The Kazakh central bank’s problem-loan fund may provide only “marginal” relief to asset quality and will be challenging to implement, Fitch Ratings said.
“Without some form of government enhancement, the fund might face difficulties in raising funds from private investors, while the central bank is ready to provide only a third of the financing,” James Watson, a managing director at Fitch, said in a presentation distributed in Almaty today.
The central bank created the fund last month to remedy strains in the financial industry and said it was planning a pilot project to buy non-performing assets from commercial lenders. The entity, which is 100 percent controlled by the regulator, is collecting information about bad loans and later plans to issue bonds against which its purchases of delinquent debt will be made, according to the National Bank of Kazakhstan.
The size of the fund will probably be limited to $1 billion, making it “rather small” compared with an estimated $25 billion of problem loans in the Kazakh banking industry and $8 billion in accrued interest, according to Fitch.
“A rather illiquid local-asset market makes valuations difficult and could lengthen the process of initial asset transfer from banks to the fund,” Watson said.
The nation initially sought to create a fund for non-performing loans by last July. It may sell 150 billion tenge ($1 billion) of bonds, with the National Bank of Kazakhstan buying a third of the securities should lenders and pension funds purchase two-thirds of the debt in the first two sales, central bank Chairman Grigori Marchenko said last year.
Central Asia’s biggest energy producer used $10 billion from its oil fund to support banks and companies after credit markets froze and a property bubble burst in 2008. BTA Bank, the biggest lender at the time, Alliance Bank and Temirbank agreed with creditors to discount and extend payments on about $20 billion of debt after they defaulted in 2009.
“Successful resolution of problem loans will depend critically on the willingness of banks to accept realistic asset valuation and recognize losses, and on the readiness of the National Bank of Kazakhstan to enforce proper provisioning and adequate bank capitalization,” the International Monetary Fund said in a statement last week.