In the last two months the major event in the financial market was the decision of Kazakhstani stock exchange to delist the shares of three default financial institutes – BTA Bank, Alliance Bank and Astana-Finance. According to KASE, the major reason, driving this decision, was the negative indicator of equity capital at the beginning of 2009. However, it is still unclear why the delisting took place only in the last months of the year.
On the other hand, BTA Bank and Alliance Bank kept their positions among the exchange members. Astana-Finance, however, lost its KASE membership in all the categories as well as the right to trade any instruments at the exchange.
The market participants estimated differently the delisting of the trio’s shares. Nonetheless, they had one single opinion – this decision boiled up long ago. Mars Aldashov, the deputy CEO of JSC Tsesna Bank sees the reason of BTA shares delisting in the risk that the final agreement on debt restructuring may not be signed at all. "The memorandum of intent is signed but it does not have legal power. It just reflects that there is certain mutual understanding between the parties while only the agreement has judicial power. If the agreement is not signed the question on liquidation of financial organizations will be raised since they cannot pay on their liabilities", he explained.
The banker reminded that the state is not going to pay off their debt; therefore, the stocks of BTA, Alliance and Astana-Finance were removed from the KASE representative list in order to minimize potential threats. "I believe this decision was made with the purpose of risk minimization so that the securities of potentially bankrupt organizations could not be floated at the stock exchange. This is very logical. Let us see what happens in the future. If these institutes improve they will regain their exchange positions. Otherwise, this was a preventive measure", Mr. Aldashov concluded.
According to Denis Rybalkin, the deputy CEO of Kz-Rating agency, any financial institute, restructuring its debt, "a priori, is not demanded by investors". Therefore, the delisting of BTA, Alliance and Astana-Finance stocks from KASE representative list has not come unexpectedly. "This is a technical measure that must have been implemented long ago, i.e. since the day of restructuring and non-payment of foreign liabilities. Most likely, this action is motivated by today’s reality".
Bauyrzhan Tulepov, the Director JSC Tengri Finance analytical agency, also believes that the removal of defaulted corporate stocks was expected. Considering their insolvency it was hard for the investors to estimate "the financial condition of them and the change of their stock prices". At the same time, the analyst supported the decision of the exchange administration; however, Mr. Tulepov is adamant that this decision should have been made earlier. "The decision of KASE is absolutely reasonable, but it was late. The default of these organizations was announced some time ago; therefore, the moment of uncertainty also emerged long ago. The decision to stop the trades should have been made immediately".
While the default institutions were removed from the KASE representative list, Zertteu DC Group Research Company announced the beginning of the third wave of crisis in Kazakhstan. In the opinion of experts, given the continuous growth of financial resources’ deficit, a new phase of economic shocks will be seen in the next two quarters.
Marat Kairlenov, the Research Director at Zertteu DC Group, reminded that the raw material sector, producing about 50% of GDP, employs 6% of the able-bodied population while non-raw material industries employ 94%. According to him, the main interaction between them was driven by the world financial markets: Kazakhstani exporters sold oil and other natural resources while banks and businesses actively attracted foreign loans. "At the end of 2007 this system started collapsing while by the fourth quarter of 2008 it became stagnant", the expert highlighted.
The point is that in the previous years the economic growth in our non-raw material sector was driven by bank loans. Therefore, inaccessibility of international capital markets for Kazakhstani banks led to situation where they cut loans for the real estate market and production industries. "Hence, an overheated market started the process of "collapse" that devalued banks’ collateral and increased risks. In these conditions banks reduced loans to the economy. As a result, the first victims were those highly dependent on loans, industries such as construction, automobiles sale and others".
According to Mr. Kairlenov, the dependence of the economy from loans in 2000-2007 grew by up to three times and reached 96% when one tenge of the non-raw material industrial output needed 96 tiyn of loans. Last year this indicator fell by twice that and reasoned the fall of GDP growth rate by 2.5 times.
The situation was deteriorated by the defaults of BTA Bank and Alliance Bank in the spring of 2009. It produced the outflow of the population’s deposits; as a result, Kazakhstani second tier banks continued cutting the volume of loans. In response to the proposed debt restructuring schemes of these banks foreign counter-partners shut the limits of Kazakhstani companies for trade finance.
“We know that working capital of domestic companies was acquired either from our or foreign banks through trade finance. Unfortunately, this source of liquidity is unavailable today", Zertteu DC Group expert stated.
