When Grigory Marchenko, Kazakhstan’s most visible banker, took over Halyk Bank, the country’s third largest, in January 2005, he made a convincing case that the bank needed a strategic partner and that it would be an attractive target for a European bank.
Halyk Bank (previously Sberbank) – the Kazakh part of the old Narodny Bank (people’s bank) that dates from before the Russian Revolution – has a network of 540 branches, far more than any other bank, and has become the most profitable in the country. “Our return on average equity is 52% and our return on average assets is 2.86%,” says Mr Marchenko. “These are twice higher than the average here.”
Strength to play
Instead of borrowing abroad as the other top banks have done, Halyk achieved a 40% growth in assets last year and a net profits growth of 74% to $106m with a completely different strategy. “We adopted a new start a year ago to develop ourselves as a financial group,” says Mr Marchenko. “We have by far the largest pension fund in the country, we have 26% of the market, our insurance company has 25% of the product, our brokerage subsidiary, Halyk Finance, had a return on equity of 73%, so the whole structure has been changing from a banking-only mentality to financial-group mentality.”
For Halyk, a European strategic partner would help to streamline its operations further, bringing in new products and up-to-date IT systems. Mr Marchenko says that five European banks said that they were willing to buy a majority stake.
The bank’s main shareholder, with 96.7%, is Timur Kulibayev, a wealthy son-in-law of Kazakhstan’s president, Nursultan Nazarbayev. For most of the past decade, he has been involved in running state oil companies and he is considered one of the most powerful and richest men in Kazakhstan.
“Mr Kulibayev does not interfere in the management and all the dividends so far have been added to the bank’s capital,” says Mr Marchenko. “I can’t complain.”
But, according to Mr Marchenko, Mr Kulibayev was not willing to cede a majority stake and for a year talks were focused on price and path to control. In the end, the shareholder decided against even a path to control. “Why should we sell the most profitable bank in the country?” asks Mr Marchenko. So in the past few months, the talks have focused solely on price.
“The blocking share we initially offered (25% plus one share) is still on the table,” he said. “The problem is that we are victims of our own success: we are worth 15 times more today than four years ago.”
Suitors line up
The talks are continuing with three suitors, says Mr Marchenko, but he declines to confirm that BNP Paribas is the leading one, as banking sources have suggested. “We are still the best match for big European banks in this market, they tell us,” he says.
André Küüsvek, director for Kazakhstan of the European Bank for Reconstruction and Development (EBRD), suggests the deal – and others that are being discussed with smaller banks – is not going through because “everybody’s expectations are high and the price/earnings ratio is a disincentive to sell”.
Mr Marchenko notes that because nearly all the east European and former Soviet Union purchases were done with control or path to control, the foreigners have been willing to pay five or six times book value.
Less attractive
In China, European banks have snapped up shares far smaller than 25% at similar high prices, but they are gaining a toehold in one of the world’s largest and most dynamic economies. In comparison, Kazakhstan, with its geographical isolation, its huge distances (it is the size of western Europe) and its population of only 15 million, is less attractive. “What we are talking about is not so widespread,” says Mr Marchenko.
Mr Küüsvek says it appears that the buyers were unwilling to pay much more than double book value. “It’s a pity there is such a big gap,” he says. “There’s a long queue of banks interested in buying not just Halyk, but smaller banks at a decent price.”
“It makes sense to wait more; you will definitely get a better price and have more time to look around,” says Timur Issatayev, president of ATF Bank, which is in the process of buying a smaller Kazakh bank, Valyut Transit Bank. “I would guess that the first bank to be sold to a European would come from the second tier, the banks ranking something like sixth to 12th” – out of a total of 30.
Mukhtar Ablyazov, chairman of Bank TuranAlem, the country’s second largest, predicts: “After five years, there will be a few foreign banks in Kazakhstan but national capital will still dominate. Our banks will develop as global banks.”
Mr Marchenko, who served as governor of the central bank for four years and finished implementing the reforms that made Kazakhstan’s banking system the rival of Russia and Turkey, says foreign competition would be good for the country.
“It would be positive for this banking sector if a few strategic investors would come in, it would raise the standards,” says Mr Küüsvek. “The authorities and us are trying to promote that idea.”
Mr Ablyazov says he has no intention of selling Bank TuranAlem but he supports the idea of foreign competition. “Foreign banks will bring in transparency, rules and conservativeness and that’s good and increases confidence in the Kazakhstani banking system as a whole.”
No hurry to sell
For economy minister Kairat Kelimbetov, selling Kazakhstan’s banks to foreigners “is not a priority for the time being. We need to focus more on liberalisation of stock market and non-banking institutions activity as alternative competitors to commercial banks,” he says. He believes that the three western banks with subsidiaries in Kazakhstan (Citibank, HSBC and ABN AMRO) “still have room for development and upgrading of their services”.
Dan Connelly, CEO of Citibank Kazakhstan, says that although his bank will open a branch in Astana, the political capital, this year, it has no plans to enter the small and medium-sized enterprise or consumer banking business. “Citigroup was a clear number one last year in arranging international fund raising for Kazakh borrowers and that’s where we intend to concentrate,” he says.
Anyway, according to Mr Ablyazov: “Kazakhstan will be different from eastern Europe because our banks developed intensively, we have clients with strong resource base, so we can develop independently. In eastern Europe, they could not do that without a strategic investor.”
