Tag Archives: banking

Azerbaijan spends to prop up banking sector

MAY 25 2017 (The Conway Bulletin) — Azerbaijan has spent the equivalent of 18% of its GDP propping up its banking sector in 2015/16, Peter Paklin, assistant vice president at Moody’s Investors Service, told a press conference. Despite the state support, Azerbaijan’s banking sector has been faltering, with its biggest bank — the International Bank of Azerbaijan — restructuring its debt and smaller banks going bankrupt.

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(News report from Issue No. 330, published on May 28 2017)

Azerbaijani banking crisis drags in neighbours

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MAY 16 2017 (The Conway Bulletin) — Ratings agencies downgraded debt issued by the International Bank of Azerbaijan, as the country’s biggest bank appeared to teeter towards a collapse.

There were fears too that the bad debt piling up at the IBA may damage finance systems across Central Asia and South Caucasus after it emerged that Kazakhstan’s Single Pension Fund had bought $250m of IBA debt over the past few years.

Kazakh MPs accused the Pension Fund of incompetence for investing in IBA in October 2014 shortly after the price of oil started to fall. At the time analysts warned that IBA was at risk of accumulating mountains of bad debt that could sink it.

Moody’s said it had downgraded IBA’s rating to Caa3 from B1, effectively shifting IBA debt from risky to extremely risky.

“Moody’s expects the announced foreign debt restructuring plan to result in credit losses for creditors in excess of 20%,” it said. Media reported that Cargill and Citibank are two of IBA’s biggest creditors.

Last week, IBA filed for Chapter 15 protection in the United States after it failed to make a $100m debt repayment to Netherlands-based Rubrika Finance on May 10. Chapter 15 prevents creditors going after IBA while it restructures its $3.33b debt. The Azerbaijani government is the bank’s biggest shareholder, now holding an 80% stake, and its fall is a major embarrassment to it. Not only has it bought equity in the bank, it increased its stake from 55% earlier this year, but it has also spent nearly $6b buying up its toxic debt.

Media quoted IBA chairman, Khalid Ahadov, as saying that its restructuring plan will be presented in London on May 23.

“Upon completion of these measures, the Bank’s capital position will return to regulatory frameworks,” he was quoted as saying. “As a result of all those measures long-term financial sustainability of IBA will be ensured that will increase its market value on the threshold of privatisation.”

But the reputational damage inflicted by the near-collapse of IBA will undermine Azerbaijan’s status in the financial markets. Last year several smaller banks collapsed or had their license withdrawn by the Central Bank. In 2015, the Azerbaijani manat was devalued twice, halving its worth. With many mortgages and personal loans given out in US dol- lars, consumers found it near-impossible to service their debt.

Azerbaijan has been particularly hard hit by the fall in oil prices. Its economy is reliant on oil exports. Despite repeated warnings, it has failed to diversify.

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(News report from Issue No. 329, published on May 20 2017)

IDB to fund Uzbek SMEs

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MAY 18 2017 (The Conway Bulletin) — A unit of the Jeddah-based Islamic Development Bank (IDB) signed deals to boost financing of small and medium-sized businesses in Uzbekistan with two Tashkent-based banks, Ipak Yuli and Asia Alli- ance. The deals continue the sense of openness and development that President Shavkat Mirziyoyev has ushered into Uzbekistan since taking over as president in September 2016. Earlier this year, he welcomed the head of the European Bank for Reconstruction and Development (EBRD) back to Tashkent for the first time since 2003. This month the UN High Commissioner for Human Rights visited Uzbekistan for the first time.

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(News report from Issue No. 329, published on May 20 2017)

Azerbaijan’s IBA misses debt interest payments

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MAY 11 2017 (The Conway Bulletin) — International Bank of Azerbaijan (IBA), the biggest bank in the country and vital to its economy, said it had missed interest payments on loans, another sign it is struggling to stay solvent under the weight of mounting bad debt.

Azerbaijani finance minister Samir Sharifov also appealed to creditors to be patient while IBA restructured its debt. He said the bank would not pay interest on liabilities until this process was complete.

In the US, IBA applied for protection under Chapter 15 of the Bankruptcy Code. This protects the bank from being pursued by creditors while it restructures its debt.

Analysts have said all year that IBA is in serious danger of collapsing. In January, the government increased its stake in the bank to 76.7% from 55% in an admission that without state support the bank would fail.

Azerbaijan’s economy has been hit hard by a collapse in oil prices since 2014.

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(News report from Issue No. 328, published on May 12 2017)

Georgia raises minimum capital requirements for banks

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TBILISI, MAY 5 2017 (The Conway Bulletin) — Georgia’s Central Bank will quadruple the minimum capital requirement that commercial banks have to hold to 50m lari ($20.5m), part of drive to reduce the number of small, weak banks in its financial system.

Acting on a recommendation from the IMF, the Georgian Central Bank said that commercial banks would need to hold capital of 30m lari by the end of the year, 40m lari by mid-2018 and 50m lari by the end of 2018. Currently the minimum capital requirement for a bank in Georgia is just $12.5m lari.

“It should be noted that in terms of minimum capital requirement Georgia has one of the lowest in the world, not in line with the financial sector’s development,” it said in a statement.

