Kazakhstan May Restrict Corporate Withdrawals to Protect Banks, S&P Says

Kazakhstan is likely to restrict corporate withdrawals to keep banks liquid and allow them to recover as the country’s lenders try to restructure about $20 billion in debt, Standard & Poor’s said.

“During the crisis, the government controlled very actively the largest deposits in banks, including incentives for state companies not to withdraw their money,” Ekaterina Trofimova, a Paris-based S&P bank rating director, said in a May 15 interview in Almaty. The state directly or indirectly controls one-third to half of Kazakh bank deposits, she said.

Companies are now seeing that the crisis is passing, and “they want to get their money back,” Trofimova said. “But banks won’t be allowed to collapse in the interest of major companies, including state-owned ones, so the removal of deposits by companies will be careful and coordinated. Withdrawals won’t break the banking system, but they will limit its growth.”

Banks in the former Soviet republic face continued weak asset quality, unreliable funding conditions, and low capitalization for at least two more years, Standard & Poor’s said on April 19. Kazakhstan’s financial industry is still struggling to recover from the failure of BTA Bank, which defaulted in April last year two months after it was taken over by the state-owned National Wellbeing Fund Samruk-Kazyna.

Bank Defaults

Besides BTA, which was the country’s biggest lender before its collapse, Alliance Bank, AO Astana Finance and Temirbank, then controlled by BTA, have also defaulted, leaving about $20 billion in debt to be restructured.

Samruk-Kazyna controls stakes in state-owned energy company KazMunaiGaz National Co., uranium miner Kazatomprom, railway monopoly Kazakhstan Temir Zholy and phone operator Kazakhtelecom. The fund also owns stakes in Kazkommertsbank and Halyk Savings Bank, the two biggest lenders by assets, and controls BTA, Alliance and Temirbank.

New foreign borrowing by KazMunaiGaz and Kazatomprom “reduce the urgency of the problem of a possible reduction of large deposits in local banks,” Trofimova said.

KazMunaiGaz sold $1.5 billion of 10-year notes last month, while Kazatomprom sold $500 million of five-year notes last week, according to Bloomberg data.

Deposit Growth

“It’s disputable that Kazakh banks can base their development strategy on domestic resources, since people’s incomes and savings are relatively small and companies’ liquidity has been largely exhausted by the crisis,” Trofimova said. Kazakh bank deposits will increase 20-25 percent at best this year, and no more than 30 percent in 2011, she said.

KazMunaiGas Exploration Production, the London-traded unit of KazMunaiGaz, keeps most of its $4 billion in cash at accounts with Kazkommertsbank and Halyk, Alexander Gladyshev, the company’s head of investor relations, said by telephone from the capital Astana today. “The company has no problem in financing its current operations and capital expenditure, including payments of dividends,” he said, adding that KazMunaiGas as yet has no need to make “billions in withdrawals.”

Sholpan Mukasheva, a spokeswoman for Samruk-Kazyna, Galym Tumabayev, a spokesman for KazMunaiGaz National Co., and Sergei Nasyrov, a spokesman for Kazatomprom, all declined to comment.

Kazakhstan’s 39 banks held 7.298 trillion tenge ($49.8 billion) in deposits in the first quarter, down from 8.09 trillion tenge in the same period last year, according to the website of the Agency for Financial Supervision.

‘Free Liquidity’

“Kazakh banks have free liquidity of about $12 billion,” central bank Chairman Grigori Marchenko said on April 21. The country will increase reserve requirements for banks if they don’t “invest their excess liquidity in loans” in the first quarter, he said in January.

According to Trofimova, “Kazakh banks don’t have excess liquidity; liquidity is entirely adequate, taking into account its short-term character, the high concentration of deposits and remaining uncertainty in domestic and foreign markets.”

Kazakh banks’ combined loan portfolio dropped to 9.472 trillion tenge last quarter from 10.255 trillion tenge a year earlier, data from the Agency for Financial Supervision show. Banks’ total assets slumped 15 percent in the period to 11.946 trillion tenge, it said on April 23.

Nonperforming Loans

The combined loan portfolio may grow as much as 10 percent this year, and will rise even more in 2011, Trofimova said. Kazakh banks’ nonperforming loans, including those that have been restructured, account for almost 55 percent of total loans, she said, adding that gradual improvement will be seen in the fourth quarter. Nonperforming loans issued by banks excluding the four that defaulted are at just over 40 percent, she said.

Kazakh lenders raised provisions, cash set aside to cover loan losses, to a combined 3.5 trillion tenge, or 37 percent of their loan portfolios, in the first quarter from 1.56 trillion tenge a year earlier, according to the financial watchdog.

The defaulted lenders may recover more than a half of nonperforming loans, while the rest will get back more than two thirds, but only in the two to four year period, Trofimova said.

The economy of Kazakhstan, which holds 3.2 percent of world oil reserves according to BP Plc, grew an annual 7.1 percent in the first quarter, the country’s State Statistics Agency said on May 14.

Economic growth slowed to 1.2 percent last year from 3.2 percent in 2008. The economy grew 10 percent on average each year between 2000 and 2007 as energy and commodity prices rose.

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

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