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Banking industry

Bankers' Billions Lost in Kazakhstan's Sour Loans

Strategic Insights

— 2 min read

As the global financial crisis continues to unfold, a notorious tale of big banks losing billions of dollars in Kazakhstan is gaining attention. Between 2003 and 2008, foreign banks such as Credit Suisse, Morgan Stanley, and Royal Bank of Scotland invested more than $10 billion in loans to Bank Turalem, Kazakhstan's largest bank. The loans were made during a growth boom fueled by the country's rich oil and gas reserves. However, many of these loans have soured, leading to write-offs of up to 80 percent of their value. This has prompted investigations into the banks' lending practices and the possible involvement of the bank's former chairman, Mukhtar Ablyazov.

Key Takeaways:

  • Foreign banks, including Credit Suisse, Morgan Stanley, and Royal Bank of Scotland, invested over $10 billion in loans to Bank Turalem between 2003 and 2008, during Kazakhstan's growth boom.
  • Many of these loans have soured, with write-offs of up to 80 percent of their value, prompting investigations into the banks' lending practices.
  • Bank Turalem's former chairman, Mukhtar Ablyazov, is being investigated for allegedly using bank funds for his personal real estate projects and possibly controlling offshore companies that received loans.
  • Ablyazov denies any wrongdoing, claiming that the loans were legitimate and that the investigation is politically motivated.
  • BTA's loan growth increased by 1,100 percent between 2003 and 2007, with a loan-to-deposit ratio peaking at 3.6 to 1 in 2007, one of the highest ratios in the world.
  • Ernst & Young, BTA's auditor, highlighted a conflict of interest in 2008, citing Ablyazov's hands-on approach to lending and his chairmanship of the regional credit committee.
  • Ablyazov disputes this claim, stating that he was transparent in his loan operations and that the bank was profitable and transparent until he left.
  • A British court has frozen Ablyazov's assets, citing concerns about his alleged misappropriation of bank funds.

Statistics:

  • $10 billion: The amount foreign banks invested in loans to Bank Turalem between 2003 and 2008.
  • 80 percent: The potential write-off value of soured loans.
  • 1,100 percent: BTA's loan growth increase between 2003 and 2007.
  • 3.6 to 1: BTA's loan-to-deposit ratio peaking in 2007, one of the highest in the world.
  • $9 billion: The charge against profits that BTA declared after Ablyazov left, according to Ablyazov.
  • $538 million: BTA's profits in 2007, according to Ablyazov.
  • $1.5 billion: BTA's credit exposure to a 4,700-acre development outside Moscow.
  • $8 billion to $12 billion: The estimated value of BTA loans that may have been directed to companies controlled by Ablyazov.

Sources:

  • Asia Pulse
  • The London Business School (quoting Professor Richard Portes)
  • Credit Suisse (in a statement)
  • Deloitte (not responding to a request for comment)
  • Visor Capital (quoting Chief Executive Michael Carter)
  • Ernst & Young (2008 report on BTA)
  • BTA (civil suit against Ablyazov)

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