“Bad bank” to bail out second largest Kazakh lender seeking urgent takeover

“Bad bank” to bail out second largest Kazakh lender seeking urgent takeover
Astana has another banking headache.
By bne IntelliNews January 28, 2019

Kazakhstan’s state-owned “bad bank”, the Problem Loan Fund (PLF), plans to sell KZT604bn (€1.4bn) in domestic bonds this week to fund asset purchases from second largest Kazakh lender Tsesnabank, the Kazakh Stock Exchange said on January 25.

On the same day, Reuters cited anonymous sources as saying that Tsesnabank was urgently looking for a bank to take it over to prevent a collapse.

Tsesnabank sold €1.1bn in bad loans to 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, the news agency report said. Sources reportedly said that they wanted to move quickly to prevent any runs on deposits.

Plunge in liquid assets
Last year, a 30% plunge in Tsesnabank’s liquid assets in the second quarter was seen as the first sign of the bank experiencing troubles. The situation raised eyebrows, but the bank simply attributed the drop to attempts at getting rid of “excess liquidity”. However, reports have suggested that the bank might be experiencing troubles with bad loans.

The announcement on the sharp decline in liquidity was followed up by the bank taking out a short-term loan of KZT150mn to raise liquidity and its receipt of state support worth KZT450bn to boost its financial strength.

Lingering difficulties are still troubling the Kazakh banking sector despite 2017’s $7.5bn bailout by the state. Earlier this month, Kazakh analytical firm Halyk Finance predicted that Kazakh banks would continue experiencing deterioration in 2019.

Almost destroyed
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 the central bank have been pushing forward rescue packages for the largest banks. Last year, the two largest Kazakh lenders Halyk Bank and KKB completed their merger process, arranged after Halyk bought a controlling stake in KKB in a move to rescue the bad-loans-ridden lender.

Halyk Finance also said it expected a continued decline in the role of the banking system in the development of Kazakhstan’s economy. 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.