Kazakhstan: End of private banks
Recently, odd things have happened to a number of Kazakh banks and the Kazakh stock market. The spread of ungrounded controversial information sent stocks of three banks plummeting, leading to nationalization of two major private banks. Today, there is little doubt that the action was intentional. There are various hypothetical explanations to it. One of them holds that it is raiding,
reports Arman on Russian neweurasia page [ru].
The hypothesis assumes that the whole fuss was orchestrated by the dominant ruling elite faction, which decided to expand its control over the banking sector. Recently, an affiliated company Alnair purchased the controlling shareholding of Kazkom, a major private bank in Kazakhstan. Among the four other leading banks – BCC, ATF, Alliance Bank and BTA Bank – the first two had gone under foreign ownership. The latter duo represented a potential threat, as rich independent groupings, these banks could have acted unpredictably in a politically crucial situation. Moreover, both banks had linkw with the opposition (Alliance Bank funded opposition parties during the electios, as did Kazkom as well; BTA is generally associated with a number of opposition media and the “Alga” movement). Other banks lack any ambitions due to their subjugation to financial-industrial conglomerates that are close to the elite.
The chaos started with an allegation of possible nationalization of Temir Bank (subsidiary of BTA). The leak of unnamed source in the government was published in a business magazine. As Arman further suspects [ru]
this was done in order crash the banks’ stocks and declare them bankrupt – in this case, according to the recently adopted legislation, the government has the right to dismiss the management and forcibly buy out banks into state property. Interestingly, both the government and the National Bank have been confidently assuring the society that the banking sector is stable. A similar story happened to Alliance Bank. Panic erupted shortly after the alleged Bloomberg report about its nationalization, but the news agency's website does not contain such information.
In this view, the recent replacement of the head of National Bank in Kazakhstan makes more sense. The new chairman is widely believed to belong to the dominant clan. He vindicated the bank’s takeover, “otherwise, BTA Bank would have defaulted the previous week”. Yesterday, the government dismissed the chairman of BTA board of directors Mukhtar Ablyazov because his “actions were found to be inconsistent with the interests of depositors and creditors and with current law,” explained Kazakh Prime Minister Karim Masimov. Evidently, it serves as a warning to Mukhtar Ablyazov who is a former political prisoner. Most likely, he would opt for emigration. The government has got 78% in BTA.
Meanwhile, a letter by Ablyazov condemning these events is circulating the Web. In the letter, Ablyazov brands his bank’s takeover as an act of “arbitrariness and state raiding”. He also says that, “The governmental actions display its economic incompetence and political nearsightedness.” It is unclear whether Ablyazov will go to the international arbitration, but in case he does, he would have probably won the case. Kazakhstan’s fourth largest bank Alliance is getting arranged for sale too. The Prime Minister said that “its largest shareholder, financial corporation “Seymar Alliance”, offered Samruk Kazyna 76% of its shares for a symbolic cost of 100 tenge (less than $1)”.
At the same time, Kazakh banks were repeatedly blamed for non-transparent reporting – perhaps, their situation was indeed far from being perfect. However, their management says that they were able to manage their external debt payments in 2009 without any external assistance. In addition, most of the Kazakh banks, including BTA and Alliance are traded on international stock exchanges, which have strict disclosure rules. All in all, it is really hard to be sure that the nationalization was only a political game and clannish redistribution of property. However, BTA chairman says it is like this in his letter, and his pet movement “Alga” has also disseminated the appeal to the citizens, urging them to
remain tranquil in the conditions, when economically ignorant, managerially irresponsible and politically short-sighted actions of the government and National Bank are made in the interests of Timur Kulibayev.
dass quotes their statement in his blog [ru].
Comment of megakhuimyak, the pominent local blogger, posted in his blog [ru]:
The state has adopted the law on financial sustainability, which reads that if a bank is in bad conditions, the authorities have the right to change management there and forcibly buy out the controlling stake. This mechanism was employed in the case of BTA. The authorities dismissed Ablyazov from the position of Chairman of the Board and forcibly take over 78,14%.
Taking into account that earlier there was a decision made by the state to buy 25% of Kazkom bank, BTA, Halyk and Alliance, it can be said that the government now fully nationalized the banking sector of Kazakhstan – it will control 55-65%, which – together with the administrative resource – means total power.
Adam-kesher is upset with the decision of the government to sell BTA Bank – the largest private bank on the post-Soviet space – to Russian state-owned Sberbank [ru]. This decision, if made, would possible add a geopolitical component to the whole controversy.
Also posted on neweurasia.
9 comments
Nice analysis… but is it really necessary to quote yourself? I’m not sure Kazakhstan needs a Bob Dole.
Obviously no one comes out of this mess looking particularly good, and it’s too bad the Kazakh banking sector is becoming for now state dominated, as in so many other countries (like the UK). But your efforts to make BTA and Ablyazov the “good guy” here are strange. BTA was not traded on any foreign exchange (contrary to what is stated above), unlike the other three major Kazakh banks. But in any case Kazakhstan has its own disclosure roles, which are actually pretty tough — and BTA (and not only BTA) seems to have been making misleading disclosures about things like non-performing loans. Under Ablyazov’s management BTA was more aggressive and reckless than any other Kazakh bank, and indeed it was world-class in this area. Ablayzov has nothing at all to complain about. He borrowed too much and ultimately ran BTA into the ground. His efforts to make this seem like some sort of political attack on himself are not credible.
Whether Ablyazov is a “good guy” or not I think really isn’t the point. The point is that to varying degrees, large banks in Kazakhstan are in dire straits, as they are in many parts of the world.
However, every other bank that has been bailed out in Kazakhstan so far as approached the government and reached an amicable agreement. BTA was taken over without communication with the board, and Ablyazov removed.
One interpretation is that BTA really was worse off than any of the other banks, and this triggered the appropriate clause in the banking law.
Another is that BTA, being most closely associated with what little political opposition exists in Kazakhstan, was singled out for treatment that was different in execution, if not in substance, from the other banks.
Bottom line: of the four largest banks, all are in trouble, and all have gotten help. The two most closely associated with political opponents of the regime have lost control due to the shares taken; I believe (correct me if my recollection is incorrect) that the other two have not.
(Although again, the percentage of shares held by the government in banks whose owners are known to be friendly to the regime isn’t really the point…)
It is also troubling that the government and the bank have been releasing misleading statements. Any number of times Samruk-Kazyna and BTA Bank and Alliance Bank have denied rumours of any government takeover and stated that the government would buy 25% of their shares, as they are doing with Kazkommertsbank and Halyk Bank. So the fact is this deal was deliberately concealed from the taxpayers, foreign investors, and creditors of those banks. That is troubling and it leaves one wondering what is next. Foreign investors and creditors will see that Kazakhstan is not honest about its plans and stop investing here.
Well, they’re trying desperately to avoid the N-word, since that’s bad for FDI.
If you look at what’s been done in the past few years with the subsoil laws, and now the banking laws, there’s a pattern there: the GoK has special rights and privileges and exercising them ends up putting property that was previously private into the hands of the state.
However, this isn’t “nationalization” since nationalization is bad, and they always have a reason (e.g., subsoil resources are strategic, violation of banking laws, etc).
I’d say it’s nationalization regardless of what the reason is, but that’s just me.