Central Asia banks: some bankrupt, others near collapse

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ALMATY (TCA) — Today in Central Asia several banks bearing fancy names and based in fancy offices have multiplied in places like minor-size former Soviet republics with no economic achievement to speak of — all over among local banks from Dushanbe to Baku in the former USSR’s “soft belly” stretching from the Pamir to the Caucasus. In this regard, only Kyrgyzstan and Uzbekistan have kept aloof from cash trouble up till now.

Tajikistan

In Tajikistan, the poorest of the string of ex-Soviet republics in the region, two banks, Ilhom and Rishta, have already gone bust, while three others, Bahtovar, Toribank and Ziroat, have applied for bankruptcy, according to the country’s National Bank. All of them are minor-size even according to local measurements, but worse is at hand since Tojiksodirotbank, the country’s second-largest, is also on the verge of collapse.

“Tojiksodirotbank’s cash dispensers are running dry. Customers are signing up to waiting lists in their thousands to withdraw whatever money they can. People whose salaries are transferred through the bank have not been paid for three months,” the Kyrgyz news agency AKIPress wrote in a news report posted in the second week of March this year. Other banks are reluctant to pay out transfers originally destined to Tojiksodirotbank, and charge well over half of the lump sum per transfer in “commission” to do so. People with savings accounts fear that their savings have been lost, since the National Bank lacks sufficient funds to compensate for all the “losses” suffered by individuals and small businesses.

In order to save banks and thereby their customers the government has applied to the International Monetary Fund for a bail-out loan of half a billion US dollar. For fears exist that the present exposure is only the top of an iceberg, and in reality the entire sector is at risk.

In a report quoted by the Financial Times, the IMF following a fact-finding mission to Tajikistan in February this year wrote: “One large bank is already insolvent and another one fails to meet the prudential requirements.” The two banks mentioned are clearly Tojiksodirotbank and the Agroinvestbank. Bailouts may give momentary relief, but no one believes that in the end it can avert a total collapse of the entire financial framework.

Azerbaijan

Similar trouble looms in Azerbaijan, even though the state still has the necessary financial reserves to save bank deposit holders from losing their household money supplies and savings, mainly if not solely because of fund accumulation thanks to sky-high oil prices since the beginning of the new century. Three banks have been reported to be in trouble since the beginning of last month: the Bank of Azerbaijan, the Ganja Bank and the Texnikabank. The three bankrupt enterprises’ clients have received payouts of most of the amounts insured at the Azerbaijan Deposit Insurance Fund (ADIF), amounting to 24.2, 1.5 and 98 million manat respectively. The limit to each allocation is 30,000 manat; all topping that amount should be considered forfeit.

Kazakhstan

Though still holding out in terms of reserves versus economic losses, Kazakhstan is in the worst situation as compared to other Central-Asian states with the possible exception of Tajikistan. Paper of all its private banks plus those of a number of state-run development banks are in the process of being downgraded to junk by international rating agencies.

In its quarterly report Kazakh Banks Datawatch 4Q15, Fitch Ratings explains the motives behind its negative views. “Fitch notes the so far moderate direct impact on most banks’ credit profiles from the continued tenge devaluation in the second consecutive quarter but predicts that economic deterioration and new regulatory challenges would likely start making negative impact on banking data over the medium term,” the report’s abstract reads. “The sector’s return on average equity fell to 13 per cent in 4Q15 from 28 per cent in 3Q15 on annualised basis. […] If prolonged, higher funding costs and constrained market access for corporate borrowers and banks could have a larger impact on investment and economic growth than currently incorporated in our forecasts and ratings.”

Apparently afraid to pump more cash reserves of its own into the ailing banking sector, Kazakhstan’s national fund Samruk-Kazyna recently decided to demobilise 200 billion tenge ($576 million at current exchange rates) to be put into banking securities in order to forestall a second bail-out from the state pension fund, founded two years back through a forced merger and nationalisation of private pension funds operating in the country. It could save the day – but in the end liquidation of a number of banks might be a costly but necessary measure to save the nation…

Kyrgyzstan

In the Kyrgyz Republic none of the banks, most of which are small in size and operating in a single agglomeration with only a few operating in more than one of them, has been reported as running into trouble ever since the consolidation of the country’s new constitutional order. Late last year, the National Bank imposed an all-out ban on issuing bank loans in foreign currency, in order to protect borrowers from monetary shocks. As long as banks’ role in the overall economy remains as marginal as it is today, no major risks are supposed to exist. Should more assets get leveraged, though, there could be reason for alarm since bailout possibilities for the government are virtually zero. In Kyrgyzstan the microcredit companies still play a very important role mainly in the rural areas, although their level of interest charged to small entrepreneurs remains extremely high and out of control. Recently new liquidity has been added in the market with the Russian-Kyrgyz Development Fund providing different types of credit directly or through some local banks.    

Uzbekistan

In Uzbekistan, the first signs of trouble in the banking sector rose in November last year, as the National Bank had to jump in to secure the capital backups set against loan exposure of three banks, namely Microcredit Bank, Agrobank and Qishloq Qurilish Bank with a partial bailout worth in all around 100 million in US dollar. Yet, bank exposure remains limited in comparison to e.g. Kazakhstan and Tajikistan, international rating agencies tend to opine. Taking availability of capital and liquidity into account, banks are not overlending, and as long as the risky retail business remains marginal in comparison to corporate borrowing, the situation can be expected to remain stable.

Currency

The financial crisis has left virtually all states in the region with embattled national currencies. In response, Tajikistan has let its currency slip gradually through last year from 5.37 to 6.62 per US dollar and now trades (officially, that is) at around 8 against the greenback. Azerbaijan’s National Bank has chosen for a shock therapy and allowed an all but overnight drop from 1.05 to 1.56 per dollar and from 1.1 to 1.7 per euro in December last year. The most dramatic fall in the region, though, is that of the Kazakh tenge, which dropped from 150 to 350 per dollar in a period of just over two years, Kyrgyzstan’s currency has lost approximately 25% and Uzbekistan’s around 10%.