Kenes Rakishev Dinara And Timur Kulibaev Should Be

The Public Foundation “Elge Qaitaru” appeals to you on the fol­low­ing issue.

In 2017, the Banking Sector Financial Stability Improvement Program was approved.

To pro­vide state assis­tance to banks, two state funds were iden­ti­fied: Kazakhstan Sustainability Fund (KSF), owned by the National Bank, and the Problem Loans Fund (PLF), owned by the Ministry of Finance.

The Problem Loans Fund was estab­lished in 2012 under the National Bank to assist banks in the process of “clean­ing” the bal­ance sheet from “non-per­form­ing” loans in order to improve the qual­i­ty of the loan port­fo­lio in the bank­ing sys­tem. However, large oper­a­tions on the fund began only in 2017, when the Banking Sector Financial Stability Improvement Program was approved and the Problem Loans Fund was trans­ferred to the man­age­ment of the Ministry of Finance.

The Kazakhstan Sustainability Fund was estab­lished in 2017 under the National Bank to imple­ment the same Banking Sector Financial Stability Improvement Program. Today, the main goal of the Fund’s activ­i­ty is to pro­mote the finan­cial sta­bil­i­ty of the bank­ing sec­tor through finan­cial sup­port for sec­ond-tier banks, as well as the imple­men­ta­tion of the state pro­gram for refi­nanc­ing mort­gage loans.

The analy­sis of the report­ing of the Problem Loans Fund and the Sustainability Fund is strik­ing in the vol­ume of gov­ern­ment spend­ing to pro­vide assis­tance to banks in 2017–2019, which passed the state bud­get, Parliament, and the entire pub­lic in a non-trans­par­ent and uncon­trolled man­ner. This rais­es big ques­tions about the effec­tive­ness of these huge costs.

Based on the reports of both Funds, the gov­ern­ment assis­tance was dis­trib­uted in the fol­low­ing manner:

State assis­tance to banks in 2017–2019 (bil­lion tenge)

Purchase of dis­tressed assets of BTA Bank and Kazkommertsbank (PLF) 2,640

State aid to Tsesnabank (through PLF and KSF) 1,454

State assis­tance to RBK bank (through PLF and KSF) 399

State assis­tance to banks ATF, Eurasian, and BCC (KSF) 310

Total state assis­tance to banks in 2017–2019 (through PLF and KSF) 4,803

of which: from the state bud­get and the National Fund 2093

from the National Bank 2710

The amount of 4.8 tril­lion tenge to bail out banks is shock­ing. For com­par­i­son, in the state bud­get of Kazakhstan, the largest indi­vid­ual item of state spend­ing is the pay­ment of pen­sions. So, in 2018, the amount of pen­sions paid from the bud­get was slight­ly less than 2 tril­lion tenge and it amount­ed to 21% of all expen­di­tures of the repub­li­can budget.

The pur­chase of trou­bled assets of BTA Bank and Kazkommertsbank in the amount of 2.6 tril­lion tenge went entire­ly through the Problem Loans Fund in 2017. To finance this oper­a­tion, 2.1 tril­lion tenge was allo­cat­ed from the state bud­get, of which 1.1 tril­lion came from the National Fund of the Republic of Kazakhstan. The rest was financed by the National Bank.

Under the Banking Sector Financial Stability Improvement Program, in late 2017 and ear­ly 2018, the National Bank gave sub­or­di­nat­ed pref­er­en­tial loans for 15 years to five banks for a total of 654 bil­lion tenge (RBK — 244 bil­lion, Eurasian bank — 150 bil­lion, Tsesnabank — 100 bil­lion, ATF Bank — 100 bil­lion, and Bank Center Credit — 60 bil­lion). At that time the National Bank assured that the above-men­tioned sums were quite enough to restore the finan­cial sta­bil­i­ty of these banks. However, this turned out not to be the case and the sit­u­a­tion in Tsesnabank and RBK got out of con­trol very quickly.

The state aid to RBK bank was car­ried out only through KFU and con­sist­ed of two parts. 244 bil­lion tenge were received by the bank under the FSFBS Program. Also, the National Bank, through the Kazakhstan Sustainability Fund, gave an inter­est-free bond loan in the amount of 156 bil­lion tenge for a spe­cial finan­cial com­pa­ny — DSFC, which was cre­at­ed on the basis of a gov­ern­ment decree to buy out the dubi­ous assets of RBK bank.

The results of this state aid are also shocking.

