The «bombs» on Kazakhstan’s financial market may explode as soon as the end of this year. It is by that moment that we will have known how successful the moves of the co-owners and top-managers of private banks have been in terms of the capitalization increase and the elimination of the faults discovered as part of the asset quality review.
In the article devoted to the creation of the Agency on Regulation and Development of Financial Market of the Republic of Kazakhstan, we conclude that, thanks to the reorganization of the banking control system in the country, Erbolat Dossaev has, de-facto, not only preserved his existing authorities and capabilities but noticeably strengthened his position. And that, wishing or not, the head of the newly created agency Madina Abylkasymova will perform the role of a buffer between him and the financial sector including those banks that are controlled by the members of Nursultan Nazarbayev’s family or his oligarch allies.
In view of this, there arise the questions — why does Erbolat Dossaev need this and for what future problem he is preparing himself? Or perhaps he really does want to start restoring the other at the market?
In our, opinion, that is not the case.
We believe that, acting the way he had been, Erbolat Dossaev was governed not by patriotic or reformist motives but by bureaucratic reasons and the self-preservation instinct. This does not mean, however, that he will not take stern measures in regard to individual banks if he receives an order from the above or will be forced to do so due to unfortunate turns of events.
Of course, due to a number of reasons, the latter are unlikely to happen in the near future.
Even though the new agency is being created as part of the National Bank of Kazakhstan and will inherit its personnel, buildings and the technical base in Almaty, the move of the National Bank to Nur-Sultan is going to take some time. Then, several months will be required for the new agency and its personnel to «settle down» and begin to work. Apart from that, it is clear that, least of all, do Akorda and the Library want the intra-elite wars to escalate since the latter will invariably backfire in the country’s information space. Besides, the defeated clans may start forming «friendships» with the wrong parties, say, with Mukhtar Ablyazov for example.
In our opinion, the harsh decisions against individual financial institutions can be made no sooner than the end of 2020. It is at that moment that results of the asset quality review (AQR) will have been examined and discussed with the banks and the results of the bank’s operations for the period of six or nine months will become known. We will also learn how successful the moves of private banks’ co-owners and top-managers will turn out to be in terms of the capitalization increase and the elimination of the discovered deficiencies.
With that, the likelihood that small banks that are not included in the AQR (let us remind you that it involves the 14 biggest financial institutions of the country) may «drown», be consumed by other market participants or merge to form larger structures.
However, the latter will certainly now shock the country’s financial market so, by the looks of it, Kazakhstan’s banking sector will have about a year-long break. Especially considering that the National Bank is unlikely to abandon its policies of the unofficial support of the tenge exchange-rate and the active withdrawal of excessive liquidity.
It seems like the market realizes this as well. Of course, the «bombs» planted a long time ago may still blow up. And, in this case, the story of Tsesna Bank JSC that, one can say, had «drowned» in under a year may suddenly repeat itself.
Here is Mr. Wokurka’s answer to the reporter’s question (text in bold by kz.expert).
«But bad debt cannot appear unexpectedly and out of the blue?»
«The thing is that banks are essentially trying to limit their losses by selling collaterals, prosecuting borrowers and guarantors and trying to cover the cracks that appear due to the insolvency of such clients. Simultaneously, they are forming the reserves for asset impairment. However, these reserves are usually formed at the expense of a more successful business. And when the bank writes off a bad debt, in doing so it loses these reserves and, therefore, decreases the profitability of its business. Which, given the fierce competition among the big players, was unacceptable.
In the past, the banks’ miscalculation lied in exactly that fact that not only did they not form enough reserves but, the moment they realized that the debt was bad and was subject to a write-off, conducted a backdoor restructuring thus showing to the regulator that everything was fine, in other words, the borrower was «alive».
Other experts agree with Mr. Wokurka. It is for this reason that we are waiting impatiently for the time when the National Bank of the Republic of Kazakhstan and the Agency of Regulation and Development of Financial Market will, first, disclose the AQR results not for the country as a whole but for the «individuals» so to speak and, second, approve the banks’ plans of how to bring them back to a normal shape.