Weeks after the government in Tajikistan announced an ambitious bond issue to help finance a bailout for several struggling banks, prosecutors have decided to start investigating the lenders.

The four banks being audited by the General Prosecutor’s Office are Tojiksodirotbank, Agroinvestbank, Tojprombank and state-owned Amonatbank.

Another troubled lender, Fononbank, is being spared the treatment because it was already audited last year over suspicions that it was somehow collaborating with the banned Islamic Renaissance Party of Tajikistan (IRPT).

RFE/RL’s Tajikistan service, Radio Ozodi, reported that checks on the four banks are set to last six months. A representative for the General Prosecutor’s Office, Hotam Nazarzoda, said that the operation was being carried out at the request of the government to establish that the lenders were not being “mismanaged.”

If this explanation sounds unilluminating, it may be by design. Prosecutors have refrained from explaining quite what they mean by “mismanagement” or why this should be a matter for them to investigate.

But one unidentified source told Radio Ozodi this was primarily a reference to the way in which the banks issue loans. The source explained that some banks have been known to accept doors, windows, cows and other livestock as collateral for credit, immaterial of whether the customer was ever likely to be able to repay their debt. This sort of liberal credit-giving has, in the opinion of the authorities, led to lenders being driven to the verge of collapse.

“Animals have the habit of dying, and sometimes they do it early. And there have been cases when an apartment worth $50,000 could be displayed as being worth $100,000. These is called unguaranteed collateral,” the source told Radio Ozodi.

While these practices may explain some of the problem, the European Bank of Reconstruction and Development has in the past provided other more convincing facts.

“The Tajik somoni weakened by around 33 per cent (against the US dollar) between January 2015 and mid-2016, which, combined with the declining household income and more challenging economic environment, is contributing to sharply rising [non-performing loans] levels, affecting the liquidity and solvency of banks,” the EBRD said in a country assessment note in November.

Even more simply, households are earning less money as a result of the slowing economy — itself a knock-on effect of the slowdown in Russia, where hundreds of thousands of Tajiks make their living.
According to official figures from the end of 2016, the four banks under inspection hold around $350 million of unguaranteed credit.

Meanwhile, Asia-Plus news website has cited National Bank chairman Jamshed Nurmahmadzoda as saying that law enforcement officials are working on trying to recover around 1.2 billion somoni ($150 million) in problem debts.

The banks under investigations last year experienced severe problems in providing account-holders with their own savings. The shortage of hard cash also meant that banks servicing salaries — often for government departments — were unable to pay the intended recipients. 

The government’s solution to the cash flow crisis was to issue bonds to the tune of around $490 million, which then went toward covering the more than $500 million cost of recapitalizing the banks.

Tojiksodirotbank got 2.25 billion somoni ($284 million at current exchange rates); Agroinvestbank 1.7 billion somoni ($215 million); Tojprombank 450 million somoni ($56 million); and Fononbank a relatively meager 80 million somoni ($10 million).

The National Bank has said that if need be, it would provide the liquid cash for these bonds — a remarkable commitment for such a presumably cash-strapped institution.

One assumption doing the rounds was that the state would simply print the new money, but Nurmahmadzoda has dismissed such talk as idle rumor.

“The National Bank has enough reserves to ensure liquidity for these bonds,” he said.