted in a thoughtful and sombre mood among delegates. Even the leggy models, sporting tiny skating skirts and crop tops in BTA's red and pistachio corporate colours and handing out welcome packs at the door, failed to raise many smiles. And on opening the conference, Mukhtar Ablyazov, chairman of BTA's board of directors, immediately struck a note of humility, thanking delegates for coming to Almaty at a time when "everyone is experiencing major difficulties".

Kazakh Prime Minister Karim Massimov, speaking by video link from Astana, continued in a similar vein. "The world is at the centre of a big storm that started in the US a few days ago," he began.

However, he went on to point out that the situation in Kazakhstan looks better than it did a year ago. "Kazakhstan was one of the first to have suffered the global credit crunch, and was able to go through it despite the predictions of many analysts," he said. "No Kazakh banks defaulted, loans have been repaid, and banks showed they were able to withstand the crisis."

Roman Solodchenko, chairman of BTA's management board, was also moderately positive, saying he believed there had been a decoupling between the Kazakh and international financial markets, meaning that local banks would be better able to weather this year's shocks than those of mid-2007. "When we met last year, the crisis had just started, and we were at our most vulnerable point," Solodchenko told bne. "I think the worst is behind us. It would be naïve to say the world financial crisis won't affect us - it will. But it won't have the same impact as last year. I believe we are much better prepared for any difficulties and challenges we are facing in the future."

But later in the day, he was pulled up by Elena Bakhmutova, chairman of Kazakhstan's banking regulator, the AFN, for being somewhat over-optimistic. "The crisis is not over yet and we have to be very cautious with optimistic forecasts," Bakhmutova warned.

ATF Bank's chairman, Alexander Picker, also took a less sanguine view than his peers. While agreeing with fellow panellists that the liquidity issue had largely been solved for Kazakh banks, he added that the effects of the crisis "will affect the real sector for quite some time," since the level of non-performing loans with Kazakh banks were a cause for grave concern. "The regulator is taking action, but the real task lies with the banks. They must tackle non-performing loans.

State support

Talk of stricter regulation for Kazakh banks might seem - as one delegate confided over coffee and cookies - like shutting the door after the horse had bolted. However, it was the regulators and the government officials, rather than the banks, that took centre stage for much of the first day of the conference.

Bakhmutova outlined some of the measures currently being taken to reduce risks in the banking sectors. Discussing the harder line the regulator is now taking, she said: "The market has to consolidate. The majority of banks have enough resources to increase their capital. For banks without the resources to do this, it is better that they either leave the market or restructure as a micro-credit organization or other type of non bank financial institution."

But as, Anvar Saidenov, governor of the National Bank of Kazakhstan, illustrated, the implications of the banking and real estate crisis have been wider than those two sectors alone. As a result, the Kazakh government has been trying to strike a balance between tough love for the banks, and careful nurturing for other sectors of the economy. "The next turmoil in the financial markets is just around the corner, and for refinancing, the horizon of uncertainty is getting more distant. We thought the markets would be open again by August 2009. We're not so optimistic now," Saidenov said. "The financial system has to operate under this turmoil, and banks could find it more complicated to repay debt in 2009 than in 2008 as they have already cut back their assets and loan portfolios." This, he pointed out, "will lead to decreased business activities in the domestic market. Government action is needed to help sectors that have been hurt by this."

The high-ranking government officials present at the conference showed they had already taken on this responsibility. In his address, Finance Minister Bolat Zhamishev outlined government plans for a distressed asset fund to take over non-performing loans - at prices to be set through independent audits - and thereby restore confidence in the banking sector. The government is looking to invest up to $1bn in the fund, and seek a further $5bn from the private sector, Zhamishev said.

Learning from experience

It was noted, however, that a few days after Lehman Brothers' collapse, there were still no bankruptcies among Kazakhstan's banks. For the most part, delegates and speakers were charitable, one dubbed Kazakh bankers as "second-year students" in learning to live with the reversal in international financial markets.

There was, admittedly, a small note of schadenfreude that the crisis had come back to bite the West. One of the few explicitly to voice this sentiment on stage was BTA's CFO Khalil Kamalov, who pointed out that the credit boom was imported from the west - both the model and the cash. "The crisis was an imported crisis," Kamalov said, while conceding that there had been mistakes made in Kazakhstan too. "Previously we had indulged ourselves with the abundant foreign equity," he said.

Overall, the conference may have started just as international financial markets were plunged into gloom, but it was definitely not a wake. Kazakhstan's banks could take pleasure in the fact that they had weathered more difficult conditions than today's and survived. Foreign interest in the country was also evident, with international banks such as HSBC, VTB Bank and RBS affirming their commitments to the Kazakh market.

When it came to the final evening, a night of hunting and fishing games followed by a disco on the shore of the Altyn Kol lake near Almaty, delegates seemed more inclined to dance the night away than drown their sorrows.

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