Tajikistan: counting the cost of a banking meltdown

DUSHANBE (TCA) — The banking system in Tajikistan is experiencing hard times, with four banks facing a liquidity crisis due to reckless lending policies. The situation owes much to dubious practices in the banking system, but it is ordinary customers of the banks who now pay for that. We are republishing this article on the issue, originally published by EurasiaNet.org:

Before hanging himself at the beginning of August, 50-year-old Dushanbe resident Hairiddin Kodirov left a suicide note blaming the owner of Tojprombank for his misfortunes.

Two years ago, Kodirov, a railway worker, deposited $84,000 in the bank, raised from the sale of his late parents’ home. He was hoping to use the money to renovate a new house and to pay for the weddings of his sons.

And then on February 24, the National Bank withdrew Tojprombank’s operating license along with that of another distressed lender, Fononbank. Many of Tajikistan’s banks have been teetering on the edge of ruin for years – in part as the result of a reckless lending policy unjustified by a chronically weak economy.

In an instant, Kodirov’s money was gone. Courtesy of insurance companies, Tojprombank accountholders were given back 17,500 somoni ($2,000), but that was scant consolation for many.

Kodirov’s relatives told EurasiaNet.org that they believe the suicide may have been an attempt to force the bank’s hand into returning more money. Indeed, the day after Kodirov’s funeral, Tojprombank’s former owner, Jamshed Ziyoyev, got in touch directly.

“He asked us not to worry and he promised to give our money back. Then we never saw him again, although there is talk that they plan to return the money in September. We’ll see,” said Kodirov’s son, Sairiddin.

As is customary in Tajikistan after a recent death, the Kodirov home, a simple, tidy and recently repainted single-story building on the edge of Dushanbe, was teeming with guests when a EurasiaNet.org correspondent came to visit. Among those present were Kodirov’s immediate family members – his wife and several children ranging from school age to young adult, along with cousins and brides-to-be and in-laws.

Kodirov’s family said they have no intention of pursuing legal action against the bank, although they have little doubt about what has brought them to this point. As various family members agitatedly told stories, they spoke over one another.

“Father knew Ziyoyev personally and he put money in his bank in August 2015,” said one family member. “Ziyoyev knew perfectly well that the bank was broke, but he took the money anyhow,” said another.

Tajikistan is full of such stories of desperate depositors who now find themselves with barely a penny.

The liquidated banks have said they will gradually return savings as they go through the process of auctioning off assets, much of which consists of collateral provided by delinquent debtors. That process is likely to be complicated, however, since some banks have reportedly been known to accept items as varied as doors, windows, cows and other livestock as collateral for credit.

Tojprombank’s customers – around 600 individual depositors and 235 organizations – are fast losing heart.

Solehamo Samadova, the head of a Tojprombank depositors’ support group, said that a female accountholder recently turned up at a bank branch with her child and began to douse herself in kerosene. Only a security guard’s prompt intervention ensured the woman did not manage to set herself alight, Samadova said.

“Now they are telling me that there are a whole bunch of people that want to lock themselves up at home to set themselves alight, so as to draw attention, but I don’t know if that is true,” Samadova said.

Samadova’s own case is particularly grave. Her extended family sold off a few crumbling homes so as to be able to afford to buy new apartments in a block under construction. In 2015, the year that the banking crisis still assailing Tajikistan first began to unfold, she put around $100,000 in the bank. That money is now gone.

In December 2016, parliament approved a government decree to issue bonds worth around half a billion dollars with which to recapitalize four distressed banks – including Fononbank and Tojprombank.

Tojprombank never saw any of the $56 million earmarked for it. In April, it emerged that the government decided unilaterally to reallocate that sum, and the $10 million it set aside for Fononbank, to fund construction work at the Rogun hydropower dam – a giant project that Tajikistan hopes will one day generate huge revenue from electricity sales to Afghanistan, Pakistan and possibly beyond. In late August, Tajik officials embarked on an international road show to drum up interest in government bonds to be used as a source of yet more funding for Rogun.

Even as the government has, in effect, written off Tojprombank and Fononbank, anxiety continues to swirl around two other, much larger, beneficiaries of the December 2016 bailout – Agroinvestbank and Tojiksodirotbank.

Tajikistan’s hopes of heading off another crisis hinge in great part on the prospect of a $500 million assistance package from the International Monetary Fund. The National Bank has in an apparent confidence-building measure invited the IMF to station a resident advisor to help build the regulator’s banking supervision capacity.

Agreeing to provide Tajikistan with any money would mark a remarkable leap of faith for the IMF, which has been badly stung in the past by Dushanbe’s creative bookkeeping.

IMF expert Edward Nolan, as part of a project financed by Switzerland’s State Secretariat for Economic Affairs, would be tasked with monitoring the sector. Specifically, he would “assist in strengthening capacity in bank regulation and supervision, with a particular focus in three areas – off-site data reporting and financial analysis; on-site banking supervision; and consolidated bank supervision,” IMF mission chief for Tajikistan, Paul Ross, told EurasiaNet.org in an emailed statement.

Ross indicated that progress in advancing talks on the assistance package was being made in view of macroeconomic reforms undertaken in the past two years.

They “include revisions to the 2016 budget, targeting a lower budget deficit in 2017, removing exchange system restrictions and aligning official and market exchange rates, and measures to manage money growth,” he wrote.

Ross conceded that more banking reforms are needed, however.

That is something of an understatement. As one well-placed industry insider explained to EurasiaNet.org, on condition of anonymity, dubious and sloppy practices are a dominant feature of Tajikistan’s banking system. Huge amounts of credit have been given to would-be entrepreneurs on purely political grounds.

“Banks will on the instructions of high-ranking figures, and not on the basis of a bilateral commercial agreement, hand out loans [to people so they can] build something or other,” the source said. “It is this that has driven our banks to the sad state that they are in now. The banks simply don’t have the power to force these people to pay back their debts.”


Times of Central Asia