Categories: General
      Date: Nov 21, 2007
     Title: Bank Hapoalim acquires Kazakhstan Bank

Prime Newswire

Bank Hapoalim has completed the acquisition of control of Demir Kazakhstan Bank (DKB), the first bank in Kazakhstan and in all of Central Asia to be purchased by an Israeli bank.

The acquisition of DKB was performed through BankPozitif, a Turkish bank in which Bank Hapoalim acquired a 57.55% stake last year, and is an additional step in the Turkish bank's development and in the implementation of Bank Hapoalim's international strategy.

Bank Hapoalim Chairman Dani Dankner commented, "The acquisition of DKB in Kazakhstan is another step in the realization of the long-term strategy of Bank Hapoalim, which aims to significantly expand the percentage of our total activity represented by international operations. This further strengthens Bank Hapoalim's position as a global bank with worldwide operations, including in emerging markets. Kazakhstan is one of the largest and most important countries in the Central Asia region. Our investment in DKB is based on our perception of the needs and opportunities facing Bank Hapoalim, as well as a general view of Israel's strategic and economic needs."

Demir Kazakhstan Bank (DKB) is ranked 21 in size out of the 33 banks operating in Kazakhstan in terms of its total assets and shareholders' equity, which totaled USD 120 million and USD 25 million, respectively, at the end of the third quarter of 2007. The bank's assets grew by 95% in 2006 (in dollar terms) and increased by an additional 13.5% in the first three quarters of 2007.

The bank's net profit for the first three quarters of 2007 reached USD 2.3 million, reflecting an annualized return on equity of 12.3%. The expected net profit for 2007 reflects more than 100% growth compared to 2006 and 245% growth compared to 2005.

The total cost of the investment in DKB is approximately USD 70 million, of which USD 56 million will be paid to the sellers, while the additional USD 14 million will be used to increase DKB's capital to USD 40 million immediately following the acquisition.

DKB currently focuses on servicing small and mid-sized enterprises (SMEs) through three branches in major Kazakh cities: Astana (capital of Kazakhstan since 1997), Almaty (the former capital), and Atyrau. The bank plans to open additional branches in several locales and to considerably expand its activity in the oil and gas, construction, metals, transportation, and food industries.

Bank Hapoalim CEO Zvi Ziv commented, "The acquisition of DKB is a milestone marking Bank Hapoalim's first foray into the promising markets of the CIS region in general, and Central Asia in particular. The knowledge, experience, and professional expertise of Bank Hapoalim and its employees and managers ensure a relative advantage in Kazakhstan, where growth rates have been among the world's highest in the last decade. We will develop our activity in Kazakhstan in all areas of corporate and retail banking, and help companies and businesspeople from Kazakhstan and from Israel forge economic relationships for the good of both countries."

Kazakhstan is the second-largest country in terms of size, after Russia, of the states formed following the dissolution of the USSR. It is the ninth-largest country in the world, at 2.7 million square kilometers, and has a population of 15 million.

Most residents of Kazakhstan are still employed in agriculture, but the country is very rich in minerals and natural resources, including oil, gas, coal, and various metals and minerals; exploitation of these resources has developed rapidly in recent years. Subsequent to steps taken to liberalize the economy and large-scale privatizations starting in the mid-1990s, the Kazakh economy is growing at an extremely rapid pace, reaching 10% on average in 2000-2006, mainly thanks to its rich energy resources. The International Monetary Fund predicts continued rapid growth in Kazakhstan in 2007-2011. GDP grew by more than 10% in the first ten months of 2007. The high growth rate led average per-capita GDP in Kazakhstan to soar from USD 1,400 in 2001 to more than USD 4,000 in 2006, accompanied by a large decrease in the unemployment rate, now at 7%.

Kazakhstan enjoys large-scale inflows of foreign investments which are expected to continue in the coming years. Reasons include the economic policy of the government, which continues to carry out structural reforms and improve Kazakhstan's legal and regulatory systems, with the explicit aim of admission into the World Trade Organization.

Structural reforms in the Kazakh banking system were initiated in 1995, with the objective of attaining international standards. These reforms include maintaining capital and liquidity ratios, improving transparency, adapting accounting methods to generally accepted international standards, establishing risk-management systems, reducing exposure to individual borrowers, offering deposit and investment insurance, and more. The rapid growth of the national economy has brought about considerable growth of the financial sector, while concurrently the number of banks has decreased as a result of mergers and acquisitions. While in 1996 there were no less than 184 banks in Kazakhstan, today there are 33, of which 14 are foreign banks. The profitability of banks in Kazakhstan has greatly improved recently, with average return on equity reaching 14% last year, up from 10% in 2005.

International economic entities, including the World Bank and the International Monetary Fund, see Kazakhstan as one of the most important, outstanding countries among the emerging economies and predict it will show high growth in the coming years along with rapid development in the areas of banking and finance, such as credit, mortgages, etc. Bank Hapoalim believes its accumulated international experience and the skill and expertise of the Bank's staff position it to leverage its relative advantages in Kazakhstan.