Loan loophole saved new Kazakh central bank head from debt claim

Bloomberg

The new chief of Kazakhstan’s central bank dodged a debt claim in 2014 thanks to a legal system that’s failed to protect lenders from rampant defaults and repeated crises.
In 2014, Yerbolat Dossayev and three business partners were given a reprieve on repaying 1.9 billion tenge, then worth $13 million, that they’d personally guaranteed to the central Asian country’s biggest bank at the time. It’s not clear whether the debt was ever repaid. Within three years, the lender, Kazkommertzbank, was buckling under the weight of a currency devaluation and bad loans. It required a 2.6 trillion tenge ($6.9 billion) rescue, in part from the regulator that Dossayev headed up last month, and was taken over by a smaller bank.
That Dossayev, one of Kazakhstan’s richest men and its economy minister at the time, was able to avoid repaying the lender is emblematic of the problems facing the banking system he’s now in charge of reviving. Plagued by risky lending and poor debt collection, the industry has gone through a decade-long slump that’s cost the state at least $18 billion in bailouts. Kazakh leader Nursultan Nazarbayev called his cabinet “cowards” for its failure to fix the sector a month before entrusting it Dossayev.

‘GARGANTUAN TASK’
“The problems with the banking sector go much deeper than Dossayev — as a key part of the system that created those problems — is able to address,” said Kate Mallinson, an expert on Kazakhstan at Prism Political Risk Management Ltd. in London. “The central bank is not independent and it will be a gargantuan task to clean up the Kazakh banking system.”
Dossayev and his partners gave up to $20 million in guarantees for a credit line their company TOO GasMunayOnim got from Kazkommertsbank. But several years later, when the company failed to pay interest on 13.2 billion tenge of debt, the bank went after the businessmen’s assets. In 2014, their wives successfully sued the bank, the company and their own husbands, claiming they weren’t aware of the guarantees. By law, if spouses don’t approve such encumbrances, an agreement can be voided.
The Almaty-based cassation court even went so far as to rebuke GasMunayOnim and Kazkommertsbank for acting in a manner that was “dishonest” and “in violation of the requirements of business partnership.”