Kazakh BTA Bank verging towards collapse

По прось­бе чита­те­лей пор­та­ла мы пере­ве­ли на англий­ский язык ста­тьи и полу­чен­ные редак­ци­ей доку­мен­ты о состо­я­нии дел в казах­стан­ском «БТА Бан­ке». Понят­но, что не все инте­ре­су­ю­щи­е­ся ситу­а­ци­ей в БТА хоро­шо вла­де­ют рус­ским язы­ком – сре­ди акци­о­не­ров бан­ка нема­ло ино­стран­ных ком­па­ний плюс банк нын­че нахо­дит­ся под бди­тель­ным наблю­де­ни­ем экс­пер­тов мно­гих ана­ли­ти­че­ских агентств. Наде­ем­ся, что пере­вод помо­жет им разо­брать­ся в про­ис­хо­дя­щем.
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Kazakh BTA Bank verging towards collapse 

Mukhamedzhan Adilov

A remarkable paper came to us from the depths of BTA Bank. Reading it made everybody’s hair stand on end. The document, dated December 21, 2010, presents an analysis of the bank’s financial condition and unambiguously demonstrates that BTA today is a walking corpse, and the restructuring hardly did it any good at all.

And that by itself is still not the worst point — the devil of it is that the bank’s management appears to have been carefully concealing this fact from its minority shareholders, investors, regulators, market professional, and even creditors — pulling the wool over their eyes, to put it bluntly.

Secret presentation

Back in early April this year, Kairat Kelimbetov, the then still influential and omnipotent head of NWF SK (National Welfare Fund Samruk Kasyna), told reporters that the fund had plans to cease being a BTA Bank shareholder within the next two to three years. What is more, he expressed hope that the bank’s value would increase within the said period. We would not have reminded these public statements of Mr. Kelimbetov had it not been for the document that had fallen into our hands. Judging by the comments with which it was given to us, the paper was prepared by Kairat Kelimbetov’s men for Prime Minister Karim Masimov, the National Bank, the Financial Supervision Agency of the Kazakhstan Republic and the Board of Directors of BTA.

We have already sent this“Financial analysis of BTA Bank” to a wide range of professional participants of the global financial market with requests to comment on its contents. And although the document is marked“Strictly Confidential”, we are taking the risk of not only announcing its essence, but also giving scanned copies of it on the pages of our newspaper, given that, according to banking regulations, such information is subject to mandatory publication.

Moreover, this information is of great public and even political importance, as it irrefutably reveals that the current leaders of the nationalised bank, including Messrs. Dunayev, Saidenov, Varenko and others, have deliberately misinformed (and wasn’t it on Mr. Kelimbetov’s instructions?) everybody — and, to begin with, the bank’s minority shareholders, foreign creditors, customers, as well as rating agencies and stock exchanges — of BTA’s real financial condition.

Skeletons in BTA’ closet

The document itself is a presentation, and each page of it indicates a subject, articulates problems and draws conclusions. It will not present any difficulty at all to financial professionals to figure it out and realise that BTA Bank today is a walking corpse whose life is artificially supported only in order to conceal the fact that the restructuring that followed the confiscation of the bank by the state has proved useless.

For those who are not financial professionals, we simply list the skeletons that have been kept in the bank’s closet, out of Kazakhstan citizens’ sight by the current state managers of BTA Bank headed by Kairat Kelimbetov.

“Skeletons in the Closet” is actually the heading of one of the sections of BTA’s secret reporting prepared by the results of the year 2010. We will just briefly list the conclusions explicitly suggested by the accounting figures, and leave the task of analysing the figures in detail to specialists.

1. BTA Bank applies a “special approach” when classifying loans which have been issued with court decisions on their recovery. While doing this, the bank takes no account of the borrowers’ real financial situation and facts of default in interest payments and return of the principal debt. As a result, the bank artificially formed, in other words falsified, the return of provisions to an amount of 249 billion tenge.

