Guy Norton in Almaty -
With fears about the financial stability of the Kazakhstan banking sector reaching new heights in recent weeks, Bank CenterCredit's announcement that it had secured regulatory approval for its union with Kookmin Bank, South Korea's top financial institution, couldn't have been better timed.
While Bank CenterCredit (BCC) has traditionally enjoyed a well deserved reputation for being one of the more prudently managed financial institutions in Kazakhstan - it largely eschewed the option employed by many of its larger rivals of relaying on international bonds rather than domestic deposits to finance its growth - attracting Kookmin Bank in August as a strategic partner clearly ranks as a major coup and will undoubtedly help to boost its current number six position in the Kazakhstan banking league tables.
As well as the $500m that Kookmin paid for an initial 23% stake - $240m of which now placed on deposit at the bank by the selling shareholders - there's the prospect of more to come, with Kookmin ultimately seeking to achieve a 50.1% controlling stake in BCC within the next 2-1/2 years. Kookmin's total investment is set to reach $1.2bn, making it the largest overseas M&A transaction by a Korean bank.
But beyond the obvious financial benefits of the sale Timur Ishmuratov, managing director at BCC, says the Kookmin transaction will help to transform the bank's franchise and enable it to be a major force not just in Kazakhstan but in the rest of the Commonwealth of Independent States as well. "Kookmin will look to invest in the surrounding region through Bank CenterCredit," says Ishmuratov, who heads up the international department at the bank.
In addition to an existing operation in Russia, BCC Moscow, Ishmuratov says that Bank CenterCredit is awaiting approval for a banking licence in Kyrgyzstan where it currently only has a representative office. He adds that the bank is also looking at setting up shop in Turkmenistan, Ukraine and possibly Belarus in the foreseeable future.
Ishmuratov also says that with Kookmin on board as a major shareholder, BankCenterCredit is well placed to take advantage of the growing trade between Kazakhstan and South Korea. "Kazakhstan and Korea have had very strong trade links for over 10 years," says Ishmuratov. Kazakhstan principally exports oil and gas and other commodities to Korea, while importing high-tech goods and equipment in return. Ishmuratov says the South Korean government is also supportive of South Korean companies expanding their operations into Central Asia, with Kazakhstan as the most developed economy in the region being a natural starting point for such expansion.
As well as enabling BCC to add an international dimension to its operations, Ishmuratov says that the strategic partnership with Kookmin will deliver tangible benefits for the bank's domestic franchise, which like Kookmin's is predominantly focused on servicing retail clients and small and medium-sized enterprises. "We will be able to introduce new products and services as a result of the Kookmin Bank deal," says Ishmuratov.
In particular, he believes that Kookmin's expertise in fields such as credit cards will be of major assistance to BCC. "Korean banks are very strong in the credit card business and Kookmin has a 20% market share in Korea." With Kookmin's support Bank CenterCredit is looking to aggressively up its share of the credit card market in Kazakhstan from 6% at present to around 15%.
Overall, Ishmuratov claims that in the next two to three years the bank will be able to increase its aggregate market share of the Kazakhstan banking market to 15%-18% from around 7.5%-8% at present. At the less aggressive end of the scale, that would position the bank as the number four player by assets, with third place potentially achievable, says Ishmuratov.
While acknowledging that BCC is hardly unique in attracting a major foreign backer in recent times - traditional arch-rival ATF Bank was recently acquired by UniCredit Group, Ishmuratov claims that the overall fit between Kookmin and Bank CenterCredit will be far less disruptive than the Italian bank's $2.2bn purchase of a 100% holding in ATF Bank. Not only are both Kookmin and Bank CenterCredit similarly retail and small business-focused, but also Ishmuratov believes that the integration issues between the two banks will be far smoother and less disruptive than has been the case with ATF Bank and UniCredit. "The strategic business focus will stay the same and the top and middle management remains unchanged at Bank CenterCredit, whereas at ATF Bank they have all left."
In terms of the future prospects for the country's banking sector, Ishmuratov believes that while 2009 will prove a challenging year, dire predictions about the meltdown of the financial services sector in Kazakhstan have ultimately proved wide of the mark. "In our opinion the situation in the banking sector is improving - much of the debt due this year has been repaid."
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