Kazakhstan looks to address stubbornly high level of bad loans

By bne IntelliNews November 19, 2013

Clare Nuttall in Astana -

The high level of bad loans at Kazakh banks is a worrying legacy from the recent crisis, persisting despite strong economic growth over the last four years. The central bank says it is taking a tough line on non-performing loans (NPL), and government support is likely to be offered to address the problem.

Kazakhstan's new central bank governor, Kairat Kelimbetov, who took over from Grigory Marchenko on October 1, said on November 15 that NPLs were one of the three main challenges the bank needed to address, alongside implementation of Basel II regulations and the fast growth of consumer loans.

Kelimbetov told a conference marking the 20th anniversary of Kazakhstan's currency, the tenge, that the bank will ask the government to take steps including introducing tax breaks to encourage write downs of bad loans and amending bankruptcy laws, Bloomberg reported.

As of October 1, Kazakhstan had KZT3.8 trillion ($24.5bn) worth of loans overdue by more than 90 days, equivalent to 29.6% of banks' total loan portfolios, according to the central bank. This total includes KZT1.7bn of bad debts at BTA Bank, Kazakhstan's largest bank before the crisis. A 2012 report by the World Bank showed that Kazakhstan had the highest level of NPLs among the 73 countries surveyed.

Borrowing binge

The high ratio of NPLs has remained even though Kazakhstan's economy has returned to steady growth after a brief slowdown in 2009, with the European Bank for Reconstruction and Development (EBRD) recently raising its 2013 GDP growth forecast from 4.9% to 5.6%. Most of the debt-laden problem projects, including those in Kazakhstan's real estate sector, which was the first part of the economy to succumb to the crisis back in 2007, have now been completed. Yet this has not substantially reduced the proportion of bad loans.

Part of the problem is that while consumer lending is booming at a rate that has alarmed the government, many of Kazakhstan's banks are still cautious about corporate lending while their NPL ratios remain high. "The National Bank and the government recognise this as a problem that will continue to cause stagnation in the banking sector. The unfortunate aspect is that the banks have not made progress, and the last three years have proved that they can't grow themselves out of this situation," the EBRD's first vice president, Philip Bennett, tells bne in an interview.

Almaty-based investment bank Visor Capital forecasts that substantial changes in asset quality in the 2014 financial year are "unlikely", though the year "could mark a turning point for the Kazakh banking sector" if the central bank acts decisively. "From talks with the banks, we understand that the recovery process in Kazakhstan will be both time-consuming and complicated, due to a number of bureaucratic and legal issues, which is one of the reasons for the slow recovery in Kazakhstan," Visor analysts wrote in a November 18 note.

The other legacy from the crisis is the state's presence as a shareholder - through sovereign wealth fund Samruk-Kazyna - in several of Kazakhstan's largest banks. In February 2009, Samruk-Kazyna took over BTA Bank, its subsidiary TemirBank and Alliance Bank, as well as taking minority stakes in Halyk Bank and Kazkommertsbank. While this was intended as a temporary measure, to date it has only managed to exit its stake in Halyk.

While there were initially hopes of getting either foreign strategic buyers or distressed asset investors to take on Kazakhstan's troubled banks, nearly five years on from the nationalisation this no longer appears a realistic option, and the high level of NPLs naturally makes the sector less attractive to potential investors. "The government is committed to moving Samruk-Kazyna out of the banking business, but they have three fairly significant banks to deal with, and this stagnation has caused a lot of external actors to be reluctant to get involved in NPL restructuring," says Bennett. "We would love to see external capital involved in some of these bank resolutions, but at this point we expect Samruk-Kazyna and the National Bank will find a domestic solution."

In late 2013, there has finally been progress with Alliance and TemirBank, as on October 10 Samruk-Kazyna confirmed it is in negotiations with Verniy Capital owner Bulat Utemuratov, who already owns two banks - Forte Bank and Kassa Nova. If the acquisitions go ahead, Alliance and TemirBank may be merged with Forte.

It is still unclear what will happen to BTA, Kazakhstan's largest bank by assets until the crisis, although the government has proposed offloading it onto Halyk in exchange for Halyk's pension fund, which would be transferred to the central bank as part of Kazakhstan's pensions reform programme.

Related Articles

Retail trade slows in Kazakhstan amid economic uncertainty

Naubet Bisenov in Almaty - A free-floating exchange regime for Kazakhstan’s currency, the tenge, is taking its toll on retail trade as the cost of imports rise. While prices have not changed ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

New Kazakh central bank governor re-adopts free floating regime

bne IntelliNews -   The National Bank of Kazakhstan, the central bank, has re-adopted a free-floating exchange regime under the new governor, Daniyar Akishev, who has ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.