2. BTA accrued interest payments on a portfolio of dead loans, which resulted in an income write-up amounting to 236 billion tenge. This is actually a “cold case”, and the sum is expected to be written off as losses over three years.

3. On 45 of its projects, BTA Bank unilaterally, without informing the borrowers and having their respective contracts signed, extended the loans for five years. On this part of the loan portfolio, the bank has to accrue more provisions to a tidy sum of 81 billion tenge, and additionally to write off an accrued but unrealistic interest income totalling 87 billion tenge.

4. BTA Bank has repeatedly misled, or rather deliberately deceived Deloitte, the auditor of the bank’s returnable assets.

5. BTA has a negative carry, a negative cash flow, since all of the loans generate revenues at a rate of 4.3% while the bank’s liabilities cost 9%.

Cold case for Sberbank 

Any of the above infringements are, in theory, sufficient for foreign creditors, who have already lost large amounts after the state seized BTA bank without particular sensitivity and under vain pretexts on February 2, 2009, to start pressing both the Kazakh government and the current NWF SK management.

We leave out the tables — those who are versed in the subject will clearly see the point without words, while for others we have already presented BTA’s real financial situation above. For readers’ convenience, we will just quote the sad conclusions to which the analysts came while preparing this material intended for a narrow circle of persons, those very persons who organised the confiscation of BTA and now have arrived back at the bottom of the ladder:

-“In reality, another 605 billion tenge have not been written off yet;

-“As of today, the company’s official capital totals 73.5 billion tenge, while in reality it’s minus 531 billion tenge”;

- “Negative Carry consumes 6.5 billion tenge monthly (78 billion annually)”;

- “Business ate a net amount of about $ 2 billion for 10 months (referring to 2010 — Ed.). The result for the year 2010 is a“plus” at the expense of writing debts of;

-“Business forecasts… have not come true today — the situation has deteriorated, in spite of the previous expectations of improvement.”

In other words, BTA today is totally bust, and simply has no right to exist anymore, generating losses amounting to some $ 45 million each month (!). Covering the losses takes the expense of clients and investors, as well as loans borrowed from FNB SK and the National Bank.

The bank’s balance is negative, to a gigantic amount of $ 3,6 billion (!). And to bring the balance up to the level minimally allowed by the law, additional investments from the budget to a total of over $ 4 billion will be required (!).

The presentation analysis is concluded with a set of conditions, to fulfil which BTA will be complying with the prudential standards (which are being violated today, as it turns out (!) — Ed.), and will probably be able to provide a positive net interest margin no sooner that starting from 2016.

The conditions include, apart from additional writing off a round sum of 115 billion tenge, the requirement to release 356 billion tenge, or $ 2.4 billion in provisions within this year, and $ 4 billion within ten years, which will still need writing off loans to $ 5.5 billion, as well as building its loan portfolio up by 20% annually, outpacing the market.

Clearly, this is an impossible mission for the present BTA, bleeding white both in financial, human resource and moral terms, excommunicated for a long time, if not forever, from world market borrowings, precariously dependent on state support in a stagnant economy, and managed by state officials familiar with business merely in theory.

Only President Nazarbayev can say today what the bank’s fate is going to be. BTA might survive — probably — if Nazarbayev finds another dozen of billion dollars for it. And what if he does not, or does not want to dig money in a hole made by his zealous subordinates? And anyway, does Nazarbayev know what is really happening to BTA?

… The full text of the presentation is attached as a PDF file.

 

Has BTA Bank hidden the real situation about the nonstate pension funds?

Muhamejan Adilov

BTA Bank has informed KASE about the joining of “BTA Kazakhstan” nonstate pension fund and the“Zhetysu” Management Company to the“UlarUmit” nonstate pension fund. This news seems to be good, but only on the assumption of not knowing the real situation. The editorial staff has two more of the bank’s documents from the category for internal use. Figures impress!

