Featured

Kazakhstan's Small Lenders Suffer Financial Crunch

banknotekzStrongly criticized by the president, some small banks in Kazakhstan are asking for help from the state to withstand a liquidity crisis.

Kazakhstan’s Single Pension Fund (ENPF) could lend cash again to bail out small banks faced with a liquidity crisis, another indication that the financial sector’s malaise can only be cured with state intervention.

According to the latest media reports, the ENPF could contribute up to 200 billion tenge (around $600 million), which will be matched with an additional input of 200 billion tenge from the Central Bank, to a maxi-loan to support private banks. Around 15 percent of the ENPF portfolio is already invested in local banks.

The ENPF solution, while formally different from the previous experience of direct state intervention through the Central Bank, would further stress the $20 billion pension pot that the government bought up from private banks between 2013 and 2014. In the past two years, ENPF funds invested in the International Bank of Azerbaijan were suddenly at risk when the bank showed signs of default and asked creditors to restructure their claims into new bonds. The issue caused public criticism in Kazakhstan. Last year, economist Rakhim Oshakbayev warned that some investment decisions had put ENPF monies at risk.

“As of May 1 [2017], about 1.6 trillion tenge [around $4.9 billion] were invested in risky bonds and shares. So more than 23 percent of the total pension portfolio is under significant risk,” Oshakbayev said.

Now, Kazakhstan’s parliament is discussing a legislative measure to grant the Central Bank more regulatory power and increase the severity of stress tests for local banks. Daniyar Akishev, the Central Bank chief, said that some banks had used accounting tricks to hide the real level of toxic loans in their books.

“After the Central Bank set the goal of reducing non-performing loans (NPLs) to a maximum of 10 percent of the total loan porfolio in 2016, private banks deliberately distorted their financial statements, by summing NPLs to the restructured loans portfolio,” Akishev told local media.

At a meeting between the government and the Central Bank in mid-April, President Nursultan Nazarbayev made clear that the state budget will not be made available for more bailouts, especially for banks that have procrastinated the restructuring of their troubled books.

“I recommend that those banks which failed to improve their situation should stop asking for state support from the Central Bank. Banks like Eximbank, Astana Banki and Qazaq Banki have been poorly managed by their shareholders and now display terrible indicators. How can they survive?” Nazarbayev said at the meeting. “This cannot weigh on the state budget. If they want to continue their work, the shareholders will have to find the capitals to make up for the money they mismanaged.”

The remarks triggered the reaction of bank customers, who raced to withdraw their savings. Astana Banki, despite showing confidence at first, was faced with a cash shortage and had to set a limit on withdrawals and cashless operations. Until June 1, customers will only be able to withdraw a maximum of 100,000 tenge ($300) per month.

The bank reacted twice to consecutive downgradings from ratings agency Standard and Poor’s, which now forecasts a possible default. The governing bodies of the bank assured that if the Central Bank will grant them an emergency liquidity loan, they would be able to fulfill the demands of their customers and rectify the situation. Businessman Olzhas Tokhtarov is Astana Banki’s largest shareholder. He is believed to be close to powerful businessman and Nazarbayev’s son-in-law Timur Kulibayev, who co-owns Halyk Bank, the country’s largest bank.

Runs on banks have become a routine in Kazakhstan, especially since the devaluation of the tenge currency in February 2014. In the weeks following the unexpected Central Bank decision to cut the U.S. dollar value of the local currency by 19 percent, a rumor spread via text messages warned of a potential default at Kaspi Bank, triggering long lines outside their branches. Kaspi had to hire crisis management experts to quickly respond and keep their customers’ confidence.

At the end of April, the Central Bank suspended for three months the retail deposit license of Qazaq Banki, limiting its operations. Conversely, it allowed Capital Bank to prolong its debt repayment schedule. The different attitude toward banks that accepted state aid (Capital Bank among others) and those that did not (Qazaq Banki, Astana Banki) could be a paragon of the government’s unwillingness to be clement with underperforming lenders that avoid abiding by stricter rules.

Despite Nazarbayev’s harsh admonishment, however, these “maverick banks” will still receive state aid.

The Diplomat, May 11, 2018

 

Experts of the Committee against Torture Commend Kazakhstan for Enhanced Legislation

Experts of the Committee against Torture Commend Kazakhstan for Enhanced Legislation

More details
Kazakh official: Not the time to resolve differences through war

Kazakh official: Not the time to resolve differences through war

More details
Oil majors sued by Kazakh government over billions in revenue

Oil majors sued by Kazakh government over billions in revenue

More details