Alliance Bank CEO Maksat KABASHEV:
THE RETAIL BANK THAT MAY BE CREATED THROUGH MERGER OF ALLIANCE BANK AND TEMIRBANK WILL COST UP TO $1 BILLION IN THE FUTURE
The Kazakh government is determined to dispose of its interests in the bailed-out banks. There is much uncertainty about BTA Bank, while the prospects of Alliance Bank and Temirbank look far brighter Ц the two banks are going to be sold to a strategic investor. JSC Alliance Bank CEO Maksat KABASHEV shared with Interfax-Kazakhstan his vision of the banksТ future.
- Do you think Alliance Bank, in particular, and the banking system of Kazakhstan, in general, are ready to switch to Basel III standards?
- The banking system of the republic is not ready yet. It is also too premature to introduce these standards at the banks that only recently restructured their debts. The banks that have capital surplus may face tax problems when switching to Basel standards.
Europe will not introduce the standards until after four years.
According to our strategy Alliance Bank should be able to comply with all Basel standards by 2016. The bank is in conformity with the Kazakh standards, operates normally and carries out lending operations.
There used to be account 3300 to book the difference in capital calculations under International Financial Reporting Standards and Kazakh Financial Reporting Standards. Now this difference has to be shown in the profit-and-loss account. After restructuring, Alliance Bank had a negative equity capital of 140 billion tenge, which later narrowed to 105 billion tenge. In 2011 the bank reported a positive equity capital of 1.5 billion tenge. Now, our equity capital stands at about 3-3.5 billion tenge under IFRS. However, this does not suffice to meet the regulatorТs new requirements.
As the bank is still recovering, I think we will reach a special agreement with the regulator on capital adequacy.
- How do you think Alliance BankТs capital can be restored?
- There are three possible options here: getting the bank recapitalized by the existing shareholders, or selling the bank, or merging it with another bank, for instance Temirbank. The resultant capital of the two banks would meet the regulatory requirements.
As instructed by our major shareholder Samruk-Kazyna and the board of directors, we have looked into the merger possibility. A merger with Temirbank would be reasonable from the economic point of view.
However, there is another problem: it would take the existing shareholder a year to go through all legal formalities as necessary for the merger as it would require amendments to some laws, negotiations with all shareholders, especially minority ones, since there are a lot of covenants involved. It would take even longer Ц more then two years, according to our estimates Ц to finalize the merger on the operational level.
The Kazakh president ordered Samruk-Kazyna to dispose of its interests in the bailed-out banks this year, which means that this deadline is much closer than the possible closure of the merger deal from the operational standpoint.
As a result of the merger, the bank would improve its equity capital and Samruk-Kazyna beef up its liquidity. The merger of the two banks would be very beneficial in the long run.
The managers of Alliance Bank and Temirbank have done some calculations and submitted their proposals for disposal of the interests in the banks to Samruk-Kazyna, the main shareholder of the two banks. As the merger is the most preferable option, a would-be investor will have to complete it.
It is Samruk-Kazyna that will negotiate all terms and conditions of the deal with a potential investor, which has yet to be found. It is quite obvious that in the longer run Samruk-Kazyna will have far more chances to return the money injected in Alliance Bank and Temirbank, if the two banks are merged.
- Are there any calculations of the market value of the new bank?
- According to expert estimates, the market value of the bank, if calculated using the dividend discount model, may vary between $500 million and $1 billion in the future.
Alliance BankТs equity capital stands at 24 billion tenge, that of Temirbank at 23 billion, which together give $350 million.а However, the market value of the new bank will be much higher.
We made the calculations in order to initiate talks about the merger.
In my opinion, it will be a large retail bank that will provide services to SME but not corporate clients. This approach should be taken into consideration when calculating the market value of the merged bank.
- In January you said that Alliance Bank would organize a subsidiary to deal with the distressed assets. Has the new organization been created?
- In February we registered a limited liability partnership called УOrganization for Management of Distressed Assets of JSC Alliance BankФ (OMDA) where we have transferred all our doubtful and bad assets totaling 141 billion tenge in value, including 85 billion tenge worth of on-balance assets and 56 billion tenge worth of off-balance assets. We grouped the assets based on different criteria, for instance secured assets that have completed commercial property, residential buildings or land plots as collateral. We are going to transfer about 600 assets to OMDA.
- Earlier you said that the value of assets to be transferred to the management company would total 130 billion tenge. Have you revised the asset list? Is the figure final?
- It is now final, after the initial estimate was revised.
We have already started transferring the assets to OMDA. We have received all required approvals from the management board and the board of directors. The new company has been registered with the Ministry of Justice and, thus, has become fully operational.
We cannot yet tell how the capital has been affected. The new rules for provisions only came into force on January 1 and, consequently, the calculation method for such an effect will be a little different.
The new company will work for five years. We sell the doubtful and bad loans based on cession agreements offering five-year installment plans. The collaterals are sold on the basis of sale agreements that also offer five-year installment plans. The revenue will go to the bank, excluding administrative expenses of OMDA. It should be mentioned here that the administrative expenses of OMDA will be lower than our administrative expenses associated with distressed assets management, if we were to keep distressed asset specialists on the staff. In other words, our Уbad bankФ specialists will go to OMDA to do the same job there.
There is a supervisory board at OMDA and the board of directors at Alliance Bank, which will both control the operations of the new company.
Originally we planned the provisions to be formed in the following way: 50% at the start and 20% each other year. As the provisions rules have changed, we will have to revise our approach too.
- What is the expected return rate?
- Hopefully, we will get back 50-70% of the value of the assets being transferred, including on- and off-balance assets.
- Thank you for your time!
February, 2013
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