INTERVIEW - Kazakhstan to direct $1 bn. to redemption of problem loans

/REUTERS, Almaty, Maria Gordeeva, September 12, 08/ - Kazakhstan government, which examining the opportunity to create stress assets fund, is ready to invest about $1 bn. in it, which plans to direct on redemption of problem loans, Elena Bahmutova, the head of AFS told in interview to Reuters. Global liquidity crisis, which began in 2007, badly affected Kazakhstan banks, which were actively borrowing abroad. By results of first half year of 2008, banks decreased income and assets. According to Bahmutova, the idea of stress fund is examining in Kazakhstan since 2007: "Government's possible investment is - $1 bn.". "It is about assets` quality, which is under stress of macroeconomic market conditions changing. The government shouldn't take full responsibility for these risks. It is rational to share them with banks and foreign participation is desirable both in the form of money and experience with the purpose activity is rightly taken by foreign investors and rating agencies" - the head of Financial Supervision said. Telling about conditions of redemption of problem loans, Bahmutova explained that assets will be purchased "with discount": "while purchasing assets under stress, banks should admit the part of their losses". "But instead, banks will get money, which they may place in the form of credits, securities, deposits and e. t. c. But it will be net assets, for which they may get good yield. In mid-term prospect such mechanism will favorably influence assets` quality (of the banking sector)". CORRECTION According to Bahmutova, assets` quality deterioration of banking sector will continue till the end of the year: "As of August 1, the stake of nonworking credits made 5.6 %(as of year beginning - 2.7 %), the stake of credits, on which delay made more than 90 days, made 4.31 %". "It is naturally, that till the end of the year we expect further credit portfolio` quality deteriorationЕ But I'd rather say that reserve that banks have, even in amount of the current earnings, allow to increase provision's amount", - she added. According to the head of Financial Supervision, today the volume of reserves on incorrect credits makes 8 % of total credit portfolio. "In case of problem credits writing-off, bank will compensate its losses at the expense of created provisions. it is clear, that with such amount of provisions in 8 %, indicators of capital's adequacy are on rather reasonable level, notwithstanding falling indicators of the earning". Financial Supervision plans to aggravate demands to banks` capital for the purpose to increase sector's reliability. "In future we...plan to increase significantly normative requirements to the amount of shareholders equity (from KZT1 bn. to KZT5 bn.) since July 1, 2009". "Till that time, shareholders should decide - either to increase capital, if they have such resources, or find investors and join. They also have another option - they may wind up" - she added, explaining that it is about "last ten" form 35 operating in the country. According to the head of AFS, ample quantity of banks in the country badly affects "health of the system". CONSTRUCTION SECTOR Deficit of funding, liquidity problems and growing credit rates also puzzled activity of construction sector, which mostly counted on loan assets. In particular, businesses centre Almaty after crisis stopped activity of major objects. At the end of 2007 the president Nursultan Nazarbaev instructed to allocate $4 bn. of budget assets for support of banking and construction sectors. The part of this sum was allocated by the State fund of sustainable development Kazyna and directed to the banks, including BTA, which in their turn, direct money to constructors. But earlier this week BTA announced that one of major participants of construction sector Kuat doesn't abide conditions of agreement and the bank intends to be at law. "I think it is a natural process of bank activity with its loaner, with problem loaner, nobody suppresses it. Of course the bank tried to limit it risk and it had the object in security, which has value, price and may be realized on the market", - Bahmutova said. According to her, Kuat was crediting by many banks, which also granted loans to physical entities, which have demand to Kuat. "Kuat - is the corporation, that's why it is possible that every legal entity has rather comprehensible objects. Nobody announced on Kuat`s bankruptcy for today and I hope that won't announce". NEW PLAYERS According to Bahmutova, notwithstanding continuing stresses, the market is interesting for investors: "Shinhan (Korean Bank) has already got permission for opening the bank and should appeal for license. It hasn't entered the market yet. VTB has already got the license for activity. Raiffeisen are discussing this question and announced officially on their plans, but hasn't provided documents yet". "Those investors, which know Kazakhstan not by hearsay, continue working with banks" - she concluded. [2008-09-12]