Kazakhstan’s Two Largest Banks Agree Takeover, State Offers Aid

Kazakhstan: Banking System Undermined by Expensive Credit

Kazakhstan’s two biggest lenders have provisionally agreed a deal for Halyk Bank HSBK.KZ (HSBKq.L) to take over its bigger rival Kazkommertsbank (KKB) KKGB.KZ, they said on Thursday.

The central bank said the authorities planned to support the deal by helping Kazkommertsbank resolve bad loans.

The former Soviet republic has struggled to recover from the financial crisis of the late 2000s and the banking sector has been beset by bad loans since the sharp slide in the price of oil, Kazakhstan’s main export. LCOc1

Halyk, which is controlled by President Nursultan Nazarbayev’s daughter Dinara and her husband Timur Kulibayev, said in January that a deal to take over Kazkommertsbank would be dependent on its rival agreeing to get rid of bad assets.

Half of KKB’s assets totaling $15.7 billion are tied up in a single loan to BTA, a former bank that is now a distressed asset management company. BTA has so far missed no repayments on that debt, but the outlook is uncertain.

The two banks said in separate statements that they had signed a non-binding memorandum on a potential acquisition of a controlling interest in KKB by Halyk. They did not disclose the size of the stake acquired or the purchase price.

The central bank said that the state-owned ‘bad bank’, the Problem Loans Fund, planned to purchase bad assets from Kazkommertsbank, majority-owned by local businessman Kenges Rakishev. It provided no details.

The Kazakh authorities said last month they would inject 2 trillion tenge ($6 billion) into the Problem Loans Fund, topping up its current capital of about $1 billion, in order to buy bad loans from local banks.

More than half of that money will come from Kazakhstan’s National Fund replenished mostly by revenues from the oil and gas sector, while the rest is likely to come from the state budget – whose own deficit will be financed by borrowings from the state-run pension fund.