In spite of experts’ and officials’ opinion the situation at the bank market of Kazakhstan has not changed for the better by results of the years and even got worse judging by some parameters. At the same time the stagnation in credit activity of the major domestic second tier banks still does not infuse any hope for growth of real economy in 2013.
The only positive event in the bank system, though still very conventional, might be a confirmation of the plan on refunding of BTA Bank debts obtained at the meeting of the BTA Bank creditors at the beginning of December. But it happened almost a year after the bank had another default with regard to the obligations previously restructured once.
It should be noted that the confirmation was obtained from creditors who have demands to BTA at the amount of $10.2 billion and this makes 93.8% of the total debt amount. We would like to remind that according to the law in order to confirm a plan it is sufficient to get approval of creditors whose claim makes not less than two thirds of the total obligations to be restructured.
Now the debt of the bank has decreased from $11 billion up to $3.3 billion and the repayment period was extended from 3 to 12 years. Herewith, Samruk-Kazyna Sovereign Welfare Bank took obligations to convert its deposits in amount of $1.2 billion (while their total amount is $1.7 billion) into the BTA capital and to supply the bank with a loan in amount of almost $1.6 billion.
As a result, the Fund’s share in the BTA capital will grow up to 97.2% from 81.48%. Other shareholders of the bank, possessing 18.52% currently, will have only 1.3% of shares.
Grigory Marchenko, a Head of the National Bank, perceived this information on the confirmation of the debt restructuring plan quite optimistically. He refused to talk about the future of the BTA bank but he said – “The main thing is that the restructuring was performed successfully. Now they should come to us (as I said it several times before) with the results of this restructuring and their plans for future. At the board meeting of the National Bank we will review this. After that, the materials will be submitted to the court and the court should study them. However, in general, the results are positive.”
Still it is worth to say that the main banker had provided optimistic opinion on the results of the previous restructuring and he also considered them as successful. Though later the BTA declared on another default. Therefore, actually, it cannot be final measure that makes the bank solvent considering the complicated repayment of debts.
However, the positive announcements were replaced with negative at once. As the Bloomberg Agency informed Atlantica Holdings Inc. and Baltica Investment Holding Inc. as well as Mr. Alan Kiblisky and Jacques Glicksberg lodged a suit against Samruk-Kazyna in the federal court of Manhattan. In opinion of the claimers the Fund together with BTA controlled by it developed a scheme to avoid restrictions on payment of dividends though creditors were promised that it would never happen. Also, it was stated in the suit that Samruk-Kazyna received “incredibly high 10%” on their deposits.
It is remarkable as well that the creditors claimed to Samruk-Kazyna but not to BTA Bank. The matter of fact is that the bank is protected against it for the period of restructuring according to the law while the Fund has no such protection.
According to Halyk Finance analysts the claimants possessing subordinated debt “lose not much” as per the restructuring plan they would be able to get only ordinary shares which cost almost nothing – $93 by the book value.
Kazakhstani pension saving funds were not happy with the restructuring plan too. According to some estimates due to another debt remission the national pension saving funds may lose about $200 million invested into the bank’s obligations. It’s quite possible that the debtor’s obligations before the funds will be converted into its capital but only in amount of 2.5% of the securities nominal value.
In order to settle down the issue the Kazakhstan Bankers Association proposed to Samruk-Kazyna to transfer the bank debt before the National Pension Savings Funds into the Fund’s liabilities. But if the second restructuring plan will be approved by the National Bank and accepted by the specialized financial court of Almaty before the announcement on the proposal there are risks that the KBA overture will remain to be a pious hope.
International rating agencies brightened with their estimates but only with regard to the general index of Kazakhstan. For instance, Fitch analysts scaled up the long-term rating of emitter’s default for our Republic in a foreign currency up to BBB+ from just BBB and in a national currency up to A- from BBB+ with a steady forecast.
At the same time, the country limit for Kazakhstan was increased up to A- compared to BBB+ before, and a short-term rating of an emitter’s default in a foreign currency up to F2 from F3. The agency explained it by “continued strengthening of an external balance of the state, low level of national debt, good prospects for growth and certain measures aimed to clear up in the bank system.”
Speaking of the financial sector, Fitch’s analysts estimated it as an “exposed to difficulties” and called it as “a negative aspect for the factor.” Herewith, as per the agency’s information the level of problematic loans in the bank sector is much higher than it is officially informed and it makes 37% of all assets being “the highest of 50 countries with a developing economy with regard to which Fitch receives their information.”
Besides, experts emphasized that in spite of positive measures taken by the government of Kazakhstan in 2012 in order to stimulate second tier banks to liquidate bad assets from their balances, “probably, the bad loans writing-off in the banks will be slow and the banks will strive to solve a problem at the cost of growth”.
