A stark reminder of the continuing problems plaguing Kazakhstan’s financial system and the government’s inadequate response were on display in January, when dozens of activists from a mortgage-holders rights group took to the streets of Almaty in a rare public protest, banging pots, wearing grey bed sheets as cloaks to symbolize that “they are not a grey mass” and burning green ribbons with the logo of one of the country’s banks.

Sulubike Zhaksylykova, leader of the “Let’s Leave Housing for the People” group that campaigns for the country’s struggling holders of foreign-currency mortgages, explains to bne IntelliNews that her protest was against the commercial banks’ refusal to adhere to the tenets of a central bank programme designed to help people refinance crippling forex mortgages since the sharp devaluation of the national currency in 2015.

“The government endorsed the programme and allocated the money for it. Commercial banks received the money, but the programme has not been implemented practically for a year,” Zhaksylokova tells bne IntelliNews in an interview. “Despite banks receiving the money they refinanced nobody, so we started large-scale protests.”

Behind the banks dragging their feet is another looming debt crisis that is a legacy of the 2008 financial crisis. And the government appears more concerned with crushing the outward symptoms of this new crisis than dealing with the problem at its source.

The global crisis saddled Kazakhstan’s commercial banks with enormous debts following years of aggressive borrowing on global markets to fuel a property boom, which forced the government to bail them out as part of measures to prop up the ailing financial sector. Despite progress in solving the most acute problem of non-performing loans (NPL), the share of which as calculated by the National Bank of Kazakhstan fell from a peak of 31% in May 2014 to 8% at the beginning of 2016, the current crisis stemming from low oil and other commodity prices and the slowdown in the country’s major trading partners – Russia, China and the EU – is starting to give authorities a terrible sense of déjà vu.

In its latest analysis of the Kazakh banking system, Standard & Poor’s warned that the share of NPLs is set to rise again as stagnating or even contracting GDP and the sharp depreciation of the tenge will lead to a deterioration in borrowers’ creditworthiness. S&P notes that state-owned or related companies are starting to delay their payments to contractors. This is further complicated by “a weak payment culture” and the falling disposable incomes of the population.

The ratings agency’s pessimism appears to borne out by a recent uptick in the share of NPLs, which reached 8.3% as of March 1. According to S&P’s predictions, the National Bank-calculated NPLs will increase to 11-13% by the end of 2016. At the same time problem loans, which under S&P’s definition also include loans overdue more than 90 days and restructured loans with altered original terms, could account for about 25-30% of total bank loans in 2016. According to central bank figures, NPLs held by individuals increased from 13.9% to 14.2% between January 1 and March 1.

The government has taken steps to head off the problem, but the commercial banks, struggling as profits are squeezed by higher funding costs from the depreciation of the tenge and slowdown of the oil-dominated economy, are not playing ball.

In addition to the National Bank’s creation of a special fund for distressed assets to help commercial banks get rid of problem loans, in April 2015 the central bank, under orders from President Nursultan Nazarbayev, allocated KZT130bn (over €650mn at the time) for commercial banks to restructure problem loans at favourable conditions. This included converting dollar-denominated mortgages at a pre-free float rate of KZT188.35 to the dollar (against the current rate of around KZT335), annual interest rates of under 3%, extension of payment durations to 20 years and other “conditions improving the refinancing of mortgages”.

In March, the central bank amended the conditions of the programme, relaxing some of the stringent rules, and extended it until December 1, 2016, as the programme appeared to be failing because of banks’ unwillingness to refinance some mortgages, mortgage-holders claim. According to the National Bank, 19,833 mortgage-holders had applied for the programme as of March 15, with 12,956 applications approved to the tune of KZT79.8bn (€212mn at the current exchange rate).

The slow pace of the refinancing programme led to the public protests earlier this year. The leader of the “Let’s Leave Housing for the People”, says her group consisted of about 500 mortgage-holders at the beginning, but still has about 50 members who have not managed to refinance their mortgages.

Zhaksylykova herself managed to convert her 10-year, $130,000 mortgage taken out at an interest rate of 11% with a tenge conversion rate at KZT188 to the dollar and refinance it at 1% with the arrears on interest payments written off, because she is a single mother of two with no regular income. But she says she is fighting for the rights of some 50 similarly vulnerable members of her group – “pensioners” and “disabled” – whom the banks are refusing to help. “These people have applied to their bank to write off 50% of the principal loan [as] the programme envisages,” the activist tells bne IntelliNews.

But she says the banks are trying to delay things until the programme expires at the end of the year. “We have so far managed to refinance one mortgage with a further four or five under consideration,” Zhaksylykova says. “We will not stop our protests until all remaining mortgage holders get refinancing.”

Under suspicion

For her trouble, Zhaksylykova has encountered the all-too-typical responses – a combination of bribery and threats – of the authorities, which are nervous of any signs of dissent or protest that could escalate into open rebellion against the authoritarian regime.

Zhaksylykova says the authorities have opened a number of criminal and administrative cases against her, after she refused to take a grant, ostensibly from a bank, in February to “qualitatively improve and professionalise” the work of her “Let’s Leave Housing for the People” organisation. The grant, the proposal of which was seen by bne IntelliNews, was supposed to provide her organisation with a monthly payment worth KZT1mn (around €3,000) over a six-month period for “renting premises, employing workers” to “help mortgage holders with arrears refinance” their mortgages and to “increase financial literacy” among them. In return for this offer from “Simply about Finances” project, launched by Kaspi Bank in 2014, Zhaksylykova and her organisation would “commit during this period of time to refrain from staging pickets and other vigorous actions”. The activist questioned the rationale behind this move and dismissed it as little more than “bribery”.

Marzhan Yelshibayeva, coordinator of the “Simply about Finances” project and a freelance contributor to Radio Free Europe/Radio Liberty’s Kazakh Service (Azattyq Radio), confirmed the existence of the grant proposal and the offer of money. “I subscribe to this and that is my absolute position on the project,” Yelshibayeva tells bne IntelliNews. “We wanted to propose this project, but unfortunately we didn’t find the understanding.”

Yelshibayeva complains that the attention-grabbing protests are damaging the reputation of the country’s banks, especially “our” Kaspi Bank, because following the 2008 financial crisis the bank in no longer providing mortgages, neither in dollars nor tenge. “My task was communal and I wasn’t representing my bank but the ‘Simply about Finances’ project,” Yelshibayeva explains. Asked whether by making this proposal she tried to influence the activists, the coordinator said: “Yes, maybe. I don’t deny it. We want all this activity to be directed into a constructive channel.”

But Zhaksylykova retorts that the criminal charges and the offer of money are merely aimed at distracting her and diverting her energy and attention away from addressing the mortgage-holders’ problems. “We will continue our protests if they refuse to solve the problems of the remaining 50 mortgage-holders,” she says.