Kazakhstan offered to inject up to $5 billion into the former Soviet state's four largest banks on Tuesday to stave off potential loan losses during the global financial crisis. Kazakh banks have been hit hard by the global liquidity squeeze after years of rapid growth fuelled by external borrowing.
The credit crunch also puts pressure on their asset quality as borrowers find it hard to repay bank loans. The government said in a statement it had advised the four banks - Kazkommerts, Halyk, Alliance and BTA - to issue new shares for a total of $5 billion. "Existing shareholders will have priority in purchasing the newly issued common and preferred shares," it said.
After banks' shareholders make their own investments, the Central Asian state's government will buy the remaining stock - up to 25 percent in each of the four banks. Kazkommerts and Halyk - the country's no. 2 and 3 banks respectively which together account for 35 percent of the sector - have both agreed to sell a 25 percent stake to the state, the government said in a separate statement.
"The government and two banks crucial for the banking system ...have reached an agreement on the support of the real economy on the basis of already announced measures to stabilise Kazakhstan's banking sector," the statement said. Kazakhstan will also discuss potential injections with Italy's Unicredit, the majority shareholder of No 5 bank ATF-Bank, and South Korea's Kookmin, a shareholder in sixth-largest bank CenterCredit.
Yelena Bakhmutova, Chairwoman of the Financial Supervision Agency (FSA), said banks would need the injection to create adequate provisions against loan losses. "We think provisions should be between 15 and 30 percent," Bakhmutova told reporters. "But banks should be able to recover 75 to 90 percent (of non-performing loans)."
Aggregate provisions throughout the banking system were 8.8 percent of loan book as of October 1, according to FSA data, while non-performing loans made up 3.3 percent of loan book. Bakhmutova said she expected negotiations between the government and the banks' shareholders to be completed by the end of this week. The proposed injections are part of a $15 billion package announced last week to help Kazakhstan's financial sector and the wider economy deal with the global financial turmoil. Analysts say the proposed measures are good news for debt investors.
"Banks will increase their capital adequacy and capability to absorb risk, and will get additional liquidity," Russian investment bank Renaissance Capital wrote in a note. "For equity investors the situation has yet to be clarified, as it is not clear how the share prices will be determined."