The agency believes that it’s unlikely that the considerable resources will be contributed by the state into the banks. By the way, one of the consequences peculiar for the approach is a slow growth of credit activities. However, Fitch considers it as a positive aspect: “The smaller banking system with lower levels of dollarization and external debt represents less risks for the country than it was before the world financial crisis.”
Analysts of Standard & Poor’s followed Fitch in their evaluations of situation at the economy and banking system of Kazakhstan. The agency confirmed long and short-term sovereign credit ratings of our country by foreign and national currency liabilities at the level of BBB+ and /A-2 relevant to the “steady” forecast. At the same time, the experts justified their opinion with references to “high rates of budget and external balance, considerable natural resources as well as high and irregular inflow of direct foreign investments.”
Altogether, S&P paid special attention that the ratings level is still restricted by political risks: “As we believe, while Mr. Nazarbayev is a president of Kazakhstan, the political course of the country will be characterized by a relative stability and predictability. However, we see no clear prospects with regard to a future successor of the current president and we think that the stability can be destructed if Mr. Nazarbayev is unexpectedly retired.”
Also, the analysts identified “a limited monetary flexibility, fragile financial sector and still moderate pace of economy development in Kazakhstan” as restricting aspects. Besides, S&P provided evaluations similar to Fitch opinion on the situation in the banking sector with a high level of problematic credits having been registered. The agency does not expect a significant increase of rates in clearing of banks from problematic credits.
Speaking of basic financial indicators in the banking sector for the ten months of this year they are not optimistic but for individual players. On the one hand, on the 1st November 2012 the total assets of banks in Kazakhstan raised up to KZT 13.708 trillion compared to KZT 12.809 trillion or almost for $6 billion. On the other hand, the total calculated equity capital of the banking sector demonstrated an opposite dynamics with a drop from KZT 1.961 trillion at the beginning of the year to less than KZT 478.5 billion or almost for $10 billion!
The loan portfolio of the second tier banks considering inter-bank loans has increased from KZT 10.443 trillion up to KZT 11.346 or approximately for $6 billion. At the same time, the defaulted debt on payments over 90 days decreased for January–October slightly: from 30.6% to 30.52% of the total loan portfolio and the volume of provisions on loans grew from 31.9% up to 35.61%.
The total liabilities of the banking sector grew from KZT 11.516 trillion up to KZT 13.229 trillion for the ten months. The deposits of natural persons increased up to KZT 3.195 trillion, those of legal entities grew up to KZT 5.371 trillion and the deposits of specialized subsidiaries raised up to KZT 785.8 billion (and only due to the subsidiaries of ATF Bank, which makes KZT 55.9 billion and Tsesnabank – KZT 230 billion).
The profit possessed by banks as of the 1st January (by results of 2011 the sector earned KZT 12.3 billion of net profit) turned into a fantastic loss at KZT 1.294 trillion or $8.5 billion in 10 months.
Speaking of individual players’ indicators, the two nationalized banks are still leaders by their share in the loan portfolio of credit defaulted debts (including interest). For BTA Bank the indicator raised from 67.7% up to 75.3% since the start of the year and for Alliance Bank it dropped slightly from 41.9% up to 41.8%. Kazkommertsbank took the third place as for the ten months the part of its defaulted debts increased from 31.9% up to 33.2%. The last in the five outsiders are ATF Bank (growth from 22.7% up to 31.8%) and Nurbank (from 18.8% up to 25.1%). It should be noted that in general for the banking sector the level of defaulted principals and interests also raised from 29% up to 30.2%.
As per the “non-performing loans” indicator the situation is even worse. BTA is a leader possessing the most part of such loans in its portfolio with the growth from 73.3% up to 86.4%. It is followed by Temirbank (drop from 55.3% up to 49%), Nurbank (growth from 45.3% up to 47.1%) and Alliance Bank (drop from 50.1% up to 46.9%). Affairs of ATF Bank are not much better; for the ten months it registered a sharp increase of non-performing loans from 28.1% up to 40.3%. In total, the indicator in the banking sector has slightly increased from 35.1% up to 36.6%.
It’s hard to escape the conclusion that banks of Kazakhstan still prefer retaining of “bad” assets on their balance and the National Bank’s concept on the clearing of the second tier banks from bad loans still does not work in full. Besides, it is happening in the conditions when the experience of international markets is closed for our banking institutions. Thus, that’s hardly to be expected that any serious positive changes will occur in 2013. It’s quite opposite, if the global economic conditions are deteriorating and the prices for oil drop; the banking sector will stand a good chance to face serious problems again.