Crisis puts EDB centre stage
First in, first out. As the storm clouds gathered in 2007, Kazakhstan was the first country in the former Soviet Union to suffer from the shockwaves spreading out from America’s subprime mortgage crisis that built into to a global storm a year later.
Eurasian development bank has found itself in the front line. Originally set up by the governments of Russia and Kazakhstan as a sort of IMF cum EBRD of the east and tasked with fermenting mutually beneficial investments into things like cross border infrastructure.
Based in Almaty EDB CEO Igor Finogenov has had a ringside seat to the Kazakh travails of the last two years. The seizure of BTA by the state and the subsequent freeze on the banks debt cause headlines around the world, but the republics rapid return to health has generated much few column inches.
“Kazakhstan was the first into the crisis and now it is the first coming out. The beginning of the crisis in Kazakhstan was marked by the downturn of external debt channels, decrease of the export growth rate and by the mortgage crisis. All these then resulted in decline of the industry sectors growth rate. The prompt adoption and implementation of the anti-crisis program in Kazakhstan mitigated to a great extent the negative influence of the crisis in this country,” Finogenov told bne during the Russian Economic Forum in St Petersburg in June.
Kazakhstan was one of the hardest hit by the international crisis of all the countries in the CIS. The assets of banking sector was growing at over 200% in the last few boom years as consumer credit exploded, which in turn fuelled a real estate boom. As international borrowing making the country the most exposed of all CIS countries to the vagrancies of the international credit market it was hit hard by the meltdown in September 2008.
“It was the newest branches of the Kazakh economy that were hurt the most – real estate and finance. The post crisis economy is now being driven by the traditional pillars of the economy – oil and metals,” says Finogenov.
Happily the National Bank of Kazakhstan managed to avoid a panic amongst the population by rapidly expanding the deposit guarantees. The result is that while the banks have been wounded they still have the same deposit base as before which is a solid foundation on which to rebuild their businesses.
“The Kazakh depositors were not very frightened by the crisis as they believed the government and the regulator when they promised to protect their savings,” says Finogenov. “This more than anything else helped to avoid panic and stave off runs on the banks that would have destroyed their deposit base. Now deposits are big and the main source of funds. It means the banks can grow, albeit at a slower pace than before.”
Finogenov says that now the economy is coming out the other side of the crisis corporate deposits are also beginning to recover on the back of rising oil and commodity prices, but the key event was the restructuring of BTA Bank’s debt.
One time the biggest bank in Kazakhstan, BTA collapsed in the crisis, but after it was taken over by the state (and due to be sold to Russian bank Sberbank later this year). The bank has restarted lending and is already the third biggest lender in the country.
“The Kazakh capital market reopened after the BTA deal,” says Finogenov. “Before that banks were dependent on either the national budget or their private deposits.”
More recently the EBD has fond itself even closer to the action after it was appointed the manager of Eurasian Economic Community (EurAsEC) Anti-Crisis Fund.
In the middle of June it granted its first loan of $70m to Tajikistan under a yearly interest of 1% for 20 years with a five year grace period. Belarus, which became the latest country to join the capital EDB also in June, is also thinking about applying for funds from the bank. And the bank is still growing and recently signed off on deals to expand its operation in Russia, Ukraine and Mongolia.
“We are following the shareholders who have business in these countries,” says Finogenov.
As the bank is not allowed to take in retail or corporate deposits its main source of funding is the capital markets by issuing bonds or signing bilateral deals.
While most of the banks in the CIS are struggling, ironically the crisis has only boosted the EDB profile and will support the bank’s expansion.
The projects include the modernization of Kazakhstan’s Ekibastuz GRES-2 power plant, the creation of Russian regional passenger aircraft Sukhoi SuperJet 100, the construction of an interregional power transmission line in Kazakhstan, the construction of a railroad car production facility in the city of Tikhvin in the Leningrad Region, and the upgrade of a thermal power plant in the city of Argun in the constituent republic of Chechnya, Finogenov says. The plan is to increase the bank’s commitment to its customers this year and increase the total loan book from $1.6bn in 2009 to over $2.2bn this year.
The Russian government’s Eurobond issue in May was a boon for EDB as it set a new benchmark for interest rates and lowered the bar for quasi-state issuers like EDB.
“There is money there available if we want it and following the Russian sovereign deal it is much cheaper than before,” says Finogenov.