A bank reputed to be connected to Kazakhstan’s ruling family has this week had its license pulled – years after it had ceased to be a viable concern – as financial regulators push ahead in trying to clean up a chronically troubled lending sector.

The Financial Market Regulation and Development Agency said in a statement on June 25 that Capital Bank Kazakhstan had failed, among other things, to comply with official requirements to inject more capital.

This has long been in coming for Capital Bank, which is ranked the country’s 23rd largest bank in terms of assets, according to the National Bank. While the bank had 33.9 billion tenge ($80 million) in assets to its name, almost 90 percent of that was in loans that have been overdue for more than three months. Liquid assets were assessed by the regulator as being as low as 149 million tenge.

That the bank was in trouble was amply clear as long back as early 2018, when S&P Global Ratings withdrew its CCC+/C long- and short-term counterparty credit ratings at the lender’s own request. This was as Capital Bank’s only shareholder on paper – Orifdzhan Shodiyev, who was routinely described as being one of Kazakhstan’s 50 richest businesspeople – was pledging to give the bank all the support needed to keep it afloat. Shodiyev is a nephew of Patokh Shodiyev, one of the billionaire owners of scandal-tainted metals company ENRC.

A plan presented to regulators in 2020 to substantially reduce liabilities did little to stabilize Capital Bank’s fortunes. The authorities have sought to reassure depositors, assuring that their money is covered by a state deposit insurance fund and that savings will start being paid out soon.

The question that will linger, however, was how Capital Bank managed to survive this long. One doomed plan to save the lender in 2019 was to pursue a merger with AsiaCredit Bank, which also had Shodiyev as a key shareholder, and Tengri Bank.

Both those banks, however, would themselves go to the wall, collapsing under the weight of bad loan portfolios.

Last September, the banking regulator stripped Tengri Bank, which was 42 percent controlled by Indian government-owned Punjab National Bank, of its operating license – a move taken after the bank’s share of non-performing loans came to exceed 80 percent of its overall credit portfolio. In February, media were reporting that Tengri Bank’s former chairman, Yerzhan Shaikenov, had been detained in connection with investigations into the alleged embezzlement of more than 5.4 billion tenge ($12.6 million). Nothing has been reported on that case since. 

AsiaCredit Bank, meanwhile, lost its operating license on February 12. The Financial Market Regulation and Development Agency said its decision was based on the bank’s systematic policy of ignoring supervisory measures and failing to comply with demands for additional capitalization – the same formulation it used in motivating its decision to wind down Capital Bank.

So how did Capital Bank survive this long?

An opposition-leaning, UK-based news and analysis website, KazakhSTAN 2.0, has offered an intriguing hypothesis. It has claimed, although without offering evidence, that although Shodiyev was nominal owner of the bank, the person truly pulling the strings behind the scenes was former President Nursultan Nazarbayev’s nephew by his brother, Bolat, Nurbol Nazarbayev.

While Nurbol Nazarbayev was unable or unwilling to recapitalize Capital Bank, KazakhSTAN 2.0 alleges, he was not prepared to let the bank fold as he was still using it to perform certain financial operations. 

“He does not want information about these operations … falling into other people’s hands,” the website stated, without explaining on what basis it was making its claim. “But that would be almost inevitable if bankruptcy proceedings were initiated.”

Whatever the case, Capital Bank is now history. And the taxpayer will in effect pick up the bill of clearing up the mess.