First of all, we will talk about the official position of BTA. Last week, on April, 14^th of the current year BTA Bank  informed the Kazakhstan stock exchange (KASE) that during the general meeting of shareholders of NPF“BTA Kazakhstan” the decision about the joining of “BTA Kazakhstan” nonstate pension fund and“Zhetysu” management company to the“UlarUmit” nonstate pension fund was made.

The official press release informed that the joining would occur in 2 stages: first“BTA Kazakhstan”, then“Zhetysu”. The plan of reorganization of the pension actives of BTA group, the order, and the terms of sale/purchase of actions of the“BTA Kazakhstan” nonstate pension fund,“Zhetysu” organization exercising investment administration of pension actives and“UlarUmit” nonstate pension fund were also approved on stockholders’ meeting.

Further in the message, it was said that as a result of reorganization of the BTA Bank pension actives there will be a merger of their investment portfolios, own capitals and client bases. It is predicted that the client base will make more than 1866 investors, the market share of the reorganized NPF“UlarUmit” will increase to 20% and it will take second place in Kazakhstan on the size of pension actives.

In the press release of BTA there was expressed confidence that after reorganization of NPF“UlarUmit” will accumulate the advantages of all three companies: extensive experience of investment management, including in the conditions of high volatility of securities market, the branched out distributive network consisting of more than 140 regional representations and also the best professional personnel.

In addition, it is informed that NPF“UlarUmit” will direct the resources liberated from optimization and reduction of administrative expenses to development: improvement of quality of service, expansion of filial base by opening of new regional divisions and representations, marketing studying and the maximum satisfaction of interests of investors.

Shocking results

We have read this communique with satisfaction and were glad for shareholders, management and clients of BTA Bank group, but suddenly we have another BTA documents for internal use. There are two of them: “Project Boston: value engineering of joint-stock company ‘NPF UlarUmit’, joint-stock company ‘Zhetysu organization exercising investment administration of pension actives’ (preliminary results)” and“Strategy on BTA pension funds”.

The first is dated for January 2011, the second — February 28, 2011. We will not retell the maintenance of these documents completely; interested persons can download them and study in more details. We will stop only on some in our opinion curious details about how new management of BTA grasped by the Kazakhstan state deceives the professional participants of stock market and clients of the pension funds, strongly embellishing results of the work.

In truth, the results are rather sad. For example, market cost of the joint-stock company“NPF UlarUmit” literally for one month has fallen on $120 million. For December 28, 2010, it made $235 million, for January 27, 2011, it made only $115 million. The truth is that by our own estimations of experts of the analytical divisions of BTA Bank made for a management, which is only for internal use.

The situation with joint-stock company“NPF BTA Kazakhstan” is even worse. In the document, it is specified that for January 27, 2011 it cost 0 (zero) dollars against $156 million for December 28^th, 2010. However, to say the truth analysts of BTA hardly have gone too far here — falling has made $151 million and if to be more exact the estimated cost of “NPF BTA Kazakhstan” on the end of January of this year made $5 million.

Thus for one month estimated cost of two pension actives of BTA Bank has gone down on $271 million. In the value engineering of joint-stock company“NPF UlarUmit” and joint-stock company“NPF BTA Kazakhstan” it is written in details what factors and how they have affected cost change. Nevertheless, we only wanted to pay attention to dates. The cardinal deterioration of the financial position of all pension funds could not happen during one month. Most likely, until December 31, 2011 BTA showed poppycock not to spoil the consolidated reporting of the group for 2010. Then it risked being recognized for the real picture. In addition, this document is seemingly, only in analytical materials for internal use.

To rescue one at the expense of another

The second document under the name“Strategy on pension funds of BTA” is not any less interesting and sensational. At first, we will retell a real state of affairs in the joint-stock company“NPF BTA Kazakhstan” about which misters Dunaev, Sajdenov, Varenko and other prefer to hold back:

- From the beginning of 2010, pension actives have decreased from 207 to 163 billion tenge (on 44 billion or 21%):

- During 2010 net outflow of investors from the fund has made no more than 100 thousand persons (11, 5%), the share in the market of pension services has decreased from 11, 2% to 7, 2%;

- For 2010, net outflow in other funds has made 50 billion tenge (25%):

- Payments for 2010 have made 32 billion tenge, thus payments to pensioners have made 19, 2 billion (increase at 43%);

- In 2011 it is necessary to write off in addition from 30 (estimation by Ernest and Young based on the international standards of the financial reporting) to 16 billion tenge (on Kazakhstan regulatory requirements).

