Case Study (215-057-1)
Banking Sector Restructuring Program in Kazakhstan – BTA Bank JSC
Synopsis of the Case Study:
This case focuses on the Government of Kazakhstan’s strategy to restructure a systemically important financial institution, BTA Bank JSC, in the context of the global financial crisis in 2009.
Kazakhstan is a post-socialist transition country; upon independence, Kazakhstan restructured its economy to a market-based system with IMF assistance and experienced double-digit growth as a result of oil and other natural resource production for much of the early 2000s. An undiversified economy, Kazakhstan’s financial sector was heavily dependent on foreign capital flows and a number of its largest banks experienced insolvency as a result of the US subprime crisis, coupled with slumping oil prices.
BTA Bank JSC, a legacy of Soviet era state banks that dominated the pre-1991 Kazakhstani financial sector that had been privatized in the mid-1990s and re-branded in 2008, was a systemically important bank with a deteriorating financial profile at the end of December 2008. High levels of non-performing loans, high leverage ratios, and mismanagement including fraud allegations brought BTA Bank JSC close to default and resulted in the Government of Kazakhstan, through the government owned holding company, Samruk-Kazyna, to recapitalized the bank. BTA Bank JSC had to be restructured
This case discusses the different approaches to bank restructuring that were adopted in the US, Germany, Ireland, and elsewhere during the global financial crisis. In addition, the case considers the specifics of Kazakhstan’s macroeconomic and financial profile. This case challenges the reader to consider what restructuring approach is appropriate to the preservation of the sovereign profile of the Government of Kazakhstan in the face of a variety of conflicts of interest among investors, investment banks, taxpayers, and international development organizations.
Aims and Objectives:
1) Explore approaches to bank restructuring in developed and emerging markets.
2) Identify the interests of the sovereign, shareholders, investors and investment banks in a restructuring process.
3) Introduce the burden-sharing approach and its corporate structure
4) Understand the macroeconomic profile of a post-socialist emerging market economy based on mineral extraction.
5) Understand the issue of moral hazard in the context of bank restructuring.
To demonstrate an understanding of the various international variables affecting bank restructuring in a changing industry, students should aim to structure their assignment (max 5,000 words) in a way as to address all of the following questions:
1. What makes an institution “too-big-to fail’?
2. Discuss the key differences between bank recapitalisation and bank restructuring.
3. Discuss the different approaches to bank restructuring. What factors should authorities take into account when choosing an approach? How would these considerations be different in an emerging market context?
4. Discuss the potential role of sovereign wealth funds (SWFs) in providing a stabilising function during a financial crisis.
5. Present an analysis of BTA Bank JSC financial position in 2007 and 2008.
6. Discuss the Government of Kazakhstan’s intervention through its sovereign wealth fund. Did the action achieve the Government of Kazakhstan’s aims?
7. Present an analysis of BTA Bank JSC financial position in 2009, following the sovereign bailout approach. What options were available at this stage?
8. Discuss the short term, medium term and long-term implications of the different restructuring options.
9. Identify the interest groups involved in the restructuring. What role do they play in making the restructuring effective?
10. As the senior adviser to the Government of Kazakhstan on the BTA Bank JSC restructuring, what would be your communication strategy and corporate structure model?