Kazakhstan Said to Weigh Its Biggest Bank Rescue Since 2009

(Bloomberg) -- Kazakhstan has extended an emergency loan to the country’s biggest bank, the first step in what could be a rescue that may reach 1.5 trillion tenge ($4.5 billion), according to people familiar with the plans.

A bailout is among the alternatives under discussion between officials from Kazkommertsbank JSC and the central bank as Kazakhstan edges closer to its biggest bank rescue since the global financial crisis seven years ago led to $20 billion in debt restructurings by the country’s lenders. Representatives from Kazkommertsbank and the central bank declined to comment.

Battered by a collapse in oil prices and a recession in neighboring Russia, the Central Asian nation’s financial system is facing mounting distress, with almost one in three loans either non-performing or renegotiated, S&P Global Ratings estimated in October.

Kazkommertsbank has borrowed about 400 billion tenge from the central bank from Dec. 15 to support liquidity, said the people, who spoke on condition of anonymity. Officials were instructed to stave off the collapse of the nation’s biggest holder of deposits and are discussing various scenarios for how a bailout might occur, they said.

“Kazkommertsbank’s problems are mounting because of its structurally loss-making performance,” Roman Kornev, a Moscow-based analyst at Fitch Ratings, said by e-mail. “Our base-case expectation is that the state will not provide support to Kazkommertsbank in the amount sufficient to prevent losses for its senior creditors as we’ve seen previously in Kazakhstan.”

A round of bank mergers may be coming next year as the country’s economic slowdown squeezes profits, central bank Governor Daniyar Akishev said on Dec. 7. He declined to comment on whether Kazakhstan can afford to undertake another bank debt restructuring.

While Kazkommertsbank previously got 250 billion tenge from the central bank for taking twice-defaulted BTA Bank off the state’s hands in 2014, it’s failed to tackle the pile of bad debt as crude lost about half its value since June of that year, dragging down the tenge and eroding economic growth.

Halyk Bank, the nation’s second-biggest lender, may start talks about gaining control of Kazkommertsbank at a later stage of the rescue, if Kazakhstan agrees to provide about 1.5 trillion tenge to plug holes in the troubled lender’s balance sheet, according to two of the people. Another person said the size of the financing will depend on talks between Halyk and the central bank. A representative of Halyk Bank declined to comment.

Halyk may not benefit from the deal. “A possible acquisition of large distressed banks, such as Kazkommertsbank, could be detrimental for financially stronger acquirers, their shareholders and creditors,” Kornev said.

Two Options

President Nursultan Nazarbayev said last month that the government sees two possibilities for improving Kazkommertsbank’s health: either shareholders will find funds to boost its assets -- “make it viable and it will pay back its credits normally” -- or the lender will turn to the state for a loan. Kazkommertsbank Chairman Kenges Rakishev, who is the son-in-law of Deputy Prime Minister Imangali Tasmagambetov, became the company’s majority shareholder last year.

“We won’t let this bank collapse,” Nazarbayev, the longest-serving leader in the former Soviet Union, said in a Nov. 22 interview in the capital, Astana.

Halyk Bank said in November that it held “general discussions” this year with Kazkommertsbank on how to help the Kazakh banking industry, including the possibility of merging the two lenders. No offers were made, it said in a Nov. 18 regulatory statement.

Fitch Ratings on Dec. 20 said Kazkommertsbank is weighed down by its “large” exposure to its former unit BTA Bank, which accounts for half of its loans. BTA is now functioning as a distressed asset manager.

‘Modest’ Recoveries

Fitch said it expects “modest cash recoveries” from BTA’s portfolio in the near future even though the loans are reported as “performing.” Kazkommertsbank is unprofitable after adjustments for accrued interest income that’s not collected and other low-quality items, according to the rating company.

Kazakhstan would be the latest former Soviet state forced to bail out a major bank. Ukraine is nationalizing its biggest lender, with the government taking 100 percent of PJSK Privatbank after its billionaire shareholders requested help. Tajikistan’s government said on Wednesday it plans to borrow $490 million from the central bank to bail out four local lenders, RIA Novosti reported.

To contact the reporter on this story: Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net. To contact the editors responsible for this story: Torrey Clark at tclark8@bloomberg.net; James Herron at jherron9@bloomberg.net, Paul Abelsky, Tony Halpin