DEC. 27 2016 (The Conway Bulletin) — Armenia’s Central Bank cut the country’s key interest rate by 25 basis points to 6.25%, continuing to slash the cost of borrowing. Armenia’s interest rate measured 8.75% at the beginning of 2016 but was steadily cut to stimulate prices rises and economic growth.
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(News report from Issue No. 311, published on Jan. 6 2017)
ALMATY, DEC. 27 2016 (The Conway Bulletin) — Kazakhstan’s Central Bank revoked the licence of KazInvestBank, triggering concern over the stability of the Kazakh banking sector.
The Central Bank tried to play down the implications of pulling KazInvestBank’s licence but analysts said the failure of Kazakhstan’s 20th largest bank may be symptomatic of structural problems across the sector.
And, ominously, only four days earlier, on Dec. 23, sources had told Bloomberg news agency that the Central Bank had given Kazkommertsbank, Kazakhstan’s biggest bank, a $1.5b loan to maintain its cashflow.
Ratings agencies have been warning for most of 2016 that Kazakhstan’s banks were increasingly exposed to an economic downturn that has wiped 50% off the value of the tenge, flattened economic growth and dented living standards.
Oleg Smolyakov, the Kazakh Central Bank’s deputy chairman, said that KazInvestBank had allowed bad debts to build up to around 80% of its total portfolio.
“Irregularities in internal credit risk management procedures allowed borrowers with unstable situations, for example with negative equity, to build up higher debt levels and losses,” he said in a statement issued by the Central Bank.
The decision to close the bank is also an embarrassment for Daniyer Akishev who, only six months ago, said that all Kazakh banks were stable and had passed a stress test.
KazInvestBank, which is linked closely to the Kazakh elite, has declined to comment.
The banking sector in Kazakhstan is still recovering from the impact of the 2008/9 Global Financial Crisis. In a matter of months, Kazakh banks had built up large chunks of bad debt. This sunk three large banks, forcing the government to step in and spend billions of dollars propping them up.
Since then the Central Bank has tried to impose checks on balances on the banking sector, but analysts have always doubted their worth.
But it’s not only the Kazakh banking sector that is under pressure. The Tajik government has announced a rescue plan for its biggest banks and in Azerbaijan a handful of smaller banks have gone bankrupt.
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(News report from Issue No. 311, published on Jan. 6 2017)
DEC. 21 2016 (The Conway Bulletin) — Tajikistan’s government said it would spend $490m, around a fifth of its total budget, on rescuing its banking sector from collapse.
It will pump the cash mainly into Tajikistan’s two biggest lenders, Agroinvestbank and Tojiksodirot- bank, to boost their liquidity and protect them from bankruptcy.
Both banks have neared collapse this year, only being saved by previous government bailouts. Earlier this month, Tojiksodirotbank was taken out of administration. It had been run by Central Bank officials since May.
Two smaller banks, Tajprombank and Fononbank, will also receive funds.
Abdusalom Kurbanov, the Tajik finance minister, said the government had no choice but to intervene heavily to save the banks.
“This decision is aimed at the sustainable development of the banking system, the preservation of public confidence in the banks and the return of deposits,” media quoted him as saying.
Tajikistan is the most remittance- dependent country in the world and a recession in Russia has sucked its economy dry. Its somoni currency has also fallen apart over the past couple of years as the US dollar strengthens and low commodity prices continue to undermine confidence in Emerging Markets.
Earlier this year, a run on the banks in Tajikistan betrayed just how nervous people had become over the stability of the banks. Many ATMs ran out of cash.
Tajikistan has asked for advice from both the European Bank for Reconstruction and Development (EBRD) and the IMF, although it has yet to take any financial aid. This is probably because, despite a handful of missions to Dushanbe, the IMF and Tajikistan couldn’t agree on a set of conditions to guarantee the loan.
On a visit to Central Asia in October, Juha Kahkonen, IMF deputy director for the Middle East and Central Asia, said that it had moved closer to agreeing conditions for a loan. It also described the state of the Tajik banking sector as dire.
“Discussions will continue in the coming weeks and we hope the programme can be agreed in the coming months,” he told Reuters on a trip to Almaty.
But he also said: “Their [Tajik banks] lending practices have not been very sound. Non-performing loans are about half of total loans.”
Central Bank data showed that the share of non-performing loans had risen to 58.7% of the banks’ loan portfolios from 37.8% in September.
Banking systems across the region are creaking. A Handful of smaller banks in Azerbaijan have gone bankrupt and several are under pressure in Kazakhstan. The region’s financial system has been fragile for years. After the 2008/9 Global Financial Crisis, Kazakh banks were left with one of the world’s biggest bad debt ratios, forcing the government to pump billions of dollars into the system.
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(News report from Issue No. 310, published on Dec. 23 2016)
DEC. 23 2016 (The Conway Bulletin) — It’s been a rollercoaster and with all good rollercoasters after a hair-raising ride you end up where you started.
This, of course, is Georgia’s lari currency. While it hasn’t quite ended 2016 where it started, and there are a few more days to go, it has been quite a ride. The lari opened 2016 at 2.41/$. On Dec. 22, the lari was trading at 2.75/$, a slight improvement from a year-low of 2.81 on Dec. 21 after the Central Bank intervened to give its currency a bit of strength.
