Ridding of toxic loans too costly for Kazakhstan banks: expert23 may 2013, 14:16
It is more costly for Kazakhstan banks to get rid of their distressed assets than to continue keeping them on the books, Tengrinews.kz reports citing the managing partner of Ranking.kz Pavel Gribnitskiy.
Governor of the National Bank of Kazakhstan Gregory Marchenko believes that Kazakhstan banks should be more decisive in disposing of their distressed assets by writing them off, transferring them to collector companies or to special asset management companies.
According to the National Bank, the share of troubled loans in Kazakhstan’s banking system made 35.5 percent and the share of 90-day overdue loans made 30.2 percent as of April 1, 2013.
Gregory Marchenko. Photo by Vladimir Dmitriyev©
A non-performing loan is loan on which the borrower is not making interest payments or repaying any principal for some time. Banks are supposed to set aside money to cover the potential losses on such loans (loan loss provisions) and write off the bad debt in their profit and loss account after several years. The size of the loan loss provisions ranges from 5 to 100 percent of the loan depending on its overdue time. Some countries have introduced conditions and instruments for 'banks to sell their bad loans at a discount to special asset management companies that attempt to recover the debt from the borrower.
According to Gribnitskiy, the existing financial system of Kazakhstan does not have adequate infrastructure for disposal of distressed assets and the financial market regulators have not created transparent conditions for writing the troubled loans off.
“Kazakhstan financial system is not ready to deal with this problem yet. But there is a global problem today: withdrawing toxic assets from books is very expensive. It is hard to imagine how much the banks would lose in terms of capitalization if they get rid of bad loans. Besides the costly disposal, the banks still have the provisions to consider. As a result, the disposal procedure would drive a huge amount of funds from their commerce” slashing their assets dramatically, Gribnitskiy said.
Evaluation and awareness raising campaigns to reveal the extent of deterioration of the banking sector (30 percent of the loans are troubled loans) and its harm to the banks' development are required to resolve the situation as “there is no clear understanding among the market's players,” he said.
Commenting the troubled loans situation Nurbank representatives said that the bank was working with two debt recovery companies who purchased a part of its distressed assets. “Nurbank is also considering sale of a part of its distressed assets to a third debt recovery company,” the bank’s press-service said adding that the bank has no windfall gain from selling its assets to debt recovery companies, but that it helps return the investments.
Photo courtesy of vesti.kz
Chairman of KazKommertsBank Nina Zhussupova said that although her bank was keeping a large amount of loss provisions, Kazkom “is not ready to write off a lot of debts”. “We have a high volume of provisions and we are very prudent about percentages of the provisions, i.e. we make the required provisions on all the debts once they become overdue and their return becomes doubtful. Nevertheless, I do not expect a big write off campaign as we are currently taking measures to recover the debts,” Zhussupova said.
Nina Zhussupova. Photo by Yaroslav Radlovskiy©
By Azhar Ashirova