Credit of Trust

Businesses and banks are ripening towards more trusting relationships. This concerns working with products like contract financing—where the collateral is not any property, but the business reputation of the borrower. Whether this tool can encourage businesses to produce finished products or provide domestic services is discussed in the interview with the Chairman of the Board of JSC "Nurbank", Kantara Orynbaeva.

— How do you assess the business activity of domestic enterprises?

We observe that each year more new companies appear, tax payments increase, and the demand for credit products for business development grows. The rise in production projects and trade operations also demonstrates that business activity is on the path to recovery. Recently, public-private partnerships in road construction, schools, and other infrastructure projects have also been developing. All this creates momentum and forces us, as banks, to think about what useful services we can offer to businesses to support the recovery trend we are currently observing.

— Your bank recently launched a product called contract financing. How effective can it be as a tool to motivate entrepreneurs to engage in the production and export of finished products?

The main feature of this product is that the bank does not focus on the collateral base. In contract financing, we primarily look at the success of the project, trying to evaluate its potential and possible risks. If the project is promising and does not raise any concerns, we are ready to provide the necessary client financing.
I would say that in this case, the security is the business reputation of the borrower. This means building a more trusting relationship with the client. Here we simply need to believe that our borrower, who is also a project executor—has enough qualification, experience, and so on, to fulfill their contract obligations. And if our expectations are correct, everyone benefits—we, the borrower, and the customer.
As for the positive effect of contract financing as a production and export promotion tool, it certainly exists. But I would point out that primarily this product will be of interest to SMEs and corporate clients with contracts to perform work or provide services for large companies.

— Could you elaborate on the terms you work under, and how they differ from other market offerings?

The maximum loan amount requested from us should not exceed 50% of the contract itself, and in absolute terms, should not be more than 500 million tenges. If presented in the form of guarantees, the maximum guarantee amount should not exceed 30% of the contract.

-So you are also planning to offer guarantees as an additional service to contract financing?

Yes. In cases where an entrepreneur wins a bid to supply goods or perform services, most of the time, the contract terms require an advance payment, for which a return guarantee must be provided, or sometimes the client company requires a performance guarantee. And we are ready to assist in this case.

— Are there any priority industries with which you will work on contract financing?

There is no such breakdown by industry. We define for ourselves a list of customers whom we consider reliable and stable in the medium term. These include city-forming companies, major oil operators, national holdings, etc., which are attractive to our potential clients. Therefore, the borrower, who is also the executor under contracts, understands that they bear responsibility not only for the obligations to the bank on the loan but also lose the prospect of working with a good large customer.
Unlike similar market offerings, we have a very extensive list of such companies with which our client can engage in contract financing. In the future, we plan to expand this list even further. Currently, there are about 200 such companies.

— Do you plan to include any Russian or Belarusian companies in this list? Due to integration processes, many companies can enter our market from these countries.

This is a prospect. The number of large players is limited at the moment. Currently, our experts are studying the CIS market and major companies in the Customs Union (CU) and the Eurasian Economic Union (EEU). If players from Russia or Belarus come, contract financing will only benefit from that.

— How much interest is there in this product today?

When talking with business people, we often see their interest in this product. Because when collateral is required, it is not always convenient for the borrower. Today, there are many companies—several years, successfully operating in the market, but not having a large collateral base. Or if they do, it has already been used elsewhere.

— And how developed is this tool in the country overall?

It is still in its infancy. Unfortunately, I cannot say that this is a developed product in our country.

— So, banks are just beginning to accustom businesses to use contract financing?

On the contrary, it is business that is teaching us to change our approach to existing banking products. Not so long ago, there were times when contracts played more of a formal role, and orders were mainly fulfilled on a verbal agreement basis. It's different now, businesses have come out of the shadows and are gradually entering the legal field, where the contract is the main document regulating the relationship between the client and the executor. This, in turn, allows banks to take some risks and offer products that mean more trusting relationships. Besides, it's worth noting that banks contribute to and partially stimulate the transition of businesses from the "shadow" level to transparency.

Yekaterina Korabaeva, magazine "RBC Central Asia"