Kazakhstan’s Banks can’t write off Bad Loans, S&P says

    Kazakhstan’s banks can’t afford to write off nonperforming loans and recognize them as losses because they have “very limited sources of new capital” to compensate, Standard & Poor’s said.
    “It’s easier to keep the problem loans on balance sheets,” Ekaterina Trofimova, a Paris-based S&P bank rating director, said in an interview in Almaty today. “Write-offs by Kazakh banks that haven’t defaulted won’t exceed an average of 5 percent as lenders focus on restructuring customers’ debt.”
    The state-owned National Wellbeing Fund Samruk-Kazyna took control of BTA Bank, the country’s second-largest by assets, in February and the bank defaulted in April after credit markets froze and Kazakhstan’s property bubble burst. Alliance Bank, AO Astana Finance and BTA’s Temirbank have also defaulted, leaving Kazakh lenders seeking to reorganize $20 billion of debt.
    Kazakhstan’s 38 banks reported a total loss of 2.84 trillion tenge ($19.2 billion) in 2009, the Agency for Financial Supervision said on its website today, citing preliminary data. Banks’ total assets declined 2.8 percent in the year to 11.56 trillion tenge, while total loans rose 4.3 percent to 9.64 trillion tenge, the Almaty-based regulator said.
    The share of “hopeless” loans in banks’ portfolios was 30.6 percent in 2009, the agency said, adding that “questionable” loans accounted for 44 percent of the total and “standard” loans for 25.4 percent. Excluding BTA and Alliance, the share of bad loans on banks’ books was 10.3 percent, the agency said.
    ‘Creative’ reporting
    “Kazakh banks are creative in their reporting to financial regulators, which may lead to insufficient provisions when compared with the real situation,” Trofimova said. “Banks will likely be working out their problem loans beyond 2010.”
    Kazakh banks had 3.64 trillion tenge, or 37.7 percent of total loans, in reserve as of Jan. 1, the financial regulator said. Excluding BTA and Alliance, reserves amounted to 1.3 trillion tenge, or 19.6 percent of total loans.
    “We expect provisions to continue increasing and catching up with the real level of problem loans,” Trofimova said. “We would expect Kazakh non-defaulted banks to increase provisions to an average of 24 percent of total loans, but there might be wide deviations.” Such banks may begin releasing provisions starting in 2011 as the Kazakh economy improves, she said.
    The economy of Kazakhstan, which holds 3.2 percent of world oil reserves, expanded 1.1 percent last year, after growing 3.2 percent the year before, the government’s official newspaper, Kazakhstanskaya Pravda, reported today, citing Prime Minister Karim Masimov.
    The economy is expected to grow between 1.5 percent and 2 percent this year, according to the government, Bloomberg reports.