Kazakhstan’s largest bank Kazkommertsbank (KKB), recently rebranded as Qazkom, has entered preliminary negotiations for an unspecified “deal” with Halyk Bank, KKB said in a press release on January 20.

The deal possibly refers to merger talks which, according to some reports, the two banks have been engaged in since late 2016. Reuters referred to such talks last November citing sources close to the negotiations, but KKB dismissed its report as false speculation. A merger would create a bank with assets of $27bn, four times the size of the country's third largest bank Tsesnabank, and six times as big as the local unit of Russian Sberbank, which currently ranks as the No.4 Kazakh lender.

“Further information will be provided as and when appropriate,” KKB’s press release added.

The potential merger could only take place after May 2017, when Halyk Bank redeems a $638mn Eurobond issue, as the bond covenants would stand in the way of the deal, according to Reuters.

KKB and Halyk Bank, which are both linked to President Nursultan Nazarbayev, account for 37% of Kazakhstan's banking system assets. There is conjecture that the merger could involve the write-down of bad assets belonging to KKB, which could involve help from the government.

Halyk Bank, listed on the London and Almaty stock exchanges, has a market capitalisation of $1.7bn. Domestically-listed KKB has a market capitalisation of around $540mn.

KKB is controlled by Kazakh businessman Kenes Rakishev, a son-in-law of Defence Minister Imangali Tasmagambetov. In April, Rakishev increased his stake in the lender from 28.67% to 43.15%. He now directly and indirectly (through Qazaq Financial Group) controls 71.23% of KKB's common stock.

Nazarbayev’s daughter Dinara, together with her husband Timur Kulibayev, has a controlling stake in Halyk Bank.