FEB. 17 2017 (The Conway Bulletin) — First came the oil price collapse, then remittance flows started stagnating and (some) currencies (think of the tenge and the Azerbaijani manat) halved. Now the debt mountain, or perhaps debt tsunami is a better description, looms large, threatening to drown the countries of Central Asia and the South Caucasus.
Kazakhstan is the latest to propose a major bailout of its banking sector. Finance minister Bakhyt Sultanov said on Feb. 13 that the government would potentially use $6.3b to prop up banks listing under the weight of bad loans. The Tajik government is in talks with the IMF to borrow cash to help prop up its banking sector and in Azerbaijan the government has been, as quietly as possible, buying up chunks of the biggest bank. It now owns more than 76% of the International Bank of Azerbaijan, allowing it to smooth out its debt crisis without attracting too much attention.
Ratings agencies and analysts have been warning of this denouement.
As long ago as December 2015, Standard & Poorsratings agency said: “Medium-term prospects for Kazakhstan’s banking system have deteriorated in 2015 due to lower oil prices, the economic slowdown (especially in non-extractive sectors) and the weaker tenge.”
And that prediction has been borne out.
The frustration is that we have been here before. In the Global Financial Crisis of 2008/9 bad debt built up in banks in Kazakhstan forcing the government to step in. It bought out BTA Bank, at the time one of the country’s biggest lenders, and a handful of smaller banks. It was expensive but staved off disaster and the Kazakh government pledged not to find itself in a similar position again.
The government finally offloaded BTA bank to pro-government businessmen in 2014/15 and proposed to impose rules and regulations that would require its banks to bulk up their capital and refrain from handing out loans, mainly mortgages, to people unworthy of them.
Clearly, the Kazakh Central Bank and other regulators across the region, have failed. Certainly they have not been helped by the sharp currency devaluation that made US dollar-denominated mortgages unserviceable.
Better macro-economic policies, tighter rules on lending and a more clear-headed approach to dealing with problems would surely have put the Central Banks in better positions than they now find themselves. Governments in the region are once again having to buy themselves out of trouble.
By James Kilner, Editor, The Conway Bulletin.
ENDS
Copyright ©The Conway Bulletin — all rights reserved
(News report from Issue No. 317, published on Feb.17 2017)