Billionaires from Kazakhstan included in Forbes’ rating of the world’s super-rich are mostly oil and metals barons. But this year Bulat Utemuratov, a financier and close adviser to Kazakhstan’s ruling family, entered the list, following the sale of his stake in ATF, Kazakhstan’s fifth biggest bank, to Unicredit of Italy.
Unicredit paid $2.2bn to acquire ATF, becoming the first big foreign bank to gain a strategic stake in the country’s banking sector. The landmark transaction was announced last summer just before the global liquidity crisis, stranding Kazakh banks with more than $40bn of foreign debts, $12bn of which is due this year.
Local banks were growing at a dizzying pace, borrowing voraciously on international markets to fund a domestic consumer boom driven by soaring oil export revenues. With international bond markets now closed to Kazakh banks and foreign loans difficult to obtain, most banks will have to “run to stand still, never mind realising balance sheet growth” in 2008, according to Renaissance Capital. Several Kazakh banks are expected to follow ATF’s lead and find foreign strategic partners.
Last month, CenterCredit, Kazakhstan’s sixth biggest bank with $7.3bn of assets, sold Kookmin, the South Korean bank, a 30 per cent stake for $634m. Kookmin plans to raise its share to 50.1 per cent.
BTA, one of Kazakhstan’s top three banks, has hired Deutsche Bank to advise on the possible sale of Temir, a retail bank it controls. BNP, Société Générale, Raiffeisen International and Intesa are understood to be interested in buying Kazakh banks.
Jason Hurwitz, an analyst at Visor Capital, a Kazakh investment bank that advised Kookmin on the CenterCredit deal, said banks with sizeable foreign partners will be better placed than their competitors to meet debt obligations and profit from new, more favorable lending conditions in Kazakhstan.
Both Unicredit and ATF say they will use their Kazakh acquisitions as launch pads for expansion into central Asia where assets are cheap and banking systems less sophisticated than in Kazakhstan where financial reforms were introduced over a decade ago.
Kazakhstan’s top banks, Kazkommertsbank, Halyk, the former state savings bank, and BTA are reluctant to sell strategic stakes while valuations are low.
Halyk, with relatively small foreign debts and a loyal depositor base, is best placed to weather the liquidity shortage. Most banks are drawing in loans and competing for deposits.
“We don’t yet know where the bottom of the crisis on global markets is,” says George Iosifyan, BTA managing director, “so we are building our strategy based on local economic fundamentals”.
A significant default in the banking sector is unlikely.
Nursultan Nazarbayev, Kazakhstan’s president, has pledged that no big bank will be allowed to collapse. His assurance is underpinned by the country’s strong financial position. More than $40bn has accumulated in central bank reserves and the national fund, a stash of windfall oil profits.
Officials play down the impact of the liquidity crunch. Mr Nazarbayev accuses international rating agencies of being “non-objective” after Standard & Poor’s shifted its outlook for eight Kazakh banks to “negative” last year.
The banks are experiencing “cyclical difficulties”, not a systemic crisis, says Arman Dunayev, the chairman of Kazyna, the Kazakh sustainable development fund.
“Everyone is saying something is happening. Nothing is happening. The banks are paying their obligations on time. Once this year is over many investors will pay more attention to Kazakhstan and a lot of academic articles will be written about the collapse that did not happen,” he says.
Even if they can pay their debts, many banks are facing a decline in asset quality particularly in the construction and real estate sectors where they are exposed both as lenders to property developers and home buyers. Banks have also collateralised a large portion of their loans by real estate.
Kazakhstan’s construction industry is undergoing a big contraction as loans from the banks dry up. A property price bubble that swelled during the years of cheap credit has begun to burst.
The government has stepped in to help with a $4bn stabilisation fund launched last year to support certain unfinished construction projects as well as small and medium sized enterprises. The fund, managed by Kazyna, is being channeled through the banks, further improving their liquidity.
Banks have also been allowed to offload some home loans on Kazakhstan’s state mortgage company.
For now the recession in the banking and construction sector is acting as a brake on the economy. GDP growth is forecast to slow to 5 per cent this year from 8.7 per cent in 2007.
But the slowdown is likely to be shortlived, thanks to Kazakhstan’s huge natural resource potential.
Oil export earnings are rising steadily and will surge after 2011 when the giant Kashagan oilfield in the Caspian Sea comes onstream.
“If you look at Kazakhstan’s fundamentals and resources, it is still a sleeping giant”, says Mr Iosifyan.