It’s been on the slide since June when it peaked at 2.12/$. That’s a drop of 32.5% in six months. Like I said, it’s been quite a ride.
Essentially, the lari’s problems are Emerging Market currency problems.
They have been hit by a strengthened US dollar, security wobbles and by sustained low oil prices. Chuck in the poor performance of the Russian economy and stagnant local economic growth and its easy to see why the lari has been hammered. Worse-then-expected economic data and the Georgian Central Bank’s slashing of interest rates to try to boost growth have also weighed against the it.
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(News report from Issue No. 310, published on Dec. 23 2016)f
DEC. 20 2016 (The Conway Bulletin) — Georgia’s Central Bank sold $40m to try to stem a drop in the value of the lari, its first currency intervention since Oct. 12. In the past three months, the lari has lost around 19% of its value against the US dollar, worsening an already difficult economic outlook. In 2016, Georgia has sold $280m. The Central Bank blamed a strengthening US dollar for the lari slide.
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(News report from Issue No. 310, published on Dec. 23 2016)
DEC. 21 2016 (The Conway Bulletin) — On a trip to Seoul, Uzbek deputy PM Rustam Azimov met with his South Korean counterpart and agreed an increase in an economic loan to Uzbekistan from South Korea to $400m from $250m. The loan has been specifically earmarked to build a new passenger terminal at Tashkent airport and to build a new data centre. South Korea has built up links with Uzbekistan through business deals.
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(News report from Issue No. 310, published on Dec. 23 2016)
BISHKEK, DEC. 16 2016 (The Conway Bulletin) — Kyrgyz plans to export 4,000 donkeys to China have angered animal rights protesters who have said that the animals are transported in inhumane conditions and are often killed for gelatin extracted from their skins which is then used in traditional Chinese medicine.
The BBC reported that Chinese importers bought the donkeys from a village near Osh in southern Kyrgyzstan for an estimated 3,000-4,000 soms ($43-57) per donkey.
China is a major importer of donkeys. It sources many from Africa.
The donkeys are often used to work the land but are also butchered for their skins. Chinese medicine producers want the gelatin from the donkeys’ skins.
A couple of years ago, donkey meat was discarded in Kyrgyzstan, after hundreds of donkeys had been killed and skinned.
Animal rights activists want the export of donkeys to China to be stopped or at least regulated. Business leaders in the region though said that the donkey trade had become a profitable export for poor farmers.
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(News report from Issue No. 310, published on Dec. 23 2016)
DEC. 23 2016 (The Conway Bulletin) — Land has been an emotional issue in Kazakhstan.
In the spring, Kazakhstan saw some of its biggest ever protests with thousands of people demonstrating over plans to give foreigners more rights to land. The protests worried the government and also drew attention to existing laws which granted 1kmsq of free land to every Kazakh. Land is cheap in Kazakhstan, the ninth largest country in the world with a population of just 17m.
Since then hundreds of thousands of people have applied to receive their free slice of Kazakh steppe. This is rough land with no infrastructure, exposed to some of the harshest weather conditions south of the Arctic.
Faced with a sharp economic downturn, Kazakh President Nursultan Nazarbayev has been eager to please. He’s promised to build the infrastructure needed to make the land liveable. The problem is the Kazakh government doesn’t have much money.
Instead, the Kazakh government wants to attract private investment. Primarily, it aims to encourage private construction companies to stimulate construction with affordable loans and to trigger a house-buying boom by subsidising mortgages.
The new government program is called Nurly Zher, which means Bright Land in Kazakh.
Economy minister Kuandyk Bishimbayev has said that the government expects GDP to increase by 7.7% during the whole period of the programme and create annually 25,000 jobs.
But experts are doubtful. Kazakhstan needs comprehensive structural economic reforms rather than government handouts.
Representatives from business and the economy say people can’t even afford subsidised mortgages. Commercial banks are also wary of handing out mortgages. A 50% devaluation of the tenge has triggered a lack of confidence. Bad debt levels are approaching danger levels. This is coupled to a lack of political will. Ministers usually implement government programmes initiated by the President but rarely initiate something of their own. The price of failure would be too great. The unwillingness to dig deep into problems and concentrate only on surface issues is typical of the Kazakh government and reflect a political stagnation .
By Aigerim Toleukhanova, the Bulletin’s Almaty correspondent
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(News report from Issue No. 310, published on Dec. 23 2016)
DEC. 19 2016 (The Conway Bulletin) — Foreign direct investment into Azerbaijan fell by 5.3% in the first nine months of the year, the Azerbaijani central bank said, more evidence of the country’s sharp economic decline. Oil revenues form the backbone of the Azerbaijani economy. These have collapsed over the past couple of years, mirroring a sharp drop in prices. Oil majors have been less willing, too, to invest in Azerbaijan’s oil sector because of the price fall.
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(News report from Issue No. 310, published on Dec. 23 2016)
DEC. 19 2016 (The Conway Bulletin) — Georgia’s economy was 2.3% larger in the third quarter of 2016 compared to the third quarter of 2015, highlighting economic growth in Georgia despite difficult conditions. Geostat also said that Georgia’s economy had grown by 2.7% in Q1 2016 and 3% in Q2 2016. Both Armenia and Azerbaijan have seen their economies fall in value.
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(News report from Issue No. 310, published on Dec. 23 2016)
