Kazakhstan's bad apple in banking barrel

By bne IntelliNews November 29, 2011

Clare Nuttall in Almaty -

Kazakhstan's banking sector is in much better shape than three years ago and has proved remarkably resilient to the Eurozone crisis. The glaring exception is BTA Bank, whose latest results have raised fears about the bank's future survival.

A year ago, BTA was being touted as a restructuring success story. After months of negotiations, the bank struck a deal with creditors on the restructuring of around $10bn worth of debt. In December 2010, Kazakhstan's central banker, Grigoriy Marchenko, boasted at an Almaty financial conference that Ireland - at that time struggling with a mortgage crisis - could have used Kazakhstan's experience.

Today, BTA is spelling out "Big Trouble Ahead" just as clearly as it did back in 2008 when the first wave of the financial crisis was approaching. On October 21, the bank announced net losses of KZT102.6bn ($693m) - considerably higher than expected - for the first half of 2011. There are growing concerns that unless BTA gets additional help from its majority shareholder, Kazakhstan's sovereign wealth fund Samruk-Kazyna, it could collapse.

Until recently, Samruk-Kazyna officials have maintained that no further help would be forthcoming. However, Samruk-Kazyna CEO Timur Kulibayev said on October 4 that the fund was ready to provide further support if needed. Samruk-Kazyna has already reshuffled BTA's top management in the hope of improving performance.

In a conference call after the release of the latest results, Anvar Saidenov, chairman of BTA's board of directors, confirmed that the bank is in talks with Samruk-Kazyna, and that a decision about restructuring BTA's negative carry swap would be made within the context of a wider decision about the bank. "Fixing BTA has proved an expensive task for the government, and Samruk-Kazyna's involvement is likely to be necessary for some time to come," Renat Syzdykov, senior analyst, financial sector research at Visor Capital, tells bne. "There would be many negatives if BTA defaulted, mainly in terms of confidence in the banking sector and the government's reputational risk. It would also harm the government's finances, the banking sector and increase the cost of borrowing."

On November 14, Fitch Ratings announced a downgrade of the bank because of the increased probability of a default in the near to medium term. Fitch cited both the "sharp deterioration" in BTA's financial position and "the apparent readiness of the bank and the Kazakh authorities to consider a range of options, including less creditor-friendly ones, for restoring the bank's solvency".

Shaping up

While BTA's management works to save the bank, the rest of the Kazakh banking sector is in much better shape.

Three years ago, banks were over-burdened with billions of dollars worth of debt. Today, analysts agree, the picture is very different. The Eurozone crisis may have brought valuations down, but the sector fundamentals are in good shape and banks are much less vulnerable to external shocks. "In the three years since the start of the crisis, a lot has changed at sector level, at regulatory level and at individual banks. The banks have deleveraged and built up their deposits. Overall, we have a healthier banking sector although there are some areas for concern," says Ainur Medeubayeva, equity analyst at Troika Dialog.

According to a report from Renaissance Capital, Kazakhstan's has been a classic de-leveraging story. In contrast to 2008, Kazakh banks are sufficiently capitalised, and their balance sheets are deleveraged, and comfortably - or in some cases overly - liquid, says the report, "Kazakh banks: This time is different".

While the dramatic growth of the mid-2000s is a thing of the past, lending has gathered pace since the start of this year. Banks have been building up their deposit bases even faster, and loan-deposit ratios have dropped dramatically. Much of the increase in lending this year has been driven by small and mid-size banks - among them BankCenterCredit, Eurasian Bank, Nurbank and Kaspi Bank - which did not have such a large backlog of debt to deal with. "We do not expect another major crisis looming for Kazakh banks, as liquidity is abundant and asset quality problems are localised and well provided for three years after the crisis of 2008-09," says the Renaissance Capital report. "The constraints remain on the side of growth, where the 'go-go' years are gone for good at least for the medium term."

Needless to say, it's not all good news. Data from the National Bank of Kazakhstan shows that NPLs reached a historic high of $25bn, or 36.6% of total loans, in September 2011.

However, the extremely high percentage of NPLs is partly because the tax code still penalises banks who write off loans. Banks are still waiting for the government to take action by amending the tax code; they also hope the government will create a new distressed assets fund. Government action has long been on the horizon, and banks are hopeful that a decision on both the tax code and the fund will be made soon, so that the sector can finally leave the crisis legacy behind.

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

Notice: Undefined index: subject_id in /var/www/html/application/controllers/IndexController.php on line 335