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Eurasia
June 9, 2017 www.intellinews.com I Page 20
Kazakhstan’s KKB not expected to follow IBA into the abyss
bne IntelliNews
The recent news of brewing scandals concerning a Kazakh pension fund’s involvement in the debt restructuring of the defaulting International Bank of Azerbaijan (IBA) has fuelled worries that the troubles at Azerbaijan’s largest lender could infect Kazakhstan’s financial sector, and more specifi- cally the largest Kazakh lender Kazkommerts- bank (KKB).
Though no direct link between the two banks ex- ists, Bloomberg suggested at the end of May that the two banks – both of post-Soviet origin, with similar levels of debt (KKB’s $3.8bn against IBA’s $3.3bn) and over-reliant on hydrocarbons export- oriented economies in their respective countries – could potentially share a similar fate.
The presence of an unexploded bad loan bomb in the Kazakh banking sector certainly adds to the worries. KKB is struggling after it acquired failed bank BTA in 2015, a situation aggravated by the country’s economic recession. As both Kazakh- stan and Azerbaijan have been hit by low oil prices, with a negative impact on their banking systems as well as the wider economies, this has raised the question of whether KKB, like IBA, will abandon its creditors and enter debt restructuring The parallels certainly exist; however, the answer is less straightforward.
Lutz Roehmeyer, who manages about $2.2bn including IBA and KKB bonds at Landesbank Berlin Investment, told Bloomberg that “certainly some bondholders fear” the Kazakh bank will follow in IBA’s footsteps, since “the ranking of the bonds is similar”.
After the restructuring announcement, Moody’s Investors Service cuts its long-term issuer default rating on IBA from ‘CCC’ to ‘RD’ (restricted de- fault). The same rating category on KKB presently stands not too far off from ‘CCC’ at ‘B3’. “I think the fear here is simply non-payment,” Lurtz said.
Moody’s warned back in January that as of June 30, 2016, “Kazkommertsbank's exposure to its largest borrower – which Moody's considers problematic despite its non-overdue status – peaked at KZT2.4tn or about 56% of the bank's gross loans”. KKB’s regulatory filings on Sep- tember 30 showed another 7.99% of its gross loans were nonperforming.
“In a free market scenario, KKB would have drowned long ago,” a Kazakh banker tells bne IntelliNews. “But KKB is primarily a family bank,” he added – a reference to KKB’s ties to Kazakh President Nursultan Nazarbayev.
Adding to the argument against KKB suffering
a similar fate to IBA, Kazakhstan’s past bank-
ing failures have given a strong incentive to both government and bankers to ensure that there is not another high profile debt restructuring in the country. “The 2008 financial crisis has weakened investors’ trust in Kazakh banks, as demonstrated by the collapse of BTA Bank and Alliance Bank with subsequent attempts at debt restructuring,” the banker says. “That resulted in the drying up
of any opportunities for Kazakh lenders to access foreign investors’ cheap money.”
Kazakhstan’s banks borrowed heavily from abroad