Kazakhstan's second largest lender Halyk Bank on July 5 finalised the purchase of 96.81% in biggest Kazakh bank Kazkommertsbank for the nominal sum of KZT2 ($0.006).

The full takeover of KKB by Halyk Bank is in line with a provisional agreement signed in March. The Kazakh government sees the takeover as the best way to solve KKB’s problems with bad loans, which stem largely from its takeover of failed bank BTA in 2015. The difficulties were aggravated by the country’s recession.

The provisional agreement included the condition that the government must buy up bad loans of KKB for KZT2.4tn, shifting them to the central bank-operated “bad bank”, the Problem Loans Fund (PLF). As the completion of the full takeover was announced by Halyk on July 5, the authorities have most likely already fulfilled that end of the bargain. Halyk Bank will now provide 185bn tenge (€503mn) to recapitalise KKB.

Kazakhstan’s banking sector – which has still not fully recovered from the 2008-9 financial crisis – has been hit by a rise in bad loans since the slump in world crude prices, which has depressed the entire Kazakh economy. It did not help that the authorities allowed the tenge to float in 2015, leading to a more than 40% depreciation in the national currency. Problem loans in 2016 amounted to 37% of total loans, according to Moody's Investors Service.

KKB was instructed by the central bank in April to implement a number of corrective measures ahead of the merger, which included limitations on payments of dividends and bonuses, as well as asset disposals.

Critics have expressed concern about the deal, pointing out that more than one-third of the Kazakh banking sector will now be controlled by one bank, the owners of which are presidential family members. The combined assets of Halyk and KKB amount to $27bn, outdoing the country's third largest bank Tsesnabank fourfold, and the local unit of Russia's Sberbank, ranked fourth, sixfold.

Halyk Bank is notoriously linked to Kazakh President Nursultan Nazarbayev’s daughter Dinara Kulibayeva, who, together with her husband Timur Kulibayev, has a controlling stake in the lender. Prior to the takeover, KKB was controlled by Kazakh businessman Kenges Rakishev, a son-in-law of Defence Minister Imangali Tasmagambetov.

Together KKB and Halyk Bank account for 37% of Kazakhstan's banking system assets, transforming Halyk into the Kazakh equivalent of Sberbank in Russia.

Beyond the deal’s implications for banking sector competition is the worry that the deal echoes the 2015 KKB merger with the embattled BTA bank and will yet again postpone a real reckoning with the failed bank’s problem loans.

Eight years after BTA was nationalised in early 2009 following the financial crisis, the bank’s collapse continues to have repercussions for the Kazakh banking sector. It was eventually taken over by KKB after years of searching for a buyer. While the PLF is meant to buy out most of the BTA-tied bad assets, the need for further recapitalisation, which will be carried out by Halyk, implies that the banks might still find themselves in mounting trouble in the future.