MICROCAPITAL.ORG STORY: International Finance Corporation Invests in Joint Stock Company Bank CenterCredit of Kazakhstan With 12.5 Percent Equity Stake and USD 85 Million Subordinated Loan to Expand Financial Access for Small and Medium Enterprises (SMEs)

The International Finance Corporation (IFC), the investment arm of the World Bank, has invested in Joint Stock Company (JSC) Bank CenterCredit, “the fifth largest bank in Kazakhstan in terms of total assets,” with the intention of expanding credit access for small and medium enterprises (SMEs) [1,2,3]. The IFC has taken a 12.5 percent equity stake in the bank as well as providing a USD 85 million subordinated loan [3]. A subordinated loan is of higher risk to the creditor because of its low priority in terms of repayment in the event of default. Additionally, Kookmin Bank, the largest bank in South Korea in terms of assets, will increase its equity stake in JSC Bank CenterCredit from 30.5 percent to 40.1 percent [3]. This comes after JSC Bank CenterCredit received a USD 45 million 5-year term loan from the IFC in January of 2009, and has been participating in the IFC leasing finance program in which the bank rents assets from the IFC since 2005 [4].

JSC Bank CenterCredit was founded in 1988 as one of the first cooperative (member-owned) banks to emerge after the end of the Soviet system [5]. It is a joint stock company, which, in Kazakhstan, is defined as “partnership whose charter fund is divided into a specific number of shares,” with “participants in the company (shareholders) [who] do not answer for its obligations and bear the risk of losses connected with the activity of the company” [6]. It is now the fifth largest commercial bank in Kazakhstan with assets totaling eight percent of the country’s entire banking system [3]. It specializes in SMEs but also provides “retail services, consumer loans, and mortgage finance” [3]. According to its annual report, its assets grew by 6.6 percent in 2008, totaling over USD 6.2 billion [7]. As of December 31, 2008, it had a loan portfolio worth over USD 4.2 billion [7]. The bank does not report to the MIX Market, the microfinance information clearinghouse.

The IFC was founded by the World Bank in 1956 [1]. It uses loan and debt securities, equity investments, and garantees as instruments of poverty alleviation [1]. It is made up of 182 member countries that “collectively determine its policies, and approve investments” [1]. According to its 2008 Corporate Overview, it has an investment portfolio of USD 32.4 billion for 1,490 companies and has a AAA credit rating from both Moody’s and Standard and Poor’s [8].

Kookmin Bank was founded in 1963 [9]. It provides various services such as “standard banking, insurance, credit card, and investment products services” [3]. As of the end of 2008, it has total assets worth USD 208.2 billion [3]. It has over 26 million retail customers [10]. In August 2008 it aquired its first 23 percent of JSC Bank CenterCredit [10]. By 2011, it plans to have an equity stake in the bank of over 50 percent [10].

By Christopher Maggio, Research Assistant

Bibliography

[1] IFC: http://www.ifc.org/
[2] JSC Bank CenterCredit: http://eng.centercredit.kz/start/index.html
[3] JSC Bank CenterCredit press release entitled ‘IFC Investment to Expand Access to Finance for Small and Medium Enterprises in Kazakhstan’: http://eng.centercredit.kz/temp/Press_Release-Equity_signing-FINAL-ENG.pdf
[4] JSC Bank CenterCredit press release entitled ‘IFC loan to Bank CenterCredit to support its SME lending programs’: http://www.centercredit.kz/eng/news/280109.html
[5] ADB document entitled ‘Report and Recommendation of the President to the Board of Directors’: http://www.adb.org/Documents/RRPs/KAZ/41912-KAZ-RRP.pdf
[6] Registering a Company in Kazakhstan: http://permanent.access.gpo.gov/lps1733/9806kaza.htm
[7] JSC CenterCredit 2008 Annual Report: http://eng.centercredit.kz/temp/annual_report_2008_ENG_final.pdf
[8] IFC 208 Corporate Overview: http://www.ifc.org/ifcext/publications.nsf/AttachmentsByTitle/tos_09.pdf/$FILE/tos_09.pdf
[9] Kookmin Bank: http://www.kfb.or.kr/kfb_eng/listmem/listmem01.htm
[10] Clearly Gottlieb article entitled ‘Kookmin Bank in $500 Million Investment in Bank CenterCredit of Kazakhstan, Largest Overseas M&A Transaction by Korean Bank’: http://www.cgsh.com/kookmin_bank_in_500_million_investment_in_bank_centercredit_of_kazakhstan_largest_overseas_m_a_transaction_by_korean_bank/