Foreign banks
WITH THE BENEFIT of hindsight, the timing of the first major foray by foreign banks into the domestic banking market could hardly have been worse. But from a long-term perspective, the decision of Italy’s UniCredit and South Korea’s Kookmin Bank to pay $2.3 billion and $1 billion respectively for ATF and BankCentreCredit (BCC) just before the global financial crisis erupted in the summer of 2007 could h well turn out to be prescient once Kazakhstan and Central Asia return to the path of rapid growth.
For UniCredit, the move into Central Asia’s richest h and most dynamic economy was an extension of its previous foray into Central Europe as the acquisitive Italian bank looked to diversify beyond slow-growing western European markets. For Kookmin, expansion into resource-rich Kazakhstan reflected both expectations of faster growth than Korea itself and a chance to position itself for an expected influx of South Korean investment in energy and commodity projects – including nuclear. In May 2009, Kookmin’s chairman was a prominent member of a South Korean business delegation which earmarked projects worth $5 billion for investment by Korean companies and banks.
“We strongly believe that a strategic partnership will bring us competitive advantages and make it easier to deal with any financial wobbles,” says Timur Ishmuratov, managing director of BCC’s international department. “Kookmin, like our bank, has a focus on the retail and SME [small- and medium-sized enterprises] market. It offers some very good products, based on sophisticated IT infrastructure, which could potentially be very good for our clients, too.”
Kazakh banks grew by focusing on corporate finance and the construction sector. In both cases, personal contacts were often key to business. While local banks were active in the corporate market, their understanding and penetration of the retail market, especially mortgage lending, was low. Just as they were developing expertise in these areas, retail and mortgage lending became the first casualties of the sub-prime crisis.
Some foreign banks spotted the opportunity to expand, while local banks pulled back to focus on repaying debts. HSBC, for example, one of several foreign banks working in Kazakhastan for more than a decade, recently decided to open several new branches and make an additional $100 million available for mortgage finances
Before the entry of UniCredit and Kookmin into mainstream banking, most foreign banks, including Citibank and ABN-Ambro, concentrated on servicing the Kazakh subsidiaries of international companies and expats and facilitating foreign borrowing for Kazakh banks and companies. ABN was acquired by Royal Bank of Scotland and its former Kazakh subsidiary is now looking for a new owner following the virtual nationalisation of RBS itself in the UK banking meltdown.
Before the global crisis brought banking back to Earth, dozens of foreign banks were seeking to get a foothold in the market by buying a Kazakh bank. But prices were sky high and several potential foreign buyers, such as Austria’s Raiffeisen, which first sought to buy BTA several years ago, were unable to find suitable acquisition targets at an acceptable price. “We observed the market but the prices did not reflect the environment and potential risks, so we decided to start from scratch,” a bank spokesman said. The alternative plan to start a greenfleld bank is currently on hold.
Now may be a good time for potential buyers to look again, however. While the government is focused on finding a new foreign owner for BTA, new regulations setting a tenge 5 billion ($3.5 million) minimum capital requirement for Kazakh banks come into force in July, putting pressure on smaller banks to consolidate or put themselves up for sale. International Bank of Alma ty, with a capital of just tenge 1.5 billion, was recently taken over, for example, and is now being re-branded as Home Credit.
Ironically, just as Kazakh banks have become open to takeover and more attractively priced, most foreign banks have drastically scaled back their expansion plans. “Without the international crisis I would say that we could expect more investment in Kazakhstan, h because prices are now optimal,” says Alexander Picker, the Austrian president of ATF Bank. “But, while any bank not looking to expand in Central and Eastern Europe used to get a bad mark from analysts, now it’s the opposite. I don’t know how many banks will be brave enough to see the potential and act. It depends very much on the bravery and anti-cyclical ideas of boardrooms – many of which are in survival mode at present.”
Several investment banks, including JP Morgan, which has an important advisory role with Kazakhmys h and other big corporates, and Deutsche Bank, have recently set up representative offices in Almaty, to show the flag and be ready for more ambitious moves, when the time is right. There is currently high demand for advisory services – with UBS and Goldman h Sachs, for example, recently taken on as advisers to the government on settling the future of BTA.
Russian banks are also stepping up their presence. Sberbank, currently eyeing up BTA, leads the pack while VTB, Russia’s former foreign trade bank, has pared down its expansion plans for the CIS generally to concentrate on what it sees as the most attractive markets – Kazakhstan and Azerbaijani
On the investment banking side, Russia’s Troika followed Renaissance Capital into Kazakhstan last year through the acquisition of local asset management house Almex, and there is also interest from further afield. Israel’s Bank Hapoalim, for example, completed its acquisition of Demir Kazakhstan Bank (since re-branded Bank Pozitiv) in November 2007, and Bank of Tokyo Mitsubishi is due -to set up a representative office in early 2009, with the initial aim of serving Japanese companies.
Invest in Kazakhstan An official publication of the Government of the Republic of Kazakhstan, 2009. Page: 84-86.
Tags: ABN, Almaty, ATF, bank, BankCenterCredit, banks, BTA, Demir, foreign companies, Investment, Kazakhstan, Kookmin Bank, Projects, UniCredit, USA
