Kazakh sovereign wealth fund Samruk-Kazyna has no plans to increase its 83% stake in BTA Bank to help bail the troubled lender out of its negative capital position said Anvar Saidenov, chairman of BTA’s management board.
The bank’s future depends on returning to profitability through new retail and SME lending. “[Negative capital] is an issue but there are several options for how to increase capital,” Saidenov said.
“The first and most obvious is to increase profit from operations, which is what we plan to do. Second is a fresh injection of capital but Samruk-Kazyna does not have any plans for such an injection because their stake is already high.”
BTA published its full year results for 2010 last week showing that the group’s total liabilities exceeded its total assets by over KZT104 billion (E520 million).
Ernst & Young, the bank’s auditors, noted that the negative capital “indicates the existence of a material uncertainty which may cast significant doubt about the Group’s ability to continue as a going concern”.
Despite the questions that continue to hang over BTA, which is one of the country’s largest banks, the government determined on a path of minimal capital injections when the banking sector faced financial crisis in 2007 and 2008.
“Through the whole crisis we’ve seen that the Kazakh government has taken particular care to defend its fiscal and budget position,” said Ekaterina Trofimova, primary credit analyst at Standard and Poor’s. “There has been hesitation to provide capital when the future benefits are unclear.”
For BTA, the future is uncertain. The bank plans a third restructuring of its corporate loan portfolio which will prompt further writedowns. Analysts are unconvinced that its business plan, which outlines a new focus on retail and SME lending, will return the bank to profitability in 2011.
“We still expect the bank to make a loss in 2011 and the negative capital is likely to widen. But this is very much within our expectation and in line with our rating of B-,” said Trofimova. Support for the banking sector in Kazakhstan came in the form of capital for several banks but liquidity and support for creditor haircuts have been the government’s primary tools.
“Think of Greece, you cannot lend money if you see that the entity you are lending money to isn’t solvent,” said Serge Krasyanenko, senior economist at Sigma Blezer in Kiev.
“The Kazakh government must show the public that they can make a profit on the investment before they inject additional funds.”
The situation contrasts strongly with the western European response to bank insolvencies. Many governments found themselves with large stakes in private banks and in several countries banks have received a series of capital injections.
“The government is willing to allow a big bank to fail without the same fears of the impact on the wider economy as in Ireland or the UK,” said Krasyanenko. Samruk-Kazyna plans to sell its stake in BTA and it has been in talks with Russian banking giant Sberbank about a possible take-over.
Saidenov declined to comment on the progress of discussions with Sberbank, saying it was a matter for the bank’s shareholders. The continued financial woes and slow-pace of recovery could present problems for the sale.