Due to these reasons the economic situation in Kazakhstan continues to deteriorate. By the end of 2008 the loan volume was cut by 39% while current asset loans were down by 27%. The indicators in the first 9 months of this year do not convey optimism.
"Comparing the first quarter of 2009 and the first quarter of 2008, the current asset loans were reduced by 7%. In the second quarter the gap reached 38%. In the third quarter (based on National Bank data for July – August) the gap reached 49%. Meanwhile, in the third quarter the issue of current asset loans is expected as 1/3 of the respective volume in 2007. This means that in the last two years the issue of current asset loans dropped by 2/3", Mr. Kairlenov shared.
According to Zertteu DC Group, the cut down of current asset loans will produce a drop of output, lower profitability, increased unemployment and reduction of wage pool.
As a result, due to the lack of working capital the enterprises "are pushed to pre-default or default condition".
The analysts are also concerned about the abatement of the retail turnover of trade companies that reached 19.5% in the first 8 months of 2009, including 27.5% in August. Today, the condition of non-raw material companies in the regions "is close to critical" – the drop of sales varies between 15–20% to 45–50% while working capital is down by 2-3 times.
Zertteu DC Group experts believe that all these conditions witness the fact that "a third crisis spiral is active in Kazakhstan" and its consequences will be observed in the near future.
"We may say we have had a good lesson. We see that the third wave has not just started. We are already in there and feel it. When it will get to threatening scales is a matter of time and the issue of a new wave of defaults among companies. If the situation with corporate debt burden does not change – this is the question of one-two quarters. When volume of non-working loans, the share of default companies and the number of their bankrupt cases reaches 50%, we will clearly observe this third spiral", Arman Idrisov, the Chairman of Zertteu DC Group Partners Board, noted.
The overall situation in the banking sector does not produce optimism either. The statistical reports of FSA witness further growth of sub-prime loans. In the first 9 months of this year the share of non-working loans increased to 34.7%. In September the volume of 5th category problem and uncollectible loans increased to 3,519.6 billion tenge or by 2.5% while since the beginning of the year the same volume has grown by 4.7 times!
At the same time, the loans, issued to non-residents, reached 1,956.1 billion tenge (an increase of 27.2% in the nine months). BTA Bank continues ranking first by the volume of such loans. It has 1,402.1 tenge or a 71.7% increase from their total amount. At the same time, the share of loans, issued to non-residents, reached 54% in the loan portfolio of second tier banks. The same indicator of Kazkommertsbank, ranking 2nd in the list, does not exceed 379.6 billion tenge. By the end of September the share of such loans in the Kazkommertsbank portfolio reached 14.9% while the Kazkommertsbank contribution in the total volume of such loans throughout the banking system reached 19.4%.
In general, the volume of loans with a delayed debt period over 90 days throughout the sector has grown by 3.6 times since the beginning of the year! In September it increased by 10.8%, reaching 1,776.7 billion tenge. The bank reserves have been growing at the same time. In the first month of autumn they reached 3,688.3 billion tenge (+5.4%).
The forecast of further development of situation does not produce optimism – some experts expect the further growth of bad loans percentage to 50% in 2010. "Most likely, there will be negative trend. I believe in the next year the banks’ portfolio will deteriorate for another 10-15%", Almira Akhmetkarimova, the Director of JSC Eurasian Financial Company, notes.
Things with a total equity stake of banking sector are no good either. FSA reports that as of October 1 it went down by another 30.2% to 9278 billion tenge although a year ago banks had had positive indicator – 1,983.2 billion tenge.
Dollarization of second tier banks in Kazakhstan also remains high enough. In the last 9 months banks’ foreign currency assets reached 6,356.2 billion tenge or 52.6% of their total volume. At the same time, the foreign currency loans took up 59.9%, banks’ liabilities, nominated in foreign currency – 58.1% and foreign currency deposits – 53.2%.
Meanwhile, in September the total assets of the banking sector decreased by another 0.3% to 1,276.9 billion tenge while since the beginning of the year the reduction rate has reached 3.4%. The loan portfolio of banks dropped by 0.2% to 10,138.3 billion tenge although since the beginning of the year the volume has grown by 11.5%.
The total loss of the industry reached enormous figures. By October 1 it amounted in 2,825.4 billion tenge or almost $19 billion! In September this indicator increased by another 8.7% while a year ago banks posted profit (71 billion tenge).
