Kazakhstan to consider borrowing caps in May-June

By Dmitry Sergeyev MOSCOW, March 21 (Reuters) - Kazakhstan will consider around May or June whether caps are needed on foreign borrowings to avoid a repetition of a banks debt crisis, the head of the state welfare fund said, also predicting slow recovery for the country's banking system. "Under a concept proposed (by the government and regulators) external borrowings will be monitored closely and limited," chief executive of Samruk-Kazyna, Kairat Kelimbetov, told reporters on Saturday. "It is not only an issue of the borrowing itself but rather of its allocation," he added, noting that processing industries would be welcome to borrow, while " sectors such as real estate or the financial sector, the level of provisions will be bigger to discourage" a build up of debts. Kazakh banks were caught in the headlights in 2007 when the global credit crunch effectively froze the debt market making it impossible to refinance debts. Many Kazakh developers, whose business had been booming due to cheap loans from domestic lenders, also collapsed. Now, the share of bad debts is close to 30 percent of total banks' loan portfolio and lenders continue to increase provisions against bad loans. Ratings agency Standard & Poor's expects bad loans in Kazakhstan to peak this year as key problems have been already exposed. Kelimbetov expects banks' loan portfolios to grow by 7 to 10 percent in 2010 and sees no need to artificially spur lending activity. "The market mechanism will tune the system itself," he said. Samruk-Kazyna manages $70 billion worth of assets, including energy firm KazMunaiGas and troubled banking majors BTA and Alliance bank. Kelimbetov said the $12 billion debt restructuring of the country's defaulted No.2 bank BTA was expected this summer, which would turn the page on the worst banking crisis in oil-rich Central Asian country. "The problem of the external debt of Kazakh banks is almost solved. I expect that real prices for the banking assets in Kazakhstan will return to multiples of two, three, four to book value -- the prices we saw before the crisis -- in 2012-2013." The successful restructuring would leave BTA with a book value of roughly $1.5 billion and outstanding debts of over $4 billion, he said. BTA will be back in the black as early as this year but any profits will likely be modest, he said. Debt restructuring should pave the way for talks on BTA's sale to Russia's largest lender, state-run Sberbank. "The creation of mutual Russo-Kazakh bank will be the most concrete example of integration and cooperation between the two countries," Kelimbetov said. For analysis on Kazakhstan's financial recovery For FACTBOX on key risks to Kazakh economic recovery Keywords: KAZAKHSTAN BANKS/ (dmitry.sergeev@reuters.com; +7 495 775 1242; Reuters Messaging: dmitry.sergeev.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.

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