VZCZCXRO5569
OO RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSL RUEHSR RUEHVK RUEHYG
DE RUEHTA #1173/01 1940923
ZNR UUUUU ZZH
O 130923Z JUL 09
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5783
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE 1738
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 1105
RUEHKO/AMEMBASSY TOKYO 1807
RUEAIIA/CIA WASHDC
RHEFAAA/DIA WASHDC
RHEHNSC/NSC WASHDC 1289
RUEKJCS/SECDEF WASHDC 1206
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHMFIUU/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/JOINT STAFF WASHDC
RUCNDT/USMISSION USUN NEW YORK 2374
RUEHNO/USMISSION USNATO 2692

UNCLAS SECTION 01 OF 02 ASTANA 001173 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB/ESC 
STATE PLEASE PASS USTDA AND OPIC 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EFIN KZ
SUBJECT:  KAZAKHSTAN:  FATE OF LARGEST BANKS TO BE DECIDED 
IMMINENTLY (PART 3 OF 3) 
 
¶1.  (U) Sensitive but unclassified.  Not for public Internet. 
 
¶2.  (U) This is the third in a three-part series analyzing recent 
developments in Kazakhstan's banking sector, the possible future 
liquidation of its assets, and potential implications for 
international export credit agencies. 
 
¶3. (SBU) SUMMARY:  U.S. Department of Treasury Advisor Tom Lanier 
and International Economist in the Office of Europe and Asia Larry 
Norton visited Almaty and Astana June 10-13 to assess current 
conditions and trends in Kazakhstan's economy and the overall health 
of its financial sector.  Lanier and Norton's interlocutors reported 
that Kazakhstan's Financial Supervision Agency (FSA) has ordered the 
country's largest private banks -- Alliance and BTA -- to submit 
proposals for the restructure of their foreign obligations to their 
international creditors.  The fate of BTA and Alliance, according to 
the FSA, is entirely contingent upon the level of investor 
acceptance to the proposed restructure.  Should creditors reject the 
offers for restructuring, and BTA and Alliance Bank be forced into 
liquidation, Halyk Bank appears ready above all others to surface as 
the new champion of the Kazakhstani banking industry.  END SUMMARY. 
 
HALYK POISED TO BECOME NATIONAL CHAMPION 
 
¶4.  (SBU) Halyk Bank CEO Umut Shayakhmetova claimed that her bank is 
doing well, bucking the trend among the largest Kazakhstani banks. 
"Despite the recent downgrades and defaults at three banks, our 
portfolio is improving.  Construction projects are picking up and 
some real estate transactions are moving forward," she said. 
Shayakhmetova said that Halyk's asset base is relatively healthy 
because it has very little exposure to the real estate and 
construction sectors, and generally has been conservative in its 
lending practices -- despite the fact during the height of the real 
estate boom profits in that sector were often enormous.  "In crazy 
times, people could earn $10 million in one week moving real 
estate."  According to Shayakhmetova, Halyk is now benefiting from 
this conservatism and sees its deposits increasing across the board, 
in particular from state-owned enterprises and private individuals 
who have transferred funds from BTA and Alliance banks. 
 
¶5.  (SBU) In 2009, Halyk Bank has approximately $500 million due in 
foreign debt, with $700 million maturing in 2010.  According to 
Shayakhmetova, Halyk has $12 billion on its balance sheet, $4 
billion in overall debt, and maintains a capital adequacy ratio of 
16 percent, which is 6 percent higher than the 10 percent mandated 
by the FSA. 
 
¶6.  (SBU) Commenting on the current status of the industry, 
Shayakhmetova predicted an eventual bankruptcy for Alliance, but 
does not feel that this will have a significant negative impact on 
Halyk, or the Kazakhstani banking sector overall.  As for BTA, she 
admitted that she is as curious as anyone to see how this story 
plays out.  She maintained that the government's acquisition of a 
majority stake in BTA was problematic.  "Everyone can see that it 
was not done as smartly as it should have been."  KazKommertsBank 
(KKB), she said, will be the bank to watch closely now, because they 
have "far more debt." (NOTE:  According to KKB Executive Director 
Mokroussov, the bank is not planning any form of debt restructuring 
and believes it has enough capital to cover its obligations. 
Mokroussov reports a healthy capital adequacy ratio of 11 percent, 
and says that its capital adequacy was significantly elevated by a 
cash injection from Samruk-Kazyna and the EBRD -- exercising its 
preemptive rights -- and now stands at $300 million.  END NOTE.) 
 
¶7.  (SBU) Citibank Kazakhstan's Dan Connelly echoed Shayakhmetova's 
concerns, telling EconOfficer that Citibank recently zeroed its 
accounts with KKB as a precaution, and noting that KKB has 
approximately $800 million due in foreign debt this year.  He gave a 
strong endorsement to Halyk Bank's performance to date.  Halyk Bank, 
in Connelly's opinion, would be the one bank the government would 
definitely save if necessary.  (NOTE:  The current Chairman of the 
 
ASTANA 00001173  002 OF 002 
 
 
National Bank of Kazakhstan, Gregory Marchenko, is the former CEO of 
Halyk Bank. END NOTE.) 
 
¶8.  (SBU) COMMENT:  Samruk-Kazyna made clear to Lanier and Norton 
that ultimately the decision whether or not to liquidate 
Kazakhstan's failing banks will come from the top.  As one 
Samruk-Kazyna official put in, "We are waiting for word from the 
creditors, and then Papa (i.e., President Nazarbayev) will decide 
what to do."  END COMMENT. 
 
HOAGLAND