In the mean time, some optimism is produced by the growth of the deposit base in our commercial banks. Since the beginning of the year it has grown to 8,259.4 billion tenge or 20.2% (2.2% in September). It has to be mentioned that despite some growth in September (+5.1%) the deposit volume of legal entities dropped by 22.5% to 4,165.2 billion tenge in 9 months. Besides, the deposits of special purpose subsidiary companies increased by 3.4% to 2,225.5 billion tenge (-1.3%). On the other hand, a positive trend was demonstrated by deposits from population. Since the beginning of the year its volume has increased by 24.6% to 1,868.7 billion tenge (+0.4%).
Despite obvious problems in the real estate market, according to FSA, construction remains the priority sector of lending for banking sector; thus, its share in the loan portfolio is 27.2%. The trade, non-production sector and industry take up 26.3%, 23.2% and 15% respectively.
Mortgage companies are in worse condition than bankers. According to the regulating agency, in September the total assets of these organizations dropped by 0.2% to 86.1 billion tenge. The loan portfolio shrank by 6.3% to 75.4 billion tenge while the equity stake remained at the same level of 18.4 billion tenge. Comparing these figures with the beginning of the year, the losses reached huge amounts. The reduction rate reached 59.9%, 55.8% and 64.8% respectively. At the same time, the share of standard loans in the portfolio of mortgage companies has dropped from 92.2% to 66.4% year on year. The share of uncollectible loans increased from 0.5% to 14.1% while the portion of problem loans grew up from 7.3% to 19.5%. FSA explains such impetuous piqué by cancellation of licenses, owned by five key players in the mortgage market.
FSA reports on separate banks indicate serious issues in some of them. At the beginning of October Kazkommertsbank ranked first by the size of assets and demonstrated a growth by 0.4% to 2,538.3 billion tenge in September. The same indicator of BTA Bank, ranking second in the list, dropped by 8.2% (almost $1.3 billion) to 2,134.5 billion tenge. On the other hand, in September Halyk Bank of Kazakhstan grew its assets by 2.5% to 2,027.9 billion tenge. ATFBank took over 4th position, where assets grew by 3.1% to 1,210.6 billion tenge. Bank CenterCredit took the last 5th place, whose respective indicator increased by 5.1% to 1,101.7 billion tenge.
BTA Bank still ranks first by the negative equity capital, whose volume grew by 15.7% (by 188.6 billion tenge) to the record amount of 1,387 billion tenge. Alliance Bank ranked second with the equity capital down by 3.3% (by 18.1 billion tenge) to negative 567.8 billion tenge. The indicator of Temirbank, the third in the ranking, increased by twice – by 18.2 billion tenge to negative 36.3 billion tenge. Within a month in the absolute meaning the total equity stake of these commercial banks fell to 224.9 billion tenge or about by $1.5 billion.
As of October 1, 2009 Kazkommertsbank leads the list of banks, whose equity capital is located in "green" zone. Further to Halyk Bank of Kazakhstan with 224.6 billion tenge, ATFBank – 99.5 billion tenge, Bank CenterCredit – 87.7 billion tenge and Nurbank – 44.6 billion tenge.
The list of loss leaders is still topped by BTA Bank whose losses in September increased by 10.3% to negative 215 billion tenge. The second place is taken by Alliance Bank – growth by 2.6% to negative 725.4 billion tenge. Further goes Temirbank – 26.9% to negative 85.9 billion tenge. Overall, the losses of these second tier banks reached 2,826.3 billion tenge or $18.8 billion, which is comparable with the funds, allocated by the government for anti-crisis measures ($19 billion). Fourth place in the losses ranking is occupied by Halyk Bank of Kazakhstan with 12.2 billion tenge. Eurasian Bank is on fifth spot with 0.8 billion tenge.
The biggest profit was posted by Citibank Kazakhstan – 5.3 billion tenge. Further to Tsesnabank – 1.8 billion tenge, Bank of China in Kazakhstan – 1.1 billion tenge, ATFBank – 1 billion tenge and Bank CenterCredit – 1 billion tenge.
To summarize, the latest surveys, analytical forecasts and statistical data indicate the bottom of the crisis has still not been reached while the efficiency of the governmental anti-crisis program produces certain pessimism. On the other hand, the experts of Russian VTB Capital Investment Company believe that the banking sector of Kazakhstan "passed the lowest crisis point and now it can expect a recovery". Well, let us wait and see the result.