Kazakh Banks Can’t Afford to Write Off Bad Loans, S&P Says

Jan. 26. Bloomberg

By Nariman Gizitdinov

Kazakh Banks Can’t Afford to Write Off Bad Loans, S&P SaysKazakhstan’s banks can’t afford to write off nonperforming loans and recognize them as losses because they have “very limited sources of new capital” to compensate, Standard & Poor’s said.

“It’s easier to keep the problem loans on balance sheets,” Ekaterina Trofimova, a Paris-based S&P bank rating director, said in an interview in Almaty today. “Write-offs by Kazakh banks that haven’t defaulted won’t exceed an average of 5 percent as lenders focus on restructuring customers’ debt.”

The state-owned National Wellbeing Fund Samruk-Kazyna took control of BTA Bank, the country’s second-largest by assets, in February and the bank defaulted in April after credit markets froze and Kazakhstan’s property bubble burst. Alliance Bank, AO Astana Finance and BTA’s Temirbank have also defaulted, leaving Kazakh lenders seeking to reorganize $20 billion of debt.

Kazakhstan’s 37 banks had collective losses of 2.92 trillion tenge ($19.7 billion) as they boosted bad-loan provisions in the first 11 months of 2009, compared with combined net income of 33.8 billion tenge a year earlier, the Financial Supervision Agency said on Dec. 21. Total assets decreased to 11.56 trillion tenge from 11.95 trillion tenge a year earlier.

“We expect provisions to continue increasing and catching up with the real level of problem loans,” Trofimova said. “We would expect Kazakh non-defaulted banks to increase provisions to an average of 24 percent of total loans, but there might be wide deviations.” Such banks may begin releasing provisions starting in 2011 as the Kazakh economy improves, she said.

The economy of Kazakhstan, which holds 3.2 percent of world oil reserves, expanded 1.1 percent last year, after growing 3.2 percent the year before, Prime Minister Karim Masimov said in the government’s official newspaper, Kazakhstanskaya Pravda. The economy is expected to grow between 1.5 percent and 2 percent this year, according to the government.