Nick Kochan in Almaty -
As the head of the National Bank of Kazakhstan, Kairat Kelimbetov is the leading spokesman and policymaker for economic policy in Kazakhstan. He is also a close confidant of President Nursultan Nazarbayev. So when he says his country is "very scared of radical sanctions" being imposed on Russia, it is clear that events in Ukraine are sending shockwaves through Central Asia.
In an interview with bne, Kelimbetov said Kazakh officials are currently trying to estimate the consequences of the sanctions regime imposed on Russia by the US, EU and other nations. "The Russian economy will be impacted by sanctions and with negative growth. There will be an indirect influence on the Kazakhstan economy," he says.
Furthermore, he says Kazakhstan is "very scared of radical sanctions" that might follow if the crisis in Ukraine deepens. "Russia is our biggest trade partner and we are in a Customs Union with them," he says. "Definitely this is not the situation that we like. This is only a concern at the moment, but we realise that this [could] very soon become a reality. Everything will depend on how the US and the EU develop the situation. It depends on the situation in Ukraine, but this is a lose-lose situation. It is beyond our control, as it is politically driven, not economic," he says.
The impact of the sanctions has already been felt in the degree of uncertainty that it has created over policymaking. For example, the government of Kazakhstan is known to be preparing a sovereign Eurobond issue. But the timing of this issue has been thrown into disarray by the regional uncertainty. This in turn is impacting other Kazakh corporates who also are looking to issue bonds.
The uncertainty has also forced the government into some unplanned actions, notably the 19% devaluation of the tenge, sprung on the population in February as a response to the fall in the Russian ruble. "In February, we realised that we were in a very uncompetitive situation for the economy," Kelimbetov says. "Reserves had decreased over 2013, from $28bn to $24bn. In the first two months of 2014, we continued to lose reserves. The National Bank was facing speculative attacks on the currency. We saw the line of people who wanted to exchange the tenge for the dollar growing and we decided we couldn’t artificially support this level of the currency. We would get out of the market. Then we started to support the tenge at the level of 185 tenge to the dollar, a weakening of 19%."
"If you asked me if I am now comfortable with the situation of the tenge versus the ruble, I would say yes. We now have room for some reserves. The economy has responded in a proper way to the changes. The reserves of the National Bank have returned to $28bn. The joint reserves of the government and the National Bank now exceed $100bn, which is where they were before the crisis," he says.
Kelimbetov has redoubled efforts in the wake of the Ukrainian crisis to deal with one of the spectres hanging over the local banking system , namely their level of non-performing loans (NPL). These are a legacy of rampant, unsustainable property lending before the global financial meltdown in 2007-2008, but the country has failed to provide the institutional tools to allow banks to work them down to a safer level – something Kelimbetov believes would put the banks on a surer footing. "There was a very tolerant policy towards NPLs [under previous governor Grigori Marchenko]. When I arrived, everyone understood that we couldn’t continue this policy," he notes.
Kelimbetov, who was appointed in October 2013, says the previous system of banks provisioning against NPLs had allowed banks to misrepresent to the regulator that everything was normal "when it was far from that," adding that this had led to led to "zombie behaviour" by the banks.
Today, banks are being encouraged to get rid of bad property assets by putting up equity, which they place with the National Bank as collateral. The scheme is backed by $1bn of government funds. Management of the non-performing assets stays with banks, Kelimbetov explains. "We don’t have the expertise to manage it. We will say [to banks], let’s complete the construction of a house and let’s sell it. You will pay us back the funds realised and that will clear the obligation. If you cannot fulfil the construction and the business still doesn’t work, then we will take some of the equity as collateral," he says, adding that the National Bank will provide money for five or ten years.
NPLs should be reduced to 15% of total loans by the end of 2014 and to 10% by January 2016, under a deal between the National Bank and Kazakhstan’s top-10 banks. Banks that fail to meet the deadline will be penalised for breaking prudential norms. Kelimbetov hopes the scheme will turn the tide on NPLs. "Banks are always trying to not do anything. They have used the NPL argument to limit the credit they provide to the real sector. This is not acceptable to the National Bank. We want to fix it, we want to clean up the balance sheet of the banks, we want to check the capitalisation of the banks," he says.
The NPL problem explains the collapse in the credit ratings of the bank from just below the Kazakhstan sovereign rating of 'BBB+' to below investment grade over the last decade. "I am happy with the sovereign rating of 'BBB+', but we are not happy with the ratings of the banks," says Kelimbetov. "In 2004, the banks were in good shape. At that time, the banks were one or two notches below the sovereign. Now they are seven or eight notches below the sovereign because of the high level of NPLs. We want to convince banks to fix this situation and bring their ratings closer to the sovereign."
Privatisation and consolidation
Kelimbetov is currently overseeing the privatisation of two Kazakh lenders, Alliance Bank and Temirbank. These were on the verge of collapse and defaulted on their payments to foreign creditors in 2008 and 2009 as a result of the real estate bubble bursting, and had to be taken over by the sovereign wealth fund Samruk-Kazyna (of which Kelimbetov is a former chief).
But in 2013, President Nazarbayev instructed Samruk-Kazyna to sell its shares in Alliance and Temirbank. "[Samruk-Kazyna] has a bureaucratic type of management and no one from the bureaucracy wants to take on responsibility for the writing off and the asset-recovery process," says Kelimbetov. "The whole idea was to get Samruk-Kazyna out of the process and to provide opportunities to the private sector."
After failing to secure foreign partners from the US, Europe, Russia and China for the two banks, it was decided to look closer to home. And on May 20, Samruk-Kazyna announced it had finalized the sale of stakes in the two banks to Verny Capital, the investment vehicle of mineral resources oligarch Bulat Utemuratov, a local businessman. Verny Capital acquired 80% of Temirbank’s common stock for $196m and 16% of Alliance Bank’s common and preferred stock for $8.2m. This leaves Samruk-Kazyna with a controlling 51% stake in Alliance Bank, while Verny Capital becomes the controlling shareholder of Temirbank.
The privatisation process is another step in Kelimbetov's strategic goal to see more consolidation of the country's banks. Kazakh banks currently need just $50m of core capital, but Kelimbetov describes this as an insufficient amount. "We would like to increase it in five years 10-times, to $500m (KZT100bn)," he says. "We now have a total of 38 banks, but half of this list will not make it in the new conditions. Those that cannot provide this capital will have their licence revoked and that will prevent them from collecting deposits from the public. They can convert themselves into an investment bank, but not have the benefit of [holding] the money of the people of Kazakhstan."
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