Meet the Woman Charged With Saving the Kazakh Banking System

(Bloomberg) -- After a decade of financial turmoil, Kazakhstan is looking to the head of its largest lender to restore the banking system to health.

Umut Shayakhmetova, the 48-year-old chief executive officer of Halyk Bank, is weighing the lender’s first dividend since 2015. The potential payout is a sign of stabilization in the banking system after years of turmoil culminated in Halyk being drafted in to recapitalize its main competitor, Kazkommertsbank. Following the purchase, for a symbolic sum, Halyk shoveled the bad debt of its new acquisition into a special-purpose state fund.

“We were putting together the deal all last year, and it was very difficult and involved a huge amount of responsibility,” Shayakhmetova said in an interview in Almaty. “These days I’m less stressed and I’m already sleeping better, but there are still many issues concerning the integration process.”

Her plan to merge the two banks will create the country’s dominant lender, with over a third of the industry’s assets. If it succeeds, it could put an end to the turmoil sparked by the 2008 financial crisis and the failure of the country’s largest lender, BTA Bank. Bad debt from BTA wound up on Kazkommertsbank’s books and triggered its fall in turn. Now Halyk plans to start with a clean slate.

Minimizing Exposure

It wasn’t the first time Shayakhmetova, a former ABN Amro banker, had encountered the specter of BTA. Four years after taking the reigns at Halyk in 2009, she fought the government’s attempt to sell BTA as it slid toward a second default. Kazkommertsbank acquired the bank the next year.

So when the government approached her to rescue Kazkommertsbank, Shayakhmetova insisted on a deal to minimize Halyk’s exposure. To convince her, the government unloaded 2.4 trillion tenge ($7.4 billion) of Kazkommertsbank’s bad debt into a special-purpose vehicle in exchange for Halyk and its majority shareholder recapitalizing the lender by 250 billion tenge. It was the largest rescue since about $20 billion of banks’ debt was restructured in the wake of the 2008 crisis.

Back in Shape

As well as backing the Halyk-Kazkommertsbank merger, which is due to be completed in the second half of the year, the state has pumped 650 billion tenge into other lenders.

The Kazakh regulator plans to increase supervision over banks to prevent loans to shareholders and related parties, a practice that was largely responsible for lenders’ non-performing debt, central bank governor Daniyar Akishev said Feb. 9.

“The banking sector is getting itself back into shape,” Sberbank CIB analyst Andrew Keeley said from London. “BTA is finally done and dusted, and a number of lenders have been recapitalized. While the sector might not be over the hump yet, it’s moving in the right direction.”

Oil Dependency

While government injections have helped the banking sector provision for soured debt -- estimated at as high as 45 percent of total loans by S&P Global Ratings last year -- Kazakh growth remains dependent on natural resources. Oil counts for some 15 percent of gross domestic product, more than half of Kazakhstan’s exports and a third of government revenue.

Capital adequacy at Halyk, which is owned by President Nursultan Nazarbayev’s daughter Dinara and son-in-law Timur Kulibayev, is above 21 percent, while Kazkommertsbank’s is even higher, according to Shayakhmetova. The solid capital position may help Halyk win deposits from a jittery public that was spooked by speculation last year over the health of several lenders.

Still, S&P has warned about the merger, which was approved by the board in December 2017, and cited integration risks for Halyk’s negative outlook.

“The integration of Kazkommertsbank may become a challenge for Halyk Bank, taking into account Kazkommertsbank’s much weaker credit standing and the still-weak economic conditions in Kazakhstan,” S&P analysts including Ekaterina Marushkevich said in a note after Halyk’s board approved the merger.

Minority Buyout

S&P estimates Halyk may need to spend 20 billion tenge to buy out minority shareholders that vote against the merger. Shayakhmetova said she doesn’t expect many shareholders to oppose the deal.

Sberbank CIB’s Keeley, who rates Halyk a buy, said the merged bank could save on its branch network and headcount, while the management’s conservative policies should keep risks to a minimum.

The combined bank plans to increase lending by 10 percent this year, while the cleanup of Kazkommertsbank could last two years, Shayakhmetova said. The bank has received purchase offers for its life insurance units and is prepared to sell for a suitable price, she said.

“The main challenge for me in Kazkommertsbank is the merger process, which is very complex,” Shayakhmetova said. “Even so, we should not slow down on our current activities, and maintain the pace we’ve set.”

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