Kazakh government will spend on bad debt to save bank

Significance

The measures are part of efforts to prepare Kazkommertsbank for a takeover by Halyk Bank, the second-largest financial institution, which signed a non-binding memorandum on March 2 on acquiring a majority stake in it. To make the salvage operation easier, the state is to take over 2.4 trillion tenge (7.5 billion dollars) of bad debt from Kazkommertsbank.

Impacts

• If the merger terms change and Halyk Bank has to assume more of Kazkommertsbank's liabilities, its own financial stability will suffer.
• The additional budget money for the state's Problem Loans Fund assumes average oil prices of 50 dollars per barrel.
• The prevalence of well-connected oligarchs and other vested interests among shareholders will curb investor interest in Kazakh banks.
• Russian banks such Sberbank, VTB and Alfa Bank are likely to avoid purchases in Kazakhstan until their own country's situation improves.