Author: Yuri VALIKOV
Nurbank's interest margin, lagging behind the average of major STBs, correlates with excessive provisioning. However, the bank's head believes it's better to be stringent with provisioning and potentially release these provisions as profit in a positive scenario, rather than underestimate risks. The bank plans to compensate for the lag in profitability by issuing new loans and financing projects, for which "Nurbank" funded itself on KASE over 10 billion tenge last week.
Nurbank has a fairly high level of provisioning for doubtful loans, above the sector average. However, additional "reinsurance" has a downside: the bank may miss out on profits. Kanar Orynbaev, Chairman of the Board of "Nurbank", believes that a strict approach to assessing loan repayment probability and promptly forming provisions for overdue loans is the right one.
In this case, there is a chance of unforeseen profit through the release of such provisions. Mr. Orynbaev reminded that during the 2008 crisis, American banks were the first to show their losses, whereas European banks were performing well. However, the crisis affected many, and it is the American banks that are now emerging from it first. "I am more inclined towards the position of American banks – they are ready to immediately acknowledge the losses they see. Even before I joined "Nurbank", a strict approach to provisioning was taken here, and I believe it is the correct position," said the interlocutor.
However, with a rather conservative approach to provisioning, "Nurbank's" interest margin at 2.66% (as of March 1, 2013, according to FSA data) is below the average for the 15 largest STBs – 4.21%. But the new head intends to increase "Nurbank's" profitability by further forming a credit portfolio of quality loans. "Last week, we placed our bonds on the exchange and raised over 10 billion tenge. This money will go towards financing new projects, which will help us increase our profitability," shared Kanar Orynbaev.
However, according to the head of "Nurbank", the mechanisms of bond funding may change after the creation of the UAPF. "It all depends on how exactly the UAPF will operate. If, de facto, there is one manager, it will deprive the market, pardon the tautology, of market mechanisms," he explained. Mr. Orynbaev explained that the cost of money was usually determined on market terms: on one side were pension funds, on the other – the Ministry of Finance, the National Bank, or corporate issuers. The latter offered their instruments, and 11 funds decided whether to buy or not – and the rate was formed from this. If only one APF remains in the first "camp," the market mechanism disappears, and whatever rate is named, issuers will place at that. "If they name 3% – that's good, but if 12%, where will we go? We will place at this rate if necessary," shared the interlocutor. Therefore, the option with a single manager, in his opinion, is not quite advisable, as the same rate will not always be fair: today 8%, for example, may be a low rate, but already tomorrow it will be high. "Therefore, the normal functioning of such funding will depend on the professionalism of the people making the rate placement decision in this case. If the UAPF retains a model with many management companies, then there will be no major changes for the securities market from the creation of the UAPF," concluded Kanar Orynbaev.
Source: www.kursiv.kz