Banking Opportunities in Kazakhstan 2008
May 08, 2008 | BY
clpstaff &clp articles &By Joseph C. Carter III (L) and Mukhtar S. Nurzhigitov (R)McGuire WoodsKazakhstan's commercial banking sector has grown dramatically in recent years.…
By Joseph C. Carter III (L) and Mukhtar S. Nurzhigitov (R)
McGuire Woods
Kazakhstan's commercial banking sector has grown dramatically in recent years. While the sector, like that in many other countries, is under great pressure, the result of the credit and liquidity crises that arose last year, the longer term prospects of Kazakhstan's banks remain bright. Strengthening their cause is Kazakhstan's positive fundamental economic outlook associated with its vast oil, gas and mineral resources. Despite shirt-term issues connected to the crises,
Kazakhstan's banking sector presents an attractive investment opportunity for foreign banks.
Kazakhstan's Banking Sector Kazakhstan's banking sector has two tiers. The National Bank of Kazakhstan (NBK) is the central bank and represents the first tier of the sector. The NBK develops and pursues the State's monetary and credit policy, issues the national currency (the tenge), maintains the country's foreign currency and gold reserves and carries out foreign exchange control and regulation. The NBK has delegated to the Agency for Regulation and Supervision of Financial Markets and Institutions (FMSA) the general authority to oversee and supervise the second tier banks. The FMSA supervises and regulates, among other things, the chartering of banks, the acquisition of banks or significant interests in banks, minimum reserve and capital adequacy requirements and the level of external borrowings that may be made by banks. Kazakhstan is generally considered to have the strongest bank regulatory regime in the countries of the former Soviet Union.
The second tier of the Kazakhstan banking sector is made up of 35 commercial banks. Roughly half of these banks have foreign ownership. As of December 31 2007 the four largest second tier banks, Kazkommertsbank, BTA Bank, Halyk Bank and Alliance Bank all of which accounted for roughly 70% of the Kazakhstan banking market share measured by assets. The next six largest second tier banks accounted for an additional 25% of the country's banking assets. The remaining 5% of the banking market share is divided among a number of small banks, some of which are general commercial banks, some of which target limited market segments and some of which are the local operations of foreign banks such as RBS – Royal Bank of Scotland (formerly ABN Amro), Citibank, HSBC, Sberbank and China Bank. A number of foreign banks and investment banks have opened representative offices in Kazakhstan.
Recent Transactions and Developments
There have been a number of recent transactions and developments that underscore the attractiveness of the Kazakhstan banking market to foreign investors. In 2007, two Kazakhstan banks were acquired by foreign banks. The first was Demir Bank, a relatively small bank that was acquired by a Turkish banking subsidiary of the Israeli bank, Bank Hapoalim. The second was ATF Bank, the country's fifth largest bank, which was acquired by Bank UniCredit, a large Central and Eastern European banking concern headquartered in Italy. That acquisition was substantially completed in December 2007, but litigation has held up several aspects of the transaction and complete integration of the two banks has not yet occurred. In March 2008, Bank Center Credit, the sixth largest bank, entered into an agreement with Kookmin Bank, Korea's largest bank, pursuant to which Kookmin would initially acquire a 30% stake in Bank Center Credit and thereafter increase its ownership stake over time to 50.1%. The transaction, which is subject to regulatory approvals, is expected to be completed later this year. BTA Bank recently announced that it was soliciting bids for the purchase of Temir Bank, Kazakhstan's seventh largest bank and an affiliate of BTA. Credit Suisse and VTB Bank (Russia) have recently opened representative offices in Kazakhstan. VTB expects to convert its office into a banking subsidiary in a year. Recent press reports indicate that Morgan Stanley is in the process of establishing its representative office in Almaty, Kazakhstan.
Regulatory Issues
Foreign banks seeking to commence banking operations in Kazakhstan must comply with various regulatory approval processes.
Representative Offices. Foreign banks may generally create representative offices simply by notifying the FMSA. The FMSA regulatory approval will be required if the foreign bank seeks to convert its representative office to a banking subsidiary.
Acquisitions of Banks. Foreign banks seeking to acquire all or a significant part of a Kazakhstan bank must obtain several advance regulatory approvals:
FMSA Approval. A foreign bank seeking to acquire at least 10% of the voting shares of a Kazakhstan bank must obtain the approval of the FMSA. A foreign bank seeking to acquire 25% of the voting shares of the bank in one or more transactions or otherwise obtain control of a bank's decisions by agreement must also obtain FMSA approval.
Agency on Competition Protection. Kazakhstan legislation provides, that the consent of the Agency on Competition Protection must be obtained before a foreign bank can acquire at least 25% of the voting shares of a Kazakhstan bank in one or more transactions, obtain rights to determine the conduct of activities by a Kazakhstan bank or perform functions of its executive body, or appoint the same individual to positions in the executive bodies or boards of directors of both the acquirer and the Kazakhstan bank.
Tender Offer for Joint Stock Companies. An entity that acquires 30% or more of a Kazakhstan joint stock company in the secondary market must, within 30 days of the acquisition, publish in the mass media an offer to buy the company's shares owned by other shareholders. Shareholders may accept the offer and sell their shares within 30 days after publication of the offer.
McGuire Woods
Arai Business Center,
20A Kazybek bi St, 4th Floor,
Almaty
Republic of Kazakhstan
Tel: +7 (727) 259 6100
Fax: +7 (727) 259 6116
Website: www.mcguirewoods.com
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