[Quote of the Week] “We have no idea how to build roads, milk cows or pour metal…We’re finance professionals.”

Vladimir Tatarchuk, Co-Head of Corporate Finance at Alfa Bank, discussing the rationale for selling off unusual assets taken as collateral for loans. According to a Moscow Times article, Russian lenders are seeking to recoup losses by accepting a range of collateral - everything from farm animals to stakes in lingerie retailers - and are now finding themselves with a host of curious assets as non-performing loans increase.

[Quote of the Week] “Titanic of Kazakhstan’s banking sector…”

“You as a manager of Sberbank of Russia, Mr. Gref, obviously know that any newspaper, regardless of how popular and influential it is, is incapable of shattering the financial position of such a large bank as BTA deems itself. Thus, the current management boggles in an effort to shift the responsibility to our publication. Please buy this ‘Titanic’ of Kazakhstan’s banking sector faster! We’d rather deal with you than with these managers!” Read more »

Kazakhstan Looks To Foreign Business To Shore Up Its Banks

[Quote of the Week] “We can say that risk appetite is returning.”

On August 20, First Deputy Chairman of the Central Bank of Russia Alexei Ulyukayev offered an upbeat outlook for the ruble against foreign currencies. “Exiting the crisis means lower demand for safer assets and increased demand for riskier, more profitable ones,” he added. Ulyukayev noted that he supported indications that the dollar will weaken against the ruble in the short term as soon as risk appetite returns. That same day, the CRB announced that Russia’s international reserves had declined by $2.8 billion to stand at $400.6 billion during the week ending August 14.

[Kazakhstan’s Banking Sector] #4 Kazkommertsbank

The second largest bank in Kazakhstan, Kazkommertsbank (KKB) has a 26% market share in corporate lending and 14% share in retail lending. It is one of the three London-listed Kazakh banks, having conducted an Initial Public Offering in 2006 that raised $1.7 billion.

At the beginning of 2009, KKB was - together with BTA Bank, Alliance Bank and Halyk Bank - bailed out under the government’s bank rescue program. It was allocated a total of $1 billion as part of the anti-crisis package which gave National Wellbeing Fund Samruk-Kazyna, the country’s sovereign wealth fund, the option to acquire a 25% stake.

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Down But Not Out - Ukraine’s Banking Sector is Putting Up a Fight

[Kazakhstan’s Banking Sector] #3 Astana Finance

Astana Finance (AF), which was established by the government to promote development in the capital city, was an active player in Kazakhstan’s mortgage and leasing sectors. Starting off as a residential mortgage lender, it gradually took a leading position in the agricultural leasing market as well. Initially this year things were going rather well in spite of the crisis, and earlier AF was even rumored to be interested in acquiring RBS Kazakhstan, the local subsidiary of the global banking giant.

Although AF lacks the international profile of its larger peers, it has recently been thrust into the spotlight in Kazakhstan, as in May the banking crisis hit home for bank. It was not part of the Kazakh government’s big bank bailout program earlier in 2009 - which was directed at BTA, Alliance Bank, Halyk Bank and Kazkommertsbank, the country’s four largest banks - but it became the third Kazakh lender after BTA and Alliance to default on its debt.  In total, AF has $1.2 billion in foreign debt that now needs to be restructured. Predictably, the default led Fitch Ratings to downgrade AF’s long term Issuer Default Rating (IDR) from ‘CCC’ to ‘RD’ (Restricted Default).

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[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.

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[Kazakhstan’s Banking Sector] #1 Alliance Bank

Fueled by cheap international capital, a consumer boom and surging oil prices, Kazakhstan’s banks had been developing rapidly prior to the onset of the credit crisis.  By early 2009, however, the government was forced to bail out a sector saddled with over $50 billion in foreign debt, with President Nursultan Nazarbayev ordering the country’s sovereign wealth fund, Samruk-Kazyna, to step in to prevent a collapse.

In this series we look at how each of the major banks in Kazakhstan has been dealing with the effects of the crisis.

Alliance Bank, among the five top Kazakh banks in terms of both asset and equity size, had focused primarily on retail banking and SME lending.  It was one of the first of the country’s banks to be taken over by Samruk-Kazyna earlier this year.

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[Quote of the Week] “What is crystal clear is that somebody has been placing big bets on whether or not the banking equivalent of Borat will blow up.”

Gillian Tett, Assistant Markets Editor of the Financial Times, discussing Morgan Stanley’s dealings with BTA Bank, one of Kazakhstan’s largest banks.  When institutions including Morgan Stanley demanded repayment on loans issued to BTA, BTA was forced into partial default.

Let the Banking Cull Begin

This week Prime Minister Vladimir Putin won plaudits for ending the annual spring cull of baby ‘whitecoat’ seals in the Northern Arctic, but it seems that another act of butchery may be in the offing.

This, however, will not be a massacre of the innocents - there will be no sentimentality, just relief that a bloated sector is finally being cut down to size.

For many years, Russia’s central bankers have said that the country suffers from a glut of banks - many of which are ‘pocket banks’ for specific business interests. (In 2006 Russia had more banks than the whole of Europe put together, according to Kommersant.) But policymakers have thus far failed to make much progress toward significant consolidation, and the sector remains littered with more than 1,000 institutions.

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