Tajikistan’s second largest private bank Tajiksodirotbank (TSB) is seeking help from the EBRD to avert a potential liquidity crisis.

The bank, which has assets of TJS3.8bn ($483mn), is discussing the capital injection on the fringes of the annual EBRD Annual Meeting in London this week.

TSB has invited the EBRD to acquire a 50% equity stake in the bank, which currently has a total equity of $80mn.

"We have already met with EBRD President Sir Suma Chakrabati, and he has expressed the bank's intention to help, said Pirzoda Tojidin, TSB Chairman. "We have another meeting with them [on May 12], but it remains to be seen if we can meet the EBRD's conditions. We will also seek other equity investors in addition to EBRD, such as the IFC. We want to attract as much liquidity as possible to pay our liabilities and our depositors, " Tojidin told bne Intellinews in an interview at the EBRD Annual Meeting.

Tajikistan’s banks have been hit hard by the country’s economic problems, much of them linked to declining exports and remittances with Russia, which have left many of the country’s businesses and individuals unable to repay their loans to banks and microfinance institutions.  

“Due to worsened macro conditions, performance of many players [has] deteriorated, which is mainly reflected in the growth of impaired loans, reduced profits and capital erosion,” EBRD Director for Financial Institutions in Russia and Central Asia George Orlov told bne IntelliNews.

Last month, TSB, which is owned by several Tajik private companies, was rumoured to be planning to send a chunk of its employees on “indefinite unpaid leave”, though the press department could neither confirm nor deny the validity of the report to bne IntelliNews.

In March, TSB, which has been experiencing interruptions in its services that have prevented customers from withdrawing money for more than three months, issued a statement that attributed the interruptions to a switchover in its money-processing system. Media have reported that TSB’s customers were attempting to withdraw as much money as they could en masse.

The International Monetary Fund (IMF), in its report on the stability of the country’s financial systems in February, said "one large bank is already insolvent and another one fails to meet the prudential requirements". 

Agroinvestbank (AIB), the country’s largest bank, is believed to the first bank referred to, while TSB is thought to be the second.  

"Tojiksodirotbank, one of the country's systemically important banks, needs financial assistance in the current situation," the bank said in a statement this month, saying it had been "negatively affected by the economic and financial crisis".

Inching towards the edge

Adding to worries in the sector, the National Bank of Tajikistan has already revoked licences of 17 microfinance institutions (MFIs) since the end of 2015 over their failure to meet the central bank’s minimum capital requirements. While the central bank has denied the importance of these credit institutions, it continues to receive requests for liquidation, with the latest one coming from an MFI Haqiqi Jahon at the beginning of May.

Tajik banks’ biggest problem is the rising share of non-performing loans, often linked to lending to related parties or clients close to the regime.

The chart below demonstrates a correlation between the country’s declining growth and the increasing share of non-performing loans (NPLs) in total loans.

The share of NPLs in the total loans stood at 21.21% at the end of 2014, when GDP growth stood at 6.7%. Since Tajikistan’s growth decelerated to 6.0% in 2015 and is expected to decline further to 4.8% in 2016 there is expected to be a further rise in the share of NPLs.  

The rise in NPLs has eroded the bank’s capital buffers. Tajik banks’ aggregate average capital adequacy ratio (CAR) paints a pessimistic picture for most banks and MFIs, since CAR has been consistently falling from 25.9% in 2012 to 11.1% in 2015, as shown below.

Overall CAR shrank by 20.3 percentage points between 2006 and 2015.

Very few private owners will be able to inject more capital to boost their banks’ capital cushions. Nor is the government well placed, as the government itself is known for relying on international donors to fill budgetary gaps.

The government only succeeded to meet its budget goals for 2015 thanks to $60mn in budgetary assistance from the Asian Development Bank granted to the country in December. The government is in need of more budgetary support in 2016 - in January alone, the country only met 87.7% of its planned budget revenue.

Options for recovery

The central bank’s deputy governor informed the Financial Times in February that Dushanbe and IMF were in talks for a $500mn bailout package.

In March, the central bank issued a statement where the bank noted that the EBRD supports TSB’s plan for recovery “based on strengthening the bank’s capitalisation and aimed at achieving stronger growth and better quality of lending to the real sector, including through engagement of new foreign institutional investors in the bank’s capital structure”.

In an interview with Radio Ozodi, Orlov expressed EBRD’s willingness to provide financial support for Tojiksodirotbank on the condition that the bank adopts reforms.

Orlov told bne IntelliNews that the whole banking sector needed to batten down the hatches for what will be a rough year.

“Banks and MFIs which focus on the prudent core banking, with larger capital cushions and stronger liquidity, will likely go through this turmoil more smoothly,” Orlov said.

“Most of the banks and microfinance institutions [will] cope, [but] 2016 will be a difficult year for all,” he added.