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ALMATY, Feb 8 (Reuters) - The main challenge facing Central Asian oil exporter Kazakhstan is cleaning up a banking system saddled with bad loans, as it adjusts to lower crude prices, the head of the International Monetary Fund mission to the country told Reuters.
A significant share of Kazakh banks' combined $80 billion assets is tied up in loans to developers and construction companies whose businesses have been hit by a series of property price crashes.
Other sectors of the oil-dominated economy have also suffered from the slump in energy prices which slowed Kazakhstan's growth to 1 percent last year from an average of 5.5 percent in the preceding decade.
Borrowers have missed repayments on 12.2 percent of Kazakh banks' loans, according to official data. However, analysts say the total figure could be higher as not all bad loans have been recognised.
Rating agency Moody's said that among the banks it rated in Kazakhstan, problem loans averaged 37 percent.
Recognising and writing off those loans may force some banks to seek state aid and others to close, said Mark Horton, who led the IMF mission on a visit to Kazakhstan for regular meetings with the authorities.
"The banks need to recognise the loan losses that they have and non-performing loans, provision for them, write off the loans and provide additional capital where needed," he said.
The first contribution should come from the private shareholders of the banks, Horton said.
"Then, if you have some banks where that's not enough and they're systemic then we would see a case for the National (central) Bank and the government to come in and work to resolve those banks as necessary," he said.
"The national bank... should play the team leader role and manage the process, putting in new management where necessary or assessing the scope of the merger if that's the way it would go, while the funding for that should come from the state budget."
Smaller banks which are not systemically important may be simply closed if their shareholders do not pay up.
Putting off such measures may end up being more costly in the long run, Horton said.
"The important thing is moving on clearly as well, it's not to leave loose ends, it's not to leave some assets unresolved." he said, citing the example of BTA, once the largest bank in Kazakhstan, which the government took over in 2009.
Kazkommertsbank, another large local lender, has since bought BTA from the state but the latter is still struggling to recover billions of dollars in assets.
"...With a bank like BTA you saw that its fundamental issues were never decisively addressed, they continued when the bank was merged with Kazkommertsbank," Horton said.
"It's high time to do this," he said, referring to the banking system-wide clean-up. (Reporting by Olzhas Auyezov; Editing by Kim Coghill)