Kazakh Leader Says Nation’s Largest Bank Is Too Big to Fail

Updated on
  • Government to aid Kazkommertsbank if needed, Nazarbayev says
  • Banking consolidation to be ‘objective,’ he says in interview

Kazakhstan’s largest lender by assets, Kazkommertsbank, won’t be allowed to fail after previous mismanagement and an economic crisis left it with a pile of overdue loans and short of cash, according to President Nursultan Nazarbayev.

The government sees two possibilities for bolstering the bank’s health: either shareholders will find funds to boost its assets, “make it viable and it will pay back its credits normally,” or the lender will turn to the state for a loan, Nazarbayev said in a Nov. 22 interview in Astana.

“We should get it to a normal working condition,” the Kazakh leader said. “We won’t let this bank collapse.”

The decline in oil and metals prices as well as a recession in neighboring Russia have hurt Kazakhstan’s economy in the past year, battering the tenge and exposing lenders to further losses on foreign currency loans after the central bank switched to a free-floating exchange rate. As many as one-third of loans in Kazakhstan had soured after the financial crisis in 2008-2009, one of the world’s worst shares of bad credit.

Liquidity at Kazkommertsbank shrank to 13 percent of liabilities at the end of the second quarter this year, according to Fitch Ratings. Non-performing and overdue interest loans accounted for 12 percent of gross lending, a decline of 5.8 percentage points over the previous 12 months, it said.

With Kazkommertsbank, “the issue is rehabilitation, restoring the bank’s financial health,” Nazarbayev said. “We’re working on this very intensely.”

Reviewing Banks

S&P Global Ratings upgraded Kazkommertsbank’s long-term credit rating in October to B- from CCC+, saying the new management and majority owner would make strides “in cleaning up the bank’s legacy problem loans and generating new business.” The bank’s Chairman Kenges Rakishev, who is a deputy prime minister’s son-in-law, became its majority shareholder last year.

Kazakhstan’s central bank is planning to review bank assets by the end of next year to help boost financial stability and spur lending that’s needed to lift the economy of the former Soviet Union’s second-biggest energy producer after its worst year since 1998. Nazarbayev said a plan for supporting the industry may be ready this year.

“We’ll take an objective approach to consolidating banks,” and some “may be bankrupted,” Nazarbayev said. “But those banks that are alive, those banks that will use the money we allocate to them to improve the viability of the bank and start lending to the economy, the National Bank will look at and help those banks with loans.”

‘Not Interfering’

Kazkommertsbank and Halyk Bank, the country’s second-biggest, held “general discussions” this year on various scenarios to help the Kazakh banking sector, including the possibility of merging the two lenders, Halyk said in a regulatory statement last week. The talks were not negotiations, it said. Halyk Bank is controlled by one of Nazarbayev’s daughters and her husband.

Kazkommertsbank said in an e-mail last week that it “didn’t make and didn’t receive any proposals” for a merger from Halyk Bank and there are no negotiations between them on the issue.

“I, for one, am not interfering in this issue,” and it would be for shareholders of the two private banks to decide on any merger, Nazarbayev said. “We have anti-monopoly legislation. If the merged lender issues more than 30 percent to 40 percent of loans, this isn’t possible.”

(Updates with Nazarbayev quote in second paragraph.)
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