Before sell­ing Kazkom-BTA bank to Halyk Bank Kazakhstan, the gov­ern­ment had to clear it of prob­lem assets. To do this, the doubt­ful and non-per­form­ing assets were trans­ferred from Kazkom to BTA, after which the Problem Loans Fund bought out all the prob­lem assets of BTA-Kazkom at their book val­ue for the amount of 2.64 tril­lion tenge. At the same time, the finan­cial state­ments of the Problem Loans Fund state that the mar­ket val­ue of the repur­chased assets, accord­ing to the results of an inde­pen­dent assess­ment, amount­ed to 268 bil­lion tenge, or 10 times less than the amount paid! As a result, the Problem Loans Fund rec­og­nized a loss in the amount of 2.372 tril­lion tenge on that asset purchase.

In addi­tion to the huge loss­es that the Problem Loans Fund incurred on the acqui­si­tion of the dubi­ous assets of Kazkom-BTA and Tsesnabank, it is very sur­pris­ing that it is not clear where those loss­es came from. If we look at the reg­u­la­to­ry state­ments of the National Bank, as well as the audit­ed finan­cial state­ments of Kazkom-BTA and Tsesnabank for 2016 and 2017, then there are not even close to such cred­it loss­es and both banks showed high-qual­i­ty assets with a low lev­el of prob­lem loans. This sit­u­a­tion rais­es a num­ber of very big questions.

Why did the real mar­ket val­ue of loans in Kazkom-BTA and Tsesnabank turn out to be many times low­er than it was pre­vi­ous­ly indi­cat­ed in the National Bank’s reg­u­la­to­ry state­ments and finan­cial state­ments con­firmed by inter­na­tion­al auditors?

If the state­ments of these banks were not true, then how could this even hap­pen? How, in this case, can one gen­er­al­ly trust the bank­ing sys­tem of Kazakhstan and the National Bank?

The state spent 4.8 tril­lion tenge to res­cue banks, so why was the process of buy­ing and trans­fer­ring trou­bled bank assets to the state com­plete­ly non-trans­par­ent and beyond the con­trol of the entire public?

In the case of Kazkom-BTA, these ques­tions should first of all be direct­ed to three parties.

Firstly, they should be addressed to the Government of the coun­try, which owned BTA Bank for a long time before its merg­er with Kazkom (through Samruk-Kazyna), and which then received back the trou­bled assets of the same BTA togeth­er with Kazkom, pay­ing an incred­i­ble amount of money.

Secondly, this refers to the National Bank as a bank­ing reg­u­la­tor at that time. The National Bank reg­u­lar­ly, almost once a year, and care­ful­ly checks and owns com­plete infor­ma­tion on each bank. It was the National Bank which accept­ed the merg­er of Kazkommertsbank and BTA, for the res­cue of which the state then spent 2.6 tril­lion tenge.

Finally, these ques­tions should be direct­ed to the exter­nal audi­tors, whose main task is to inde­pen­dent­ly ver­i­fy the reli­a­bil­i­ty of the finan­cial statements.

In addi­tion, the activ­i­ty of the Problem Loans Fund in the sale of assets rais­es a ques­tion in con­nec­tion with the lack of trans­paren­cy and the pos­si­ble assump­tion of vio­la­tions of the law in this.

It is nec­es­sary to study sep­a­rate­ly and give a legal assess­ment of the fact that in 2008–2009 the state, through the Samruk-Kazyna Fund, invest­ed almost $6 bil­lion in BTA Bank, which in 2014 was sold to a con­sor­tium con­sist­ing of Kazkommertsbank and the com­pa­ny rep­re­sent­ing the inter­ests of Kenes Rakishev. At the same time, before the trans­ac­tion, this com­pa­ny sold Shalkiya-Zinc, acquired in 2009 for $50 mil­lion, to the Samruk-Kazyna Fund for almost $200 mil­lion. It turns out that the bank paid for BTA with the mon­ey of the Samruk-Kazyna Fund itself.

In addi­tion, it is note­wor­thy that Dinara and Timur Kulibaev at the end of 2001 bought from the state a 33.3% stake in JSC Halyk Bank Kazakhstan for $41 mil­lion, and in 2006 sold a 20.21% of the same shares for $748 mil­lion. What hap­pened so that in such a short peri­od of time these shares could rise in price by more than 30 times? Or was their price sig­nif­i­cant­ly under­es­ti­mat­ed when sold by the state?

In con­nec­tion with the above, we ask you:

1. To ver­i­fy the above facts, in par­tic­u­lar all the activ­i­ties of the Problem Loans Fund (PLF) and the Kazakhstan Sustainability Fund (KSF), bring the guilty ones to jus­tice and take mea­sures to com­pen­sate for the dam­age caused to the state;

2. To deter­mine the ulti­mate ben­e­fi­cia­ries of the bil­lions of dol­lars spent by the state to save BTA Bank and Kazkommertsbank and estab­lish how the assets of these banks res­cued at such a huge price even­tu­al­ly end­ed up in the own­er­ship of Halyk Bank for nothing;

3. To con­sid­er the return of JSC Halyk Bank Kazakhstan back to the own­er­ship of the Republic of Kazakhstan.