Kazakhstan has signaled it’s going to get tough on its banking sector’s bad-loan rate, which at 32 percent of all loans is one of the highest in the world.
“In two years’ time those banks that fail to reduce the share of their non-performing loans to 10 percent of their loan portfolios will lose their licenses,” Central Bank Governor Kairat Kelimbetov warned this week in the capital of Astana.
The bad-loan rate has embarrassed the government, prevented many banks from making new loans to rev up the economy, and made it harder for the country to obtain foreign investment.
Despite banks’ drag on the economy, Kazakhstan — an oil, gas and minerals powerhouse — has an economic-growth rate most countries would envy: 6 percent. And it has attracted more foreign investment – $180 billion – since independence than any former Soviet republic expect Russia.
Before the global economic crisis of 2008 and 2009, when Kazakhstan’s banking sector was strong, the country enjoyed growth rates of 10 percent a year, however.
Kelimbetov, a former head of Kazakhstan’s sovereign wealth fund who is respected in Western banking circles, has ordered banks to reduce their bad-loan rate to 15 percent this year and 10 percent in 2015.
Standard & Poor’s, Fitch and other ratings services doubt banks can make the targets, despite the government’s plan to pass legislation this summer to make it easier for banks to write off bad loans.
In fact, S&P said in March that it expected the bad-loan rate to increase this year because of the Central Bank’s 19 percent devaluation of the national currency, the tenge, in February.
One reason is that Kazakhstan, which lacks a manufacturing base, imports a lot of industrial and other products – and those transactions are settled in dollars. That means Kazakh companies now pay 19 percent more in tenge for imports than before the devaluation.
Similarly, the ratings services have noted that Kazakhstan individuals and businesses with dollar-denominated loans must now pay 19 percent more in tenge to service them.
Not all of Kazakhstan’s banks have bad-loan problems. The percentage of non-performing loans at Eurasian Bank, one of the 10 largest, is expected to be at a manageable 7 percent by the end of the year. Eurasian is run by San Diego native Michael Eggleton, who has introduced a Western-style risk-management regimen at the bank.
A few banks have staggering bad-loan problems, though. The non-performing-loan portfolio at BTA bank, which has emerged from bankruptcy twice, stands at 80 percent of all loans.
The government took over BTA, once Kazakhstan’s largest bank, when it defaulted the first time in 2009. It is merging it with Kazkommertsbank, which is the new leader despite also being battered during the economic crisis.
Hal Foster is a longtime journalist and journalism professor who has worked in the United States, Japan, Ukraine and Kazakhstan. His news career has included writing and editing at the Los Angeles Times and nine years as a journalist in Japan. He is an associate professor of Communication at the new Nazarbayev University in Astana, Kazakhstan. Catch one of his other blogs at en.tengrinews.kz.