Kazakhstan's Bank Turalem Scandal: A Billion-Dollar Loss for Western Banks

Strategic Insights -

Kazakhstan's largest bank, Bank Turalem, formerly known as BTA, was at the center of a massive loan scandal in which foreign banks, including Credit Suisse, Morgan Stanley, and ING, funneled over $10 billion into the bank from 2003 to 2008. The loans, intended to finance real estate projects and businesses in Kazakhstan, Russia, and Ukraine, have now turned sour, with many foreign banks facing write-offs of up to 80% of their value. The scandal has led to investigations into whether the loans were used to finance a scheme by the bank's former chairman, Mukhtar Ablyazov, to siphon off billions of dollars to secretly controlled companies.

Key Takeaways:

  • Over $10 billion in loans were funneled into Kazakhstan's Bank Turalem by foreign banks, including Credit Suisse, Morgan Stanley, and ING, from 2003 to 2008.
  • The loans were used to finance real estate projects and businesses in Kazakhstan, Russia, and Ukraine, as well as offshore companies with unclear business plans and no trading histories.
  • Prosecutors in Kazakhstan and international lawyers are investigating whether the former chairman of Bank Turalem, Mukhtar Ablyazov, used the loans to direct $8 billion to $12 billion to secretly controlled companies.
  • Mr. Ablyazov denies the allegations, saying the loans were proper and the investigation is politically motivated.
  • The scandal has led to write-offs of up to 80% of the loans' value for foreign banks, prompting investigations into the matter.
  • BTA's former chairman, Mukhtar Ablyazov, fled Kazakhstan for London just days before the government took over the bank, fearing a government crackdown.

Statistics:

  • $10 billion: The amount of loans funneled by foreign banks into Kazakhstan's Bank Turalem from 2003 to 2008.
  • 80%: The percentage of loan value that some foreign banks may write off due to the scandal.
  • $8 billion to $12 billion: The estimated amount of loan funds directed by Mukhtar Ablyazov to secretly controlled companies.
  • 2003-2008: The period during which the loans were made to Bank Turalem.
  • 2008: The year in which Bank Turalem was taken over by the government.

Sources:

Euclid Infotech Pvt. Ltd., 2011.