So far, the three western banks active in Kazakhstan have been a success. In order of appearance, ABN Amro, Citigroup and HSBC have turned tidy profits from lending at low rates to top state and corporate institutions. They now hold about 6.5% of the country's banking assets. Is it time to expand into retail?
Douglas Kennedy of ABN Amro doesn't think so. Even though "people are desperate to take Kazakh risk at the moment", he says things are fine the way they are. "We continue to be leaders in taking Kazakh corporates to the debt capital markets," he says. The Dutch bank has a branch in Atyrau, the oil capital. This year, it will be opening the first western bank branch in Astana, the capital since 1995.
Ray Webber, head of HSBC Kazakhstan, has the same view. "We came here five years ago and we now have assets of $180 million," he says. "I'm sure some purchasing will happen," he adds, but as for HSBC, "we're still getting comfortable with the country. It takes a while to establish a track record, and it will take a while before we start lending to small entrepreneurs, for instance."
That's too bad, thinks Kadyrzhan Damitov, a former governor of the central bank. "One big foreign bank active in retail would be good for the country, it would bring expertise and confidence," he says. "And now would be a good time to come in."
But the entry ticket is a lot pricier today than it was five years ago. "The Europeans bought Czech and Polish banks in the years 1995-1998," says Kennedy, who was working in Poland at the time. "But here the development was faster and the window was shorter, maybe 2001-2002. So by the time the foreign banks focused on Kazakhstan, they realized the local competition was already strong and getting more sophisticated, while the market size was still pretty small. Also," he adds, "when you look at the second- and third-tier companies, you begin to run into transparency and control and ownership issues."
Timur Issatayev of ATF Bank predicts that the foreign banks will be marginalized as more local companies are working with local banks. He says that cheaper money is becoming less of an advantage as local banks improve their ratings and can provide a much wider product range.
"Foreign banks are in Almaty, not in Karaganda or Pavlodar. They don't follow their clientele," he says.
Still, a higher entry ticket won't discourage big western banks in the future. Kennedy of ABN Amro says: "I wouldn't be surprised if we had six of them active here instead of three in a few years."