Wednesday, 19 December 2007

Is Kazakhstani banking going to hell in a handcart?

I meant to blog about this as it crossed over the wires and dealing screens Monday:

Kazakh president Nursultan Nazarbayev said international rating agencies were biased against Kazakh banks

"Considering that Kazakhstan as a state provides substantial support to domestic banks, construction companies and small and medium business and also that the Kazakh economy is stable and on a firm footing, it's subjective to downgrade ratings," Nazarbayev told journalists in Pavlodar."I think that rating agencies have to consider that Kazakhstan is on a stable footing and will not allow any of its banks to go under," he said."I had already said that if such a situation continued, we would buy out shares of our companies themselves," he said, as cited by Interfax.

The global credit crunch, aside from effectively flooring Northern Rock has wreaked havoc in the Kazakhstani banking system. The Central Bank has pumped in liquidity and this has stabilized what otherwise threatened to be a run on a number of banks.

The picture is much prettier if you also caught how ATF Bank – being sold to Unicredit – had blatantly tried to screw its minority preference shareholders, to funnel all the money into the pockets of a few, very well-connected hangers-on from the Nazarbayev clan. You have to admire plucky little hedge fund, QVT, for sticking to its guns and demanding that ATF and Unicredit play fair: good luck to them! Unicredit seems to attract controversy when it buys these rinky-dink banks. In truth I wonder whether the real lesson we all should be learning here is that - contrary to abundant western-market opinion - Kakakhstan is actually as hopelessly inadequate, for real commercial rule of law, as the other 'stans.

Most of the domestic banking system is controlled either by the First Family, or by their mates, and, boy, have they screwed it up or what?

Today I read that Fitch ratings has followed where S&P have already trodden and have altered their Outlook across most of the KAZ banking sector from “Stable” to “Negative”. Most of these banks now have an S&P rating equivalent of BB-, which means not really good enough credit quality for their banks’ bonds to be bought by mainstream global investment institutions (but only specialist, high-risk funds).

What I think is interesting about the Nazarbayev quote is that, in effect, he says that the Government will guarantee the banking system. Now leaving aside issues about ‘moral hazard’, I have to say that maybe the ratings agencies have got it wrong. If oil-rich Kazakhstan will, as the President says, step in and rescue any bank, then surely the banks’ ratings should rise.

Conversely, it is the sovereign rating for Kazakhstan itself (already recently lowered by S&P to BBB-) which should be lowered again; because de facto Nazarbayev has just added all those banks’ debts to his national balance sheet.

Not, BTW, the brightest move in terms of sound financial economic management; but I suppose if you treat the banking system as being a personal plaything, like you treat the state as a whole…

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