“The change was supported by the International Monetary Fund’s mission.”

Georgia and the rest of the Central Asia and South Caucasus region have been battling an economic downturn over the past three years that has eaten into the value of their currencies, undermined mortgage holders and companies holding large debt and bankrupted, or nearly bankrupted, a number of banks.

In Tajikistan only a government bail-out prevented a banking collapse; in Azerbaijan several small banks have been forced to close and the government has bought a majority stake in International Bank of Azerbaijan, the country’s biggest bank; in Kazakhstan the government has set up a bad loan fund for banks to dip into for support.

Georgia’s economy has survived the downturn in better shape than its neighbours – the lari proved more robust than the manat, which halved in value, but it still shook the banking sector. There are 17 banks operating in Georgia, the Central Bank said, roughly the same as 10 years ago. In 1995, there were 102 banks.

The two biggest, TBC and Bank of Georgia, are listed on the London Stock Exchange but many of the others are small, a legacy of the post- Soviet banking boom in the 1990s.

Last month the IMF approved a $285.3m loan on the understanding that Georgia would continue a series of economic reforms, including strengthening its banking sector.

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(News report from Issue No. 327, published on May 5 2017)

Kookmin sells 42% stake in Kazakhstan’s CenterCredit

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ALMATY, APRIL 20 2017 (The Conway Bulletin) — South Korea’s Kookmin Bank sold its remaining 41.93% stake in Bank CenterCredit to Bakhytbek Baiseitov’s Tsenabank, bringing to an end its unhappy nine year foray into the Kazakh banking sector.

Kookmin’s retreat from Kazakhstan also highlights just how foreign banks have struggled in the Kazakh banking sector. The 2008/9 Global Financial Crisis inflated Kazakh banks’ bad debt portfolios turning what had looked like an attractive market to foreign investors into a headache virtually overnight.

A short note released on the Kazakh Stock Exchange by Center- Credit didn’t give much way accept to confirm the sale. Earlier this year, Tsenabank said it would buy up all of Kookmin Bank’s stake. In March it also confirmed that Mr Baiseitov, one of Kazakhstan’s richest people, had bought a 10% stake from the IFC, part of the World Bank. The IFC had always intended to sell its stake, bought in 2010, by 2017.

There was no statement from Kookmin which has been looking to sell its stake in CenterCredit almost as soon as it bought it.

Kookmin’s timing was initially poor. It bought a 30% stake in CenterCredit from Mr Baiseitov, who set up the bank, in March 2008 for $500m. By August 2008 the Global Financial Crisis had virtually wiped out its investment. The devaluation of the Kazakh tenge in 2015 also hit the bank, forcing Kookmin to write- down its value again. The 2008 deal to buy into CenterCredit had been part of a now globalisation push by Kookmin. It forced the resignation in 2010 of then-CEO Kang Chung-won.

Other foreign banks which have invested in Kazakhstan only to pull out a few years later include Britain’s HSBC and Italy’s Unicredit.

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(News report from Issue No. 325, published on April 17 2017)

Capital Bank in Kazakhstan appoints new chairman

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APRIL 12 2017 (The Conway Bulletin) — Kazakhstan-based Capital bank promoted Bakhtiyar Ilyasov to be chairman, replacing Ghani Uzbekov. He had previously been the bank’s deputy chairman. In a note, the bank said that Mr Ilyasov would oversee the merger with Tengri bank, announced in March.

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(News report from Issue No. 324, published on April 13 2017)

Tajik banking sector needs reform, says ADB

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APRIL 6 2017 (The Conway Bulletin) — Tajikistan’s banking sector needs urgent reform if it is going to pull out of the current crisis, the Asian Development Bank said. Among other things, Tajik banks should increase their capital levels and improve their ownership transparency. Tajikistan’s banks have been teetering on the verge of bankruptcy. Only investments from the government and international institutional banks have averted a collapse of the banking sector.

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(News report from Issue No. 324, published on April 13 2017)

Bridge-banks set up to help ailing banking sector in Azerbaijan

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APRIL 7 2017 (The Conway Bulletin) — Azerbaijani MPs have passed a law allowing banks weighed down by debt to transfer their good assets to so-called bridge-banks, media reported. The concept, which inadvertently suggests that the Azerbaijani banking crisis is deepening, suggests that these bridge-banks are then able to re- package the sound assets into new banks which can then be sold on. Several small banks have been closed down in Azerbaijan over the past few years and the government this year bought a controlling state in International Bank of Azerbaijan, the country’s largest bank.

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(News report from Issue No. 324, published on April 13 2017)

Kazakh C.Bank chief becomes director of IDB

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MARCH 29 2017 (The Conway Bulletin) — Kariat Kelimbetov, the former Kazakh Central Bank chief who is now heading the development of the Astana International Finance Centre, has been appointed Kazakhstan’s representative on the board of directors at the Islamic Development Bank (IDB). The IDB’s main agenda is to promote projects which adhere to Sharia laws. Islamic finance is growing in popularity in Kazakhstan and the wider Central Asia region.

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(News report from Issue No. 323, published on April 6 2017)