KAZAKHSTAN: CITIBANK EXECUTIVES DISCUSS THEIR LOCAL

UNCLAS SECTION 01 OF 02 ASTANA 002116

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TAGS: PGOV ECON EFIN KZ
SUBJECT: KAZAKHSTAN: CITIBANK EXECUTIVES DISCUSS THEIR LOCAL
OPERATIONS AND PLANS

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1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: During an October 22 meeting with the
Ambassador, Shirish Apte, CEO of Citibank Central and Eastern
Europe, and Dan Connelly, CEO of Citibank Kazakhstan, described
Citibank as doing very well in Kazakhstan. They disclosed a recent
agreement for Citibank to serve as the banking institution for the
Kashagan consortium. The two also offered a somewhat pessimistic
prognosis for the Kazakhstani banking sector over the coming year.
END SUMMARY.

ONGOING SUPPORT FOR WESTERN OIL COMPANIES


3. (SBU) Citibank established a representational office in
Kazakhstan in 1994, in Almaty, and opened its first bank branch in
the country in 1998. Many of the larger western companies operating
in Kazakhstan are Citibank clients, including those in the oil and
gas sector. Apte said that Citibank has avoided consumer banking
for fear of possible money laundering, but that business overall is
very good. He disclosed that Citibank had recently signed a custody
agent agreement to provide banking services for the six partners in
the Kashagan consortium. Generally enthusiastic about the
arrangement, Apte nevertheless expressed concern about the
possibility of being caught in the middle of a financial conflict
between the Kazakhstani government and the other consortium members.


BANKING SECTOR COULD FACE SEVER DIFFICULTIES


4. (SBU) Apte and Connelly offered a somewhat pessimistic take on
the Kazakhstani banking sector for the coming period. Pointing to
"challenging markets and times for many economies," Apte argued that
Kazakhstan can do little wrong because of its energy riches, wealth
of mineral resources, and strong agricultural base. He said that,
nevertheless, Kazakhstan will be facing some special challenges in
the coming year. According to Apte, the banking system is "very
stretched." Explaining that as bankers they are not particularly
fond of regulation, Apte and Connelly nonetheless admitted that
there is a serious lack of financial regulation in Kazakhstan. Apte
said that unlike the banking crisis in the United States, which is
more or less contained among domestic lenders, banks here are very
exposed to the global market.


5. (SBU) Apte noted that one-fourth of the foreign debts of
Kazakhstan's banking sector are set to mature next year. When the
markets open up next year, Kazakhstani banks will thus need to
borrow more money. However, it is increasingly likely that overseas
banks will not roll over their existing credit to Kazakhstani banks.
According to Apte, if oil prices continue to drop, this will also
increase the likelihood that the banks will be denied the necessary
rollover. In Apte's opinion, the discontinued lending of overseas
banks combined with a possible run on deposits by consumers could
set into motion a banking sector crisis, requiring a Kazakhstani
government bailout. When asked if he was "cautiously optimistic,"
Apte said he would prefer to "wait and see" before sharing any
optimism. According to Apte, there is already a 30-40% probability
that there will be no rollover for the loans.

CITIBANK LOOKING FOR WORK WITH THE GOVERNMENT


6. (SBU) Following the meeting with the Ambassador, Apte and
Connelly were scheduled to meet with Finance Minister Zhamishev.
According to Apte, Citibank would like to officially offer its
consulting services to the Kazakhstani government. He noted that
they have had "some experience in these situations." Citibank would
also be willing to offer financing for government bond issues in the
future, if needed.

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