Kazakhstan Plan to Recapitalize Two Large Banks Is Credit Positive
Last Wednesday, the National Bank of Kazakhstan announced that it will buy a minimum of $1.4 billion
of problem assets from Kazkommertsbank (KKB, B2 stable, E/caa1 stable6
) and its recently acquired
subsidiary BTA Bank (B3 positive, E/caa2 stable), effectively recapitalizing the two banks. The purchase is
credit positive for KKB and BTA, and for other banks in Kazakhstan because it signals the Kazakh
authorities’ increased willingness to support banks. In the resolution of several failed Kazakh banks in 2009-
13, the government’s support was limited to protecting depositors, and did not include any significant
recapitalizations, resulting in foreign creditors taking large losses.
BTA had the highest proportion of problem loans among rated Kazakh banks at 92% as of the end of June
2014.7 KKB, the country’s largest bank, acquired BTA earlier this year from national welfare fund JSC
Samruk-Kazyna. Although KKB and BTA together account for around 60% of total problem loans in the
Kazakh banking system as of the end of June 2014, asset-quality problems in the country, to a large extent a
legacy of pre-2008 real estate lending, are not limited to these two banks. For the system as a whole, we
estimate that problem loans accounted for 47% of total loans as of year-end 2013 (see exhibit).
The central bank is not ruling out extending similar support to other Kazakh banks that report high levels
of problem loans, although it did not provided additional details. The central bank has made improving
banks’ asset quality a top priority and aims to bring the proportion of nonperforming loans to below 10%
by the end of 2015.
Under the proposed recapitalization scheme, the National Distressed Fund, 100%-owned by the central
bank, will buy problem assets from the banks under a repurchase agreement that is secured by a pledge of
the bank’s shares and obligates the banks to buy back the assets after 10 years. The scheme will improve
banks’ asset quality immediately, while simultaneously incentivising them to make recoveries on the assets.
Unlike problem loans that are not generating cash flow for the bank, the additional capital can be invested The central bank is not ruling out extending similar support to other Kazakh banks that report high levels
of problem loans, although it did not provided additional details. The central bank has made improving
banks’ asset quality a top priority and aims to bring the proportion of nonperforming loans to below 10%
by the end of 2015.
Under the proposed recapitalization scheme, the National Distressed Fund, 100%-owned by the central
bank, will buy problem assets from the banks under a repurchase agreement that is secured by a pledge of
the bank’s shares and obligates the banks to buy back the assets after 10 years. The scheme will improve
banks’ asset quality immediately, while simultaneously incentivising them to make recoveries on the assets.
Unlike problem loans that are not generating cash flow for the bank, the additional capital can be invested
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