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bne:Deal
Kazakh banks play pass the parcel with unexploded bad loan bomb
Kanat Shaku in Almaty
“In a classic free market scenario, Halyk Bank wouldn’t buy Kazkommertsbank,” says a Kazakh banker about the recent preliminary agreement by Halyk, the country’s
second largest lender, to purchase a controlling stake in strug- gling KKB, the country’s biggest bank. Halyk’s willingness to buy its larger rival bank is “possibly political in nature”, he suggests.
The takeover represents the Kazakh government’s attempt to solve KKB’s bad loans problems, which stem largely from its takeover of failed bank BTA in 2015 but have been aggravated by the country’s economic recession.
Kazakhstan’s banking sector – which has still not fully recov- ered 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 whole economy. It didn’t help that the authori- ties also allowed the tenge to float in 2015, leading to a more than 40% depreciation of the national currency.
"Asset quality remains weak across Kazakhstan's banking sector as the depreciated tenge, combined with challenging operating conditions and declining real incomes, have fuelled a rise in problem loans in 2016 to 37% of total loans, on aver- age, among our rated banks in Kazakhstan," Semyon Isakov, vice president at Moody's Investors Service, said in February.
The ratings agency noted a month earlier that KKB faces an “increased probability that the bank will require external sup- port to address problems related to its large stock of problem assets, as well as its recently increased reliance on liquidity facilities from [the central bank]” as it downgraded KKB’s baseline credit assessment to ‘ca’ from ‘caa2’.
The agency elaborated that KKB’s loan loss reserves, as of September 30, “amounted to only 12.6% of total gross loans and provide only a limited buffer for the above-mentioned asset risks, given weak macroeconomic conditions”. Moreover, on December 1, the bank reported a capital adequacy ratio of 12.8%, which, the agency pointed out, was modest given
Halyk Bank is the country’s second largest lender.
the high risk of asset deterioration related to its large stock of problem assets.
Nevertheless Moody’s reassured in February that the capac- ity of the government to provide liquidity or to recapitalise certain large banks remained “strong due to the relatively small size of the Kazakhstan banking system”. The agency also noted on March 6 that the planned takeover of KKB was credit positive for Halyk, implying that it could benefit from a merger if the terms are right.
The provisional agreement between the two banks in March included the condition that KKB should get rid of its bad assets before any further takeover plans could be discussed. In order to make the deal a reality, the Kazakh authorities decided to
“Halyk’s willingness to buy its larger rival bank is possibly political in nature”
buy out a significant portion of KKB’s bad loans via the central bank-operated “bad bank”, Problem Loans Fund (PLF), for KZT2.4tn ($7.5bn). President Nursultan Nazarbayev’s regime has already signed a decree allotting KZT1.1tn ($3.2bn)
to nurse the country’s banking sector back to health – the amount would presumably be one of several such allocations.
The exact amount of bad loans being acquired, or the price as a percentage of book value are not publically available, so it is impossible at the moment to assess whether Halyk is getting a good deal.
History repeating
Critics were not slow to express concern about the deal, point- ing out that more than one-third of the Kazakh banking sector
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