Kazakhstan: Banking Sector Hit by Allegations of Politically Motivated Manipulation

Kazakhstan's banking system, already buffeted by the global financial crisis, is facing fresh turmoil. Authorities have opened a criminal investigation into the activities of the country's largest financial institution, alleging former top managers of racketeering and money laundering. The chief suspects in the case have fled the country, alleging that the charges are politically motivated.

Allegations of wrongdoing at BTA came to light in early March, when the prosecutor's office announced the opening of a criminal investigation into the activities of the former chairman of the board of directors, Mukhtar Ablyazov, and his deputy, Zhaksylyk Zharimbetov. The investigation announcement came just about a month after the government controversially nationalized BTA. [For background see the Eurasia Insight archive].

The prosecutor's office has since released more details of the suspected crimes, alleging that from 2005 to 2008 Ablyazov and colleagues stole BTA funds by issuing fictitious credits worth at least $1 billion to firms they privately controlled. A prosecutor's office official said March 24 that Ablyazov, Zharimbetov and others were suspected of being part of an organized crime ring, begging the question of how a mafia-style group could have operated at the country's top bank for so long. Ablyazov fled abroad immediately after BTA's nationalization, accusing the government of "corporate raiding" and later describing the charges against him as "baseless and politically motivated."

Over the past week, the controversy embraced Roman Solodchenko, a close associate of Ablyazov's who had been drafted into BTA's new management structure. Solodchenko announced he was going to London, alleging that he feared he would be unfairly targeted as a scapegoat for the bank's problems. "It is clear that if negative tendencies [at the bank] continue, the search for the culprits . . . will begin," Solodchenko told the KazTAG news agency on March 19. "The system in our country is constructed so that the state can make any person guilty." Two days after he left the country, Solodchenko was declared wanted on suspicion of theft.

Opinion is divided on whether the state's acquisition of a 78 percent share in BTA was necessary to prevent a default that would have rocked Kazakhstan's financial system. [For background see the Eurasia Insight archive]. Government officials insist it was, but Solodchenko and Ablyazov -- neither of whom could be reached by EurasiaNet for comment -- have publicly disputed the notion that the bank was on the verge of collapse. Solodchenko went so far as to claim that government mismanagement of the bank could now drive it into bankruptcy.

At a March 25 news conference, the head of the new management team at BTA, Arman Dunayev, dismissed Solodchenko's alarmist rhetoric, describing it as "an attempt to justify his flight -- flight from the bank, flight from the country, flight from existing problems, flight from responsibility."

Maria Disenova, an analyst at the Almaty-based Institute for Economic Strategies-Central Asia, is among those who doubt whether the state needed to nationalize BTA. "The takeover was not efficient and the bank did not need to be saved, despite the government's statement otherwise," she told EurasiaNet. "What the state is doing now is turning it into a completely different bank with a different targeted market - small and medium business and agricultural projects." BTA is playing a key role in channeling funds to those sectors and also refinancing mortgages as part of the state economic assistance package.

Other analysts suggested that the bank might have been overstretched. "BTA was aggressive in its foreign investments," said Ustina Markus, associate professor at the Almaty-based Kazakhstan Institute of Management, Economics and Strategic Research. "It was kind of vulnerable."

Ablyazov and Solodchenko have asserted BTA's problems were no worse than those of other banks that were treated much more gently by the government. "It does look like the state is scapegoating Ablyazov, and now it is more clear in the light of Solodchenko's [comments], where he says that the state's [liquidity injection into BTA] has been used up very quickly [and its collapse is inevitable]," Disenova suggested. "It is a usual practice to scapegoat someone and open criminal cases against them after he/she falls out of favor."

This is not the first time Ablyazov has been the focus of what he portrays as a politically motivated criminal investigation. He received a six-year sentence in 2002 on corruption charges that he asserted were prompted by his involvement in starting an opposition movement called the Democratic Choice of Kazakhstan. [For background see the Eurasia Insight archive]. He gained early release from prison in 2003. Since then, he has honored a pledge to stay out of politics.

In Kazakhstan, however, the dividing line between politics and economics is not always easy to identify, and many observers believe that political motivations may be playing a part in the bank bailouts. They point to the example of Halyk Bank, which has been buoyed by injections of public funds and a state buyout of 25 percent of its shares. The bank remains under the control of President Nursultan Nazarbayev's daughter, Dinara Kulibayeva, and her husband, Timur Kulibayev. "It does seem that certain individuals have been targeted," Markus said, referring to the government's actions in the banking sector. "The ones that get hit seem to be those not run by [presidential] cronies."

Presently, BTA's new management team is striving to reassure investors that the bank's future is secure. Dunayev acknowledged that it had a difficult start to the year, with a decrease in liquidity related to an outflow of deposits following the bank's nationalization, compounded by February's tenge devaluation. [For background see the Eurasia Insight archive].

Now, he says, the bank is back on track: deposits are up, it is meeting all current obligations and exploring a restructuring of some foreign debt. He also revealed that BTA is continuing talks with Russia's massive Sberbank on a possible acquisition of a stake. To help restore public confidence, BTA has announced it has hired the international firm KPMG to perform an independent audit of its balance sheet.