[Kazakhstan’s Banking Sector] #2 BTA Bank

BTA Bank (formerly Bank TuranAlem), Kazakhstan’s largest bank, did not have a happy new year.

The first Kazakh bank to make international headlines for its precarious financial position, BTA was bailed out in February 2009 by Samruk-Kazyna National Welfare Fund, which took a 75.1% stake.

With the bailout came an overhaul in the bank’s management, as three executives fell under investigation for fraud.  Former CEO and probable owner Mukhtar Ablyazov, Deputy CEO Zhaksylyk Zharimbetov and former Chairman Roman Solodchenko all left the country, although all deny the allegations, and face arrest on embezzlement charges if they return.

Things then went from bad to worse.  In April BTA defaulted on $550 million in bilateral loans and stopped paying the principal on its wholesale borrowings. Standard and Poor’s downgraded both BTA’s long- and short-term credit ratings from CC/C to D (default) in response.  Its current debt totals a whopping $15 billion.

But despite the series of unfortunate events, the outlook is now rather better than might be expected.

The new management team brought in after the bailout has been hard at work trying to get the house in order, although from a reputational standpoint it is certainly an uphill battle. According to Head of Samruk-Kazyna Kairat Kelimbetov, BTA is now preparing to restructure its foreign debts, offering a cash buyout with a discount or an extension of terms. Things seem to have settled down, and current CEO Anvar Saidenov is sanguine about the future. In a recent interview with businessneweurope he said, “The bank is stable and since the entry of Samruk-Kazyna and the new management there is a lot of change, but we are following the best banking practices and a sign that confidence is returning is the fact that household deposits are increasing again.”

And Saidenov does have some cause for optimism - the bank has potential suitors, as a couple of Russian banks looking for cost effective ways to extend their regional footprint are rumored to be interested in acquiring a stake.  State-owned savings bank Sberbank is thought to be the frontrunner, and according to Saidenov, negotiations are ongoing.  In March, VEB, Russia’s state-owned development bank, also expressed interest in both BTA and Alliance Bank.

So while it is certainly too early for BTA to count its chickens, especially with international investors nursing their burnt fingers, things are looking much better than they did just six months ago.

UPDATE 1 JULY 2009: Investment bank Goldman Sachs has resigned as a restructuring advisor to BTA, citing issues with contract negotiations. BTA has also hired UBS to assist, but it is as yet unclear which bank will replace Goldman.

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