Kazakh Banks Look For Strength Through Consolidation

With Help from Astana, Banking Deal of the Year Goes Through in Kazakhstan

A deal to bring together Kazakhstan’s two biggest lenders is set to close in July, in a major step to contain the crisis in the country’s banking sector.

Policymakers hope the deal will be the first of a slew of mergers to strengthen the sector through consolidation and provide much-needed support to balance sheets saddled with bad loans. Kazakhstan’s banking industry is a risk for the central Asian economy, according to analysts, with dozens of lenders struggling with non-performing loans that stem from the 2008 financial crisis and the fallout from the 2014 collapse in oil prices. Halyk Bank, the country’s largest lender by assets, expects to finalise a deal to buy rival Kazkommertsbank in July, its chief executive told the FT. “Due diligence is almost completed. We are quite close to closing the deal, if certain questions that have arisen are answered,” said Umut Shayakhmetova. “We still are having talks on the final structure of the deal, to make sure there is no negative impact on Halyk . . . I would expect these to be overcome, and we will reach a solution.”

A completed deal, which would bring together two shareholders with close links to Kazakhstan’s strongman president Nursultan Nazarbayev, would see Halyk control 37 per cent of the country’s banking market, almost four times more than its next challenger. The final niggles holding up the deal are understood to involve the exact procedure for a $7.5bn government bailout and ringfencing in a state-run “bad bank” for BTA, a troubled lender bought by Kazkommertsbank in 2014 that Halyk has said will not be part of any purchase.

Non-performing loans account for 12 per cent of the $80bn worth of assets held by Kazakh banks, according to official data, while rating agency Moody’s has said more than a third of the loans issued by the banks it rated in the country are problematic. The country’s central bank has called for consolidation in the sector and for healthier lenders to support those with the hardest-hit balance sheets, in an initiative supported by a recent IMF assessment of the country. Ms Shayakhmetova, who admits the size of the post-deal bank will saddle her with “huge personal and institutional responsibility” given its systemic importance, told the FT in an interview in her Almaty office that the initial purchase will see Kazkommertsbank exist as a subsidiary of Halyk, but that full merger of the two banks would be considered as a future possibility. Halyk, which has suspended dividend payments for 2015 and 2016, will fund the deal with its own cash. It will also raise an undisclosed amount from a deal to sell 60 per cent of one of its subsidiaries, Altyn Bank, to China’s Citic Bank. Ms Shayakhmetova said this deal would also close in July. Citic’s control of the lender will mean Altyn would become the first bank in Kazakhstan to be able to conduct direct currency exchange between Kazakh tenge and Chinese renminbi, pending approvals from Chinese regulators. Ms Shayakhmetova cautioned that Halyk’s purchase of Kazkommertsbank would not represent a quick fix for Kazakhstan’s banking malaise and that more consolidation was necessary to stabilise the market.

“There are more banks that need additional capital and cleaning up of assets. But the size of those banks is smaller [than Kazkommertsbank],” she said. “There will be many, many more. This could be the biggest deal in the sector, but definitely not the last.” In the past few months, four other Kazakh banks have announced merger talks. A full merger between Tsesnabank and BankCenterCredit would create the country’s second-largest lender after Halyk-Kazkommertsbank, while Capital Bank and Tengri Bank, two smaller lenders, have also signed a memorandum of intention regarding a merger. Ms Shayakhmetova said she was aware of another set of merger talks that had not yet been made public, without providing any details.

“Finally there has been a decision to start cleaning up the sector,” said Aidan Karibzhanov, general director of Almaty-based investment house Visor Holding. “There are plenty of smaller Kazakh banks that are in a similar situation to Kazkommertsbank . . . The policy being pursued by the central bank to encourage them to merge is the correct one.” Kazakhstan has about 34 banks, which analysts say is unsustainable. Still, that is significantly better than in the late 1990s, when the country had close to 200 lenders. “Previously, it was very fancy to have a bank. If you were an oligarch, you should have your own bank. People did not understand the banking business and how much capital you needed,” said Ms Shayakhmetova. “Today, many realise that it is not easy.”

This article was originally published on The Financial Times. Read the original article.

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