It is all starting to look very familiar. For the third time in eight years, rating agencies are warning that Kazakhstan’s largest bank is likely to default on its international bonds.
The root of the trouble, once again, is the mountain of debt accumulated by BTA Bank before the financial crisis that for various reasons – ranging from outright fraud to the collapse of the Kazakh real estate market – went sour after 2008.
The twist in the tale is that this time it is not BTA that is headed for a debt restructuring but its new owner Kazkommertsbank (KKB), which bought the failed lender two years ago.
Many analysts argue that, for this very reason, KKB will not be allowed to default. In recognition of its role in taking BTA off the Kazakh government’s hands, they say, the bank will receive all the support it needs to cope with the fallout from the acquisition.
This seems reasonable – yet it raises one very important question. If the Kazakh authorities had no intention of allowing a third BTA-related default, why did they insist on returning the bank to the private sector with massive portfolios of non-performing loans (NPLs) still on its books?
Why did they not, during the five years the bank was under state control, take it upon themselves to hive those debts off into a bad bank and then put the healthy parts of BTA up for sale?
That they chose not to must raise the suspicion, at least, that they wished to leave the door open for another debt restructuring.
Admittedly, at less than $2 billion, the external liabilities of KKB today are a fraction of the $16.7 billion of foreign debt that BTA was allowed to default on in 2009.
Yet, with the oil price showing no signs of recovery and the tenge at unprecedented lows, it is not hard to imagine a situation in which a couple of billion dollars could come in handy for the Kazakh authorities – and bailing in senior bondholders is a very easy way to get it.
It is certainly an option they have shown themselves to be very comfortable with in the past. Indeed, their decision to make bond investors share the pain of BTA’s collapse earned them considerable kudos in an era when governments around the world were making taxpayers bear the burden of bank failures.
Unsurprisingly, however, it did not make them many friends among the international investor community – and more bridges were burned when BTA was allowed to default for a second time in 2012.
If KKB goes the same way, it is likely to be a very long time before even the hardiest fund managers can be persuaded to buy Kazakh bank bonds again. At the moment, when the sector has little need of international cash, that may be a risk policymakers are prepared to take – but it would be very rash to cut the country’s lenders off from external funding for the duration.
One bail-in may be brave. Two might be considered foolhardy. Three is starting to look like a nasty habit.
It is time for Kazakh authorities to break it.
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