Kazakhstan Spends Oil Reserves to Avert Bank Failure

By Nariman Gizitdinov

Oct. 20 (Bloomberg) -- Kazakhstan's Prime Minister Karim Masimov said he will use oil reserves to prevent any failure by the central Asian nation's banks, which investors rank as the most prone to default in emerging markets.

``The Kazakh government is ready to step in,'' Masimov said in an interview with Bloomberg in the capital Astana. ``The Kazakh banking system with the support of the government and central bank will fulfill all obligations to international investors.''

Kazakhstan has the highest risk of following Iceland toward a banking sector implosion, based on the cost to protect bonds sold by the country's two biggest lenders. Along with Latvia, Kazakhstan's $100 billion oil-led economy is most vulnerable to the global credit crisis and economic slowdown because of its reliance on short-term foreign borrowing, RBC Capital Markets in Toronto said in a report last week.

The government will buy as much as $5 billion of distressed assets from banks in the next two years and will seek to spur growth by spending up to $10 billion from the National Oil Fund on agriculture and development projects, Masimov said in an interview with Bloomberg on Oct. 17. The economy ministry said in a statement today that the government will provide 52 billion tenge ($430 million) for a bank-rescue fund.

``We have our own specific plan to survive without any external support,'' Masimov said. ``I don't think we need support from the International Monetary Fund or overseas.''

Oil Reserves

A decade-long oil boom has provided the former Soviet republic with $49.5 billion of reserves, including $27.6 billion in the National Oil Fund created eight years ago to guard against a drop in crude prices, according to central bank data on Oct. 3.

The reserves mean the government has enough money to repay the $13.7 billion of foreign debt due in the second half this year, including $9.3 billion owed by banks, Goldman Sachs Group Inc. said in a report last week. The reserves would also cover the $16.9 billion of debt maturing next year, including $6.9 billion of bank debt, Goldman said, citing National Bank of Kazakhstan data.

``The government has enough firepower to support the banking system,'' Goldman economist Anna Zadornova wrote.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, through the Moscow newsroom at ngizitdinov@bloomberg.net