ANALYSIS-Western banks size up promising Kazakh market
/REUTERS, Almaty, Oljas Auezov, May 23, 05/ - Western banks, lured by Kazakhstan's bright economic performance, are trying to increase their presence in the country, while local banks are seeking new investments to boost their capital.
This mutual interest prompts active acquisition talks but will not necessarily result in multiple takeovers, as both sides have other options to pursue, bankers working in Kazakhstan say.
Halyk bank, the third largest in the resource-rich country, which is five times the size of France but has a population of 15 million, has already announced plans to sell at least a 25 per cent stake to an unnamed European bank by July.
Shareholders of TuranAlem, the second largest bank, continue talks with Austria's Raiffeisen Zentralbank, which has expressed interest in increasing its stake of about 10 per cent to more than 50 per cent.
"Some foreign banks are trying to get in, and the local banks are waiting for the right moment to get the highest price for their stock," said Daniel Connelly, chief executive of Citibank Kazakhstan.
Both Kazakh and foreign bankers agree acquisition is the best route into the local market, which, while having good growth prospects, is competitive and needs large infrastructure investments. Kazakh banks need additional capital to match their exploding assets.
RAMPANT GROWTH
Kazakhstan's economy, fuelled by oil export revenues, has grown at an average pace of 10 percent over the past five years and growth is expected to come close to that speed in 2005.
Only a few years ago the top three banks accounting for about 60 per cent of the system's assets -- Kazkommertsbank, TuranAlem and Halyk -- entered the $1 billion bracket. Today, their balance sheets range from $3.5 billion to $5.0 billion.
Loans to the private sector, according to Fitch Ratings, have grown by an average 57 per cent annually over the last five years, rising to nearly 30 per cent of GDP by the end of 2004 from less than 10 per cent in 1999.
There is room for still more growth, bankers say, pointing out that this number exceeds 100 per cent in some eastern European emerging markets.
Banks have funded expansion through Eurobond issues and syndicated loans, while increasing their capital by retaining profits, raising subordinated debt and selling new stock to existing shareholders or, sometimes, foreign institutions.
The pace of credit growth has alerted regulators, who fear banks may eventually accumulate too many bad loans or have trouble repaying external debt. Some lawmakers have called for administrative approval of every new foreign loan.
Foreign banks and rating agencies, however, see no serious threats to the system's stability yet. "Is it frightening? No. Is it something to be watched? Yes," Citibank's Connelly said.
INCREASING EXPOSURE
Meanwhile, foreign banks -- both those with Kazakh subsidiaries, like Citibank, ABN AMRO and HSBC, and those yet to establish a local presence -- are already fighting for high-quality Kazakh customers.
"Foreign banks continue to increase their lending limits for Kazakhstan," Magzhan Auezov, managing director of Kazkommertsbank, said.
"It's not as easy for foreign banks to get Kazakh customers, as it was a few years ago," said Saduakas Mameshtegi, chairman of TuranAlem, which recently won a tender to provide services to AgipKCO, a consortium of oil majors tapping the huge Kashagan offshore oilfield.
Going after retail customers may be even harder and has so far been avoided by Western banks.
"The combination of vast territory and small population makes the retail market unattractive for foreigners," Auezov said.
THE RIGHT PRICE
Buying a Kazakh bank would be more convenient for a Western institution than building an operation from scratch. But pricing is hard, since there is no liquid market for banking shares.
"I've heard that some deals had been agreed, but then cancelled when the Kazakh banks' owners had asked for four times the book value of their shares... which is a fairly aggressive multiple," Connelly said.
In such cases, Western banks take a second look at the idea of starting local operations on their own.
Kazakh banks, on the other hand, may look for better prices on the stock market. Kazkommertsbank, the market leader, was first to announce such plans, saying in September last year that it would try to raise at least $100 million through a share offering in London in 2005.
[2005-05-23]