KB loses big on Kazakh bank stake

By Kim Rahn

KB Kookmin Bank has lost nearly 94 percent of the value of its stake in a Kazakh bank in six years, following the global economic slump and recent depreciation of that country’s currency.

According to the Korean bank and financial authorities Thursday, the value of Kookmin’s stake in Bank CenterCredit (BCC) has dropped heavily recently after the Kazakh central bank devalued the local currency, the tenge, by about 19 percent.

Kookmin bought a 41.9 percent stake in BCC for 939.2 billion won in 2008 as part of a globalization strategy and is the second-largest shareholder.

But the value has fallen since the global financial crisis hit the country, causing continuous losses for the Korean lender. Kookmin announced earlier this month that it estimated the value of its BCC stake at 68 billion won at the end of 2013.

However, the 19-percent depreciation of the tenge is expected to further lower the value, which is now estimated at 54 billion won.

“The Kazakh central bank devalued the currency suddenly, and the local economy is in turmoil. The value of Kookmin’s stake in BCC will also drop,” an official from the Financial Supervisory Service (FSS) said.

Such a huge loss in value is putting more pressure on executives at Kookmin, with rumors rising about BCC’s poor management and the unstable financial environment in Kazakhstan.

However, a Kookmin official said they are not considering leaving the Kazakh bank for now.

“We reflect such adjustment of exchange rates regularly in accounting, and the drop in value following exchange rate adjustment doesn’t mean BCC had losses,” an executive at Kookmin said.

“We found no new bad loans at BCC through a months-long inspection. We are now trying to make the bank healthier and cleaner by turning the bank’s profits into loan-loss reserves because the Korean regulators require a larger amount of reserves than Kazakh ones,” he said.

He said it takes a long time for investments in overseas business to come to fruition. “Kookmin has already written off almost all of its investment in BCC. Now we plan to recover the Kazakh lender from a long-term perspective.”

Another official of the bank said, “Officials from the FSS visited Kazakhstan for inspection and concluded that BCC’s financial conditions were at a controllable level.”

Kim Woo-jin, a researcher at the Korea Institute of Finance said Kookmin may keep the stake and only consider selling it if BCC needs recapitalization.

“Banks in countries exporting raw materials, such as Kazakhstan, have had difficulties during the global economic recession, and thus their stock prices fell. The prices can go up if the global economy recovers, so Kookmin can wait,” he said.

“But if BCC demands Kookmin take part in a capital increase and put in a large amount of additional investment, Kookmin may have to consider an exit,” he said.