Kazakhstan's President Nursultan Nazarbayev has called his ministers “cowards” for taking inadequate measures to clean up the country’s banking sector, while ordering the central bank to focus on economic growth.
The 78-year-old leader’s remarks, relayed live to reporters from a January 30 cabinet meeting, betrayed evident frustration with difficulties the government has encountered while pushing forward rescue packages for lenders. The central bank shut several smaller banks last year.
Nazarbayev also noted that the ratio of loans to GDP was too low, meaning the economy lacked investment. Urging closer coordination between the regulator and the cabinet, he said Kazakhstan must secure growth of 5% in 2019, up from the 4.1% recorded in 2018.
Some analysts believe the Kazakh leader’s remarks might deter the central bank from pursuing monetary tightening in March. The regulator has lately hinted that it may raise the policy rate from the current level of 9.25%.
The central bank held its policy rate unchanged at its latest monetary policy review meeting, which took place on January 14. In July 2018, it cut the policy rate for the fourth time in the year, reducing it to 9% from 9.25%. It subsequently tightened monetary policy, pushing the rate up 0.25 percentage points in October. The Kazakh rate-setters previously stated that their aim was to maintain the policy rate at four percentage points above the level of inflation.
Asset quality review ordered
The president, in office for almost three decades, instructed the central bank to conduct an asset quality review of local banks in order to “clean up” the troubled Kazakh banking sector in conjunction with the cabinet. It was at that point that he made the “cowards” remark directed at ministers.
“You are just cowards, not cabinet ministers!” he exclaimed. “Are your hands and knees shaking too much to make a decision? What are you doing here then?”
Kazakhstan's banking industry was almost destroyed by the 2008 financial crisis and the lesser shock from the 2014 collapse of world oil prices.
The government and central bank’s rescue packages for the largest banks included assistance last year for the two largest Kazakh lenders Halyk Bank and KKB. In line with those packages, they completed a merger process, arranged after Halyk bought a controlling stake in KKB in a move to save the bad-loans-ridden lender.
The share of the loan portfolio of the banking sector accounted for 23% of GDP in 2018. That figure fell from 26% of GDP in 2017 and 33% in 2016.
“Bad bank” bonds to fund asset buys
Kazakhstan’s state-owned “bad bank”, the Problem Loan Fund (PLF), has said it plans to sell KZT604bn (€1.4bn) in domestic bonds to fund asset purchases from second largest Kazakh lender Tsesnabank.
There have been reports that Tsesnabank is urgently looking for a bank to take it over to prevent a collapse.
Tsesnabank sold €1.1bn in bad loans to the PLF last year. It has been attempting to restructure its bad loans stemming from overexposure to the agricultural sector. The lender, which holds $1bn in retail deposits, cannot be liquidated without it having a wider effect on the Central Asian nation’s economy. As such the government and central bank authorities have approached at least three Kazakh banks hoping for an agreement on a takeover deal by February, Reuters has reported. Sources were cited as saying that they wanted to move quickly to prevent any runs on deposits.