Considering that in March the obligation on compensation of the negative commission will make 4, 5 billion tenge. In April, joint-stock company“NPF BTA Kazakhstan” will have obligations on compensation of the minimum profitableness (K2) to pensioners on 11 billion tenge; analysts of BTA Bank in the confidential document addressed to the management have concluded:“the Fund is threatened with a default in April of this year”.

To avoid it, the management of the government owned BTA Bank has three variants: 1. Capitalization of fund up to 13 billion tenge; 2. joining of the joint-stock company“NPF BTA Kazakhstan” to “NPF UlarUmit”; 3. the sale to the third party.

Judging by the informational report with which we have begun this material the most simple and cheap variant is chosen — joining, on purpose not to allow joint-stock company“NPF BTA Kazakhstan” to go bankrupt.

We understand why the management of BTA Bank attaches a sinking pension active to one that is keeping afloat. Nevertheless, what the clients of “NPF UlarUmit” think about it all? After all the joint-stock company“NPF BTA Kazakhstan” is being rescued at their expense! In addition, what does the chairman of the board of the National bank, Grigory Marchenko, think about it? After all, after liquidation of the Agency of financial supervision he is responsible for the regulation of all the financial market and for the situation where everybody without exception should play by civilized rules!

Do the clients know?!

By the way, the joining of “NPF BTA Kazakhstan” and“Zhetysu” organization exercising investment administration of pension actives to the NPF “UlarUmit is not very simple at all. According to the documents available at our disposal, 25% of actions of the first two legal persons belong to “The Central-Asian fuel and Energy Company” which got them one year ago for $34 million and today would like to sell BTA Bank for the price not less than $65 million.

Thus if to trust analysts of “BTA Bank” for the past year“NPF UlarUmit” has got money of bonds of “The Central-Asian fuel and energy company” group for a round sum of $100 million on pensions. By data of “Strategy on pension of BTA funds” dated on February 28^th, 2011“The Central-Asian fuel and energy company” intentionally dragged out the process of negotiations understanding that time plays against BTA Bank. Thus,“The Central-Asian fuel and Energy Company” could block the joining of “NPF BTA Kazakhstan” to “NPF UlarUmit”.

Apparently, BTA with support of the government and a management of majority of the shareholder of “Samruk-Kazyna” joint-stock company got the possibility to “suppress” the“The Central-Asian fuel and Energy Company” and make it agree to unite two pension funds, but the price is unknown.

In the document as variants it offers the repayment of share of “The Central-Asian fuel and Energy Company” at the comprehensible price of $40 million. Then “Samruk-Kazyna” should capitalize“NPF UlarUmit” up for 10 billion tenge. Another variant is washing out of share of “The Central-Asian fuel and energy company” by purchase of unplaced actions of an incorporated savings pension fund for the sum of an order of 9,3 billion tenge then this sum will be returned to the “Samruk-Kazyna” by acquisition of fund bonds by “NPF UlarUmit”.

We want to ask questions to the new management of “Samruk-Kazyna” and BTA Bank, but as they have never answered our numerous previous inquiries, it is probably useless. Therefore, we repeat our questions to the chairman of the National Bank Grigory Marchenko — does he know what stands up for outwardly attractive operation of the joining of “NPF BTA Kazakhstan” and“Zhetysu” Management Company to “NPF UlarUmit”? In addition, what does he think about it?

Moreover, we also have a question to the clients of “NPF BTA Kazakhstan” and“NPF UlarUmit” — do they know that their pension contributions are in danger?