If there was any sector badly hit by the economic crisis that began in 2008, it was Kazakhstan’s banking system. Overdependent on foreign short-term funds, and overleveraged in the real estate and construction markets, when the fall came, it came hard. Quick action by the National Bank of Kazakhstan (NBK) to address systemic risks throughout the finance industry was largely credited with saving the day. The banking sector has broadly been involved in a deleveraging exercise ever since, with better risk management being implemented. The National Bank of Kazakhstan (NBK) has announced the implementation of Basel III standards from the end of 2012, meaning that distressed banks will need to clean up their balance sheets and clear non-performing loans off their books.
Over 2011, banking sector assets grew by 6.5% in year-on-year terms, reaching KZT12,822 billion ($85.36 billion), while gross loans rose 15.2% to KZT10,443 billion ($69.52 billion). The credit market has begun to free up in Kazakhstan, following two years of restructuring. In terms of profits, 2011 was a restrained year, with many banks looking to set aside funds for provisions. Halyk Bank recorded the highest profit, of KZT36.4 billion ($242 million), followed by Alliance Bank on KZT12.3 billion ($82 million), and Kaspi Bank on KZT12 billion ($80 million). However, profits were muted over 2011.
At the end of 2011, Kazakhstan’s largest bank by assets was Kazkommertsbank, a broad-based financial institution involved in both the corporate and retail sectors. It registered KZT2,485
billion ($16.54 billion) in assets and net loans were recorded at KZT1,479 billion ($9.84 billion), while deposits and equity came in at KZT1,379 billion ($9.18 billion) and KZT435 billion ($2.90 billion). The bank has been following a risk-averse strategy of late, looking to strengthen its retail deposit base and move away from an overdependence on corporate clients. NPLs still represent 34% of all loans, while those considered overdue came in at 23%. Over 1Q2012 Kazkommertsbank gave up its leading position in terms of assets (KZT2,444 billion) to Halyk Bank (KZT2,486 billion), though retained a market share of 18.4%.
Despite coming in second in terms of assets over 2011, Halyk Bank has been showing solid signs of growth. At end-2011, the bank recorded KZT2,222 billion ($14.79 billion) in assets, net loans came in at KZT1,046 billion ($9.36 billion) and deposits were at KZT1,519 billion ($10.11 billion), while equity came in at KZT 290 billion ($1.93 billion). Umut B. Shayakhmetova, Chairperson of Halyk Bank, described 2011 as a year of “optimization” for the universal bank’s operations in an interview with TBY. The bank also features the largest ATM network across the country, with more than 1,700 terminals. At the end of 2011, its NPL rate dropped to 24% on the back of rising deposits on the corporate and retail side, while overdue loans came in at 16% of gross loans. Over 1Q2012 it overtook Kazkommertsbank in terms of market share (18.7%). At the end of 2Q2012, the bank announced it would stage a buy-back of 150 million preferred shares owned by state fund Samruk-Kazyna for KZT27 billion. The fund injected KZT60 billion into Halyk Bank in 2009, split between ordinary (KZT27 billion) and preferred shares (KZT33 billion). The early buy-back is indicative of Halyk’s improved financial outlook. Halyk Bank aslo took out the “Bank of the Year” award for 2011 from The Banker magazine.
Kazakhstan’s third largest bank by assets at the end of 2011 was BTA at KZT1,617 billion ($10.77 billion). At end-2011 the bank recorded KZT787 billion ($5.24 billion) in net loans and KZT736 billion ($4.90 billion) in deposits. BTA’s liabilities outweighed its assets to the tune of KZT241 billion ($1.60 billion), while its NPL rate came in at a hefty 73% of gross loans. The bank found itself in difficulty following the global financial crisis, and was taken over and restructured by Samruk-Kazyna in 2010. Sumruk-Kazyna has a controlling stake of 81.48% in the bank. The restructuring in 2010 saw the bank’s debt slashed from $16.65 billion to $4.2 billion; however, as a result of the growing cost of encouraging domestic deposits and the difficulty of gaining external sources of funding, a new round of restructuring or capital injection may well be needed. The government and NBK have maintained their commitment to support BTA, as well as two other banks that are seen as being important to the system, Alliance and Temir. At 1Q2012, BTA recorded a market share of 10.8%, while its assets declined 11% in year-to-date terms to KZT1,438 billion ($9.58 billion).
Bank CenterCredit was Kazkahstan’s fourth biggest bank by assets at end-2011, reporting in at KZT1,063 billion ($7.08 billion). CenterCredit reported net loans of KZT677 billion ($4.51 billion) over the same period, deposits of KZT692 billion ($4.61 billion), and equity at KZT84 billion ($559 million). The bank has been a keen seeker of retail deposits, which make up 55% of all assets. Its NPL figure at end-2011 was a comparatively low 15.9%, the lowest rating among the top 10 banks by assets. Over the 1Q2012 period, CenterCredit claimed an 8.1% share of the market, while its assets were slightly up over the quarter by 0.8% to KZT1,072 billion ($7.14 billion).
ATF Bank recorded assets of KZT984 billion ($6.55 billion) over 2011, putting it in fifth place for the banking sector. Over the year, it reported net loans of KZT691 billion ($4.60 billion), deposits of KZT522 billion ($3.48 billion), and equity worth KZT63 billion ($429 million). ATF Bank is the largest foreign-owned bank in Kazakhstan, being a part of the UniCredit Group. In 2Q2011, the parent group provided ATF Bank with a capital injection in order to maintain its capital adequacy in line with regulated minimums. At end-2011, it recorded an NPL level of 28.1% of gross loans, respectably under the 41% average for the top six banks in Kazakhstan. In 1Q2012, ATF Bank had a market share of 7.5%.
Alliance Bank came in sixth in terms of assets over 2011, at KZT530 billion ($3.53 billion). At the end of the year, it reported net loans of KZT293 billion ($1.95 billion), deposits of KZT292 billion ($1.94 billion), and equity of KZT9 billion ($59 million). The bank had an NPL ratio of 50.1% at end-2011, down some 22.6% over the year as it sought to aggressively improve asset quality by selling off bad assets and providing incentives for outstanding borrowers. Alliance has been aggressive in increasing the size of its local deposit base, recording growth of 119% in corporate deposits and 78% for retail over the 2010-2011 period. In order to balance out this growth in deposits, it has become more engaged in providing loans to the retail market, where net interest margins are healthier.
Although Alliance Bank recorded a market share of 4.1% in asset terms over 2011, it was supplanted for the sixth spot by Russia’s Sberbank over 1Q2012. Sberbank reported KZT643 billion ($4.28 billion) in assets, corresponding to a 4.8% market share, for the first quarter. The Russian giant appears to be committed to its local operations in Kazakhstan, likely a result of the growth of trade between members of the Customs Union. The bank set a target to increase its asset base by 30% over 2012, and managed to overshoot its goal (31%) in 1Q2012.
FAREWELL TO NPLs?
The high level of NPLs in the banking system—35% in 1Q2012—has been a major issue for both the so-called “good” banks and their lowly rated brethren. Although the Distressed Assets Fund, established in 2008 and under the control of Samruk-Kazyna, was intended to assist the banks in the first stages of the crisis, the level of NPLs in the system overwhelmed its initial start-up capital of $355 million. More direct capital injections were used to keep many of the banks afloat during the crisis period, though without addressing the underlying issue of NPLs. For the banks, the tax treatment of NPLs made it difficult for them to write loans off their books, thus forcing many to simply hang onto them.
In February 2012, new amendments to the banking law came into force, allowing the NBK to set up a Problem Assets Fund to purchase corporate loans and other loan types not associated with the real estate industry from second-tier banks at a discount, and then package them as bonds. The initial size of the Problem Assets Fund has been estimated at around $5 billion, and it is expected to swing into operation in the second half of 2012. In addition, to address the issue of other bad loans that will not be covered by the Problem Assets Fund, the banks have received the green light to set up special-purpose vehicles (SPVs) to package together problem mortgage loans and offer them to the market. Both the Problem Assets Fund and the SPVs will receive special tax treatment until 2018 to encourage the banks to clear out the many zombie loans they have on their books and restore the NPL level back down to more internationally recognized levels.
© The Business Year