Kazakhstan's Bank Turanalem Scandal: Lessons for Global Banking

Strategic Insights -

The collapse of Kazakhstan's Bank Turanalem, once a key player in the country's financial market, has left a trail of billions of dollars in bad loans and sparked a global investigation into the role of foreign banks that funneled money into the embattled institution. From 2003 to 2008, a group of prominent Western banks, including Credit Suisse, Morgan Stanley, and Royal Bank of Scotland, invested over $10 billion in Bank Turanalem, hoping to tap into the country's oil and gas boom. However, the bank's aggressive lending practices and lack of transparency have now led to a series of write-offs and investigations.

Key Takeaways:

  • Bank Turanalem's loan exposure peaked at $12 billion in 2008, with a significant portion of these loans being written off due to defaults.
  • The bank's aggressive lending practices, including loans to companies with vague business plans and no trading histories, have been cited as a contributing factor to the bank's collapse.
  • Foreign banks that invested in Bank Turanalem, including Credit Suisse and Morgan Stanley, may have been unaware of the bank's financial practices, with some executives citing "due diligence procedures" was in place.
  • Bank Turanalem's former chairman, Mukhtar Ablyazov, has been accused of misappropriating $8-12 billion worth of BTA loans, with the bank filing a civil suit against him in a British court.
  • The bank's auditor, Ernst & Young, highlighted the conflict of interest created by Mr. Ablyazov's hands-on approach to lending, which included serving on the regional credit committee that oversaw many of the questionable loans.
  • The collapse of Bank Turanalem serves as a cautionary tale for international banks, which have been criticized for ignoring lessons from past financial crises, including those in Latin America, Russia, and the United States.

Statistics:

  • Bank Turanalem's loan exposure peaked at $12 billion in 2008.
  • The bank's ratio of loans to deposits peaked at 3.6 to 1 in 2007.
  • The foreign banks' write-offs of Bank Turanalem loans are estimated to be up to 80 percent of their value.
  • $10 billion was invested in Bank Turanalem by a group of prominent Western banks between 2003 and 2008.
  • The bank has $538 million in profits in 2007, according to Mr. Ablyazov.
  • BTA has a $1.5 billion credit exposure to a sprawling 4,700-acre development project outside Moscow.

Sources:

  • Landon Thomas Jr., "Kazakhstan's Bank Turanalem Scandal: Lessons for Global Banking," The New York Times, March 20, 2009.
  • Ernst & Young, "2008 Report on BTA," 2008.
  • Deloitte, "Statement on BTA," (no date).
  • Credit Suisse, "Statement on BTA," (no date).
  • Visor Capital, "Interview with Michael Carter," (no date).
  • Bank Turanalem, "2008 Annual Report," 2008.