The behavior of clients will drive changes in the domestic banking sector, says Deputy Chairman of the Board of JSC Nurbank, Rauan Daukenov. In an interview with '&', he spoke about the current status of bankers and the future of Kazakhstani banks.
— What does a complete range of modern financial services include today? Is a bank in our country currently an organization capable of solving the maximum number of tasks that clients have?
— Modern financial services are primarily focused on increasing customer satisfaction and providing a full range of services, which includes products for large and medium-sized businesses as well as individual entrepreneurs and private individuals. In addition to products, for legal entities, banks offer consulting services—from pre-project surveys to the development, implementation, and support of business project models.
Domestic second-tier banks strive to implement new technologies and actively organize events aimed at improving customer service quality, which undoubtedly proves their versatility.
— At one time, the banking system was burdened with what one might call a bad credit portfolio. In your opinion, are banks managing to turn the situation around and rid themselves of this weight dragging the sector down?
— The restoration of assets in Kazakhstan's banking system is ongoing, albeit at a slow pace. After the crisis, the lending policies of Kazakhstani banks became more stringent, which is one reason banks have transitioned from aggressive loan growth to moderate growth. According to Moody's analysts, this year, the share of 'bad' loans in domestic second-tier banks reached 40%. We forecast that soon, the cleaning of bank assets from problematic loans will be carried out by selling collateral, selling claims to specialized collection agencies, and writing off unsecured balances. The implementation of these actions may require several more years.
It's worth noting that there's a small yet confident growth in lending among domestic second-tier banks, including our own bank.
— How will the situation in the banking sector change if the issue with problem loans is resolved for the better? Loans may become cheaper, but will it become more challenging to prove creditworthiness to obtain them?
— If the situation with problem loans improves, the recoverability rate of loans will increase, subsequently increasing bank profitability. Additionally, there will be an opportunity to lend to borrowers using released funds. If the risk of loan defaults decreases, it may lead to easing conditions on credit products and simplifying the procedures for analyzing client payment capabilities for loan provision. These factors will foster increased demand for credit, boost banking sector activity, and necessitate the improvement of products and services, potentially lowering the cost of loans. If the issue with problem loans is resolved, banks will be able to offer a wider range of accessible services and not remain fixated on the 'bad' portfolio problem.
The presence of problem loans in a bank's credit portfolio has not been news for a long time. No matter the achievements announced by a bank, the quality of loans is always called into question. It can even be said that to some extent, the provision ratio to the portfolio has become a measure of a bank's success. However, it is essential to understand that bad loans do not halt the operations of a bank. The banking institution continues to lend but does so by imposing stricter requirements and carefully selecting borrowers, taking into account their financial condition, collateral size, and credit history.
— Moving from problems to opportunities. In your opinion, what opportunities for developing the domestic banking sector remain unused? Take, for example, Islamic banking. Your bank signed an agreement with a subsidiary of the Islamic Development Bank to provide a credit line. How do you assess the development potential of this direction in Kazakhstan?
— Unfortunately, at present, we must acknowledge the continuing volatility in international capital markets. Investors remain pessimistic about business revival in emerging markets. Most have re-evaluated their risk positions, resulting in credit limit closures and the reduction of international deals. In other words, the investment appeal for foreign investors has been retained somewhat only by those banks with foreign shareholders or state support represented by shareholders. This prompted us to seek new sources and other opportunities. One such alternative direction is Islamic finance, which has a number of specific features based on fundamental Sharia principles. It is quite an exotic direction for Kazakhstan. I think there's no need to mention the scale of efforts undertaken to adapt Islamic banking considering Kazakhstan's legislation. As for 'Nurbank,' in 2009, we financed business projects through credit lines from the Islamic Development Bank (IDB) and its subsidiary ITFC for a total amount of $15 million. In my opinion, Islamic banking is an extremely promising direction that requires further intensification and outreach among the population. It offers clients benefits such as a delay in business establishment, comparatively low-cost loan funds, and the ability to conduct business without compromising their religious beliefs and principles. Another confirmation of Islamic banking's bright future is its financial stability. While the global crisis and its aftermath saw many of the world's largest Western and European financial institutions face bankruptcy and negative financial performance, Islamic banks showed positive financial results.
We plan to strengthen our cooperation with Islamic banking representatives to expand the range of products and services within this direction for current and potential bank clients. Meanwhile, we are exploring other promising markets in BRIC countries (a recognized abbreviation for four rapidly developing countries: Brazil, Russia, India, and China) and other emerging economies.
— What do you envision as the bank of the future?
The current driving force behind changes in banks will be customer behavior, as clients spend more time in the virtual world. A few years ago, many did not imagine banks without physical branches, but today financial portals of internet banking are proving otherwise. Working with banks online will be directly associated with an increase in computer literacy among the population, network development, and improvement of remote services.
Currently, people actively use the internet to pay for goods and services, visit online stores, and use internet banking. It is clear that people do not derive much pleasure from visiting banks, which is why the demand for remote services will increase, but bank offices will not disappear in the future. People need physical interaction, especially when purchasing a financial product. Therefore, banks of the future need to develop omni-channel strategies, allowing clients to choose the approach convenient for them.
— Many people have a stereotype about bankers being overly strict, serious, formal, and even without hobbies. What are your interests?
— Life is such that it has many interesting aspects, and one should strive to try them all. I enjoy traveling, learning traditions, the way of life, and exploring the cuisine of different peoples of the world.
I also love sports, such as tennis and football. In my free time, I enjoy reading, although I find the time for books sorely lacking. In my opinion, sports and reading are the best ways to relax and reflect. I recommend reading the Spanish philosopher Baltasar Gracián, and of course, Russian classics such as Tolstoy, Chekhov, and Dostoevsky. I also recommend 'Words of Edification' by Abai Kunanbayev. You will find much that is interesting for yourself.
Society has formed false stereotypes about bankers. In reality, despite their outward seriousness and strictness, bankers are normal people with a good sense of humor, who understand the value of work, money, and material goods.
Author: Zhanar Sekerbayeva
Newspaper 'Business and Power'
http://www.and.kz/finansy/1533-pora-sbrosit-ballast.html