Kazakhstan's Bank Turalem Scandal: A Story of Ambitious Lending and Massive Losses

Strategic Insights -

Foreign banks like Credit Suisse, Morgan Stanley, and Royal Bank of Scotland funneled over $10 billion into Bank Turalem, Kazakhstan's largest bank, between 2003 and 2008, fueled by the country's oil and gas boom. However, many of these loans have turned sour, prompting write-offs of up to 80% of their value. An investigation led by Bank Turalem's new management and international lawyers and accountants is looking into whether former chairman Mukhtar Ablyazov directed between $8 billion and $12 billion worth of BTA loans to companies he secretly controlled.

Key Takeaways:

  • Between 2003 and 2008, foreign banks poured over $10 billion into Bank Turalem, Kazakhstan's largest bank, fueled by the country's oil and gas boom.
  • Many of these loans have turned sour, prompting write-offs of up to 80% of their value.
  • An investigation is underway to determine if former chairman Mukhtar Ablyazov directed between $8 billion and $12 billion worth of BTA loans to companies he secretly controlled.
  • BTA's former chairman, Mukhtar Ablyazov, faces allegations that he misappropriated $295 million in bank funds in 2008.
  • Ablyazov disputes the allegations, claiming that he had transparent lending practices and that the government takeover of the bank is a plot by President Nazarbayev to damage his reputation.
  • BTA's loan growth was extraordinary, with outstanding loans increasing by 1,100% between 2003 and 2007.
  • The bank's ratio of loans to deposits peaked at 3.6 to 1 in 2007, one of the highest anywhere in the world.
  • Ernst & Young, BTA's auditor, raised concerns about the potential conflict of interest between Ablyazov's role as chairman and his involvement in the bank's lending decisions.
  • Ablyazov has been accused of using BTA as an investment fund for his personal projects, and has been involved in a series of battles with President Nazarbayev, including a 2001 conviction and imprisonment for charges related to his time as head of the government electricity company.

Statistics:

  • $10 billion: The amount of loans funneled into Bank Turalem by foreign banks between 2003 and 2008
  • 80%: The potential write-off of value for some of the sour loans
  • $8 billion - $12 billion: The estimated amount of BTA loans potentially directed by Ablyazov to companies he secretly controlled
  • 1,100%: The increase in outstanding BTA loans between 2003 and 2007
  • 3.6 to 1: The ratio of BTA loans to deposits in 2007, one of the highest anywhere in the world
  • $1.5 billion: BTA's credit exposure to a 4,700-acre development outside Moscow
  • $295 million: The amount allegedly misappropriated by Ablyazov in 2008

Sources:

  • TCA (2009)
  • Asia Pulse (no date provided)
  • Ernst & Young (2008)
  • Deloitte (no date provided)
  • Credit Suisse (no date provided)
  • Richard Portes, London Business School (no date provided)
  • Michael Carter, Visor Capital (no date provided)
  • Mukhtar Ablyazov (no date provided)
  • Nikolay Varenko, BTA (no date provided)