Having significantly slowed down during the financial crisis, the credit market in Kazakhstan is not rushing to recover to this day. Neither the reduction in refinancing rates by the National Bank, nor the growth of the deposit base, nor the easing of lending conditions help. We discussed consumer preferences and the prospects of the SME lending and retail sectors with the deputy chairman of the board of Nur Bank JSC, Rauan Daukenov.
— Do you think we should expect a significant increase in lending volumes at Kazakhstani banks in 2012?
— I do not see preconditions for a sharp increase in demand for credit resources in 2012. A certain increase in many areas of lending should be expected, although not as sharp as in the pre-crisis years — by a few dozen percent per year. If you look at the statistics from January to May 2012, the loan portfolio of banks increased by only 2.5% in absolute terms. If you subtract interbank loans and provisions from this, it turns out to be 1.7%. I think it is worth expecting an increase in this figure by the end of the year, but it is unlikely to be double-digit.
— What can you say about lending to SMEs? How attractive is this sector?
— Despite the crisis, SMEs in Kazakhstan show annual growth. According to official data, the number of actively operating SMEs increased by 4.2% during 2010–2011. Additionally, this sector employs about 1.8 million people, which constitutes about 33% of the economically active population. In large cities, this share reaches 50%. So it is a large market. However, if you look at the share of SMEs in GDP, it does not exceed 15–16%.
— Are credits necessary for businesses themselves? Who usually seeks loans?
— SMEs cannot develop without loans. Businesses need to grow, they need money for working capital, and they require some new production facilities. At the same time, 33% of all SMEs in Kazakhstan are involved in trade and services. This is the main driver in this sector.
Nur Bank sees significant potential in SME lending and aims to gradually increase the share of SME and retail loans in our portfolio. Historically, we were a corporate bank, and the share of large business lending accounted for 70% of the loan portfolio. However, since the beginning of the year, the SME portfolio in relative terms has grown by 24.8%, retail by 17.5%, and corporate lending by only 10.3%.
— What advantages can a bank gain by increasing the share of lending to small and medium enterprises?
— Firstly, this allows diversifying the loan portfolio by attracting a working borrower who is an SME subject. Secondly, the bank not only gains interest income from such clients but also has the opportunity to increase its income through cross-sales of other banking products. Furthermore, the bank reduces its funding costs by maintaining balances on current accounts of SMEs.
— What is happening with the retail sector today? Some experts talk about a new "overheating" of the consumer lending sector. Do you agree with this?
— Consumer lending in Kazakhstan is growing. There is demand from customers as banks have somewhat eased consumer lending conditions — requirements, terms, rates. But lenders are also interested in this sector because it offers a significant margin.
However, this market is indeed not limitless, as Kazakhstan has a relatively small population with even fewer economically active individuals. But this year, the market will grow at more active rates than other lending sectors.
— Can we then expect that mortgages will show the least growth?
— The mortgage lending market is less active. This is due to various factors. Firstly, the primary housing market has not yet recovered. Secondly, most housing market transactions during the crisis were speculative. Now, prices in the market have stabilized, and their growth is gradual. The absence of sharp price jumps is a positive factor, indicating that potential mortgage borrowers are buying homes not for resale but for living.
— Can the limited funding abroad for Kazakhstani banks lead to low activity in the mortgage market? And can it happen that foreign banks operating in the Kazakhstani market take leading positions in this sector, having access to cheaper resources?
— Today, Kazakhstani banks are mainly funded by internal sources. However, I would not say that it is significantly more expensive than borrowing abroad. If Western financing is attracted, there is a currency risk involved. On the other hand, internal funding involves the participation of the population in the economy's development, with money invested in industries and always in circulation.
It is possible that foreign banks have more favorable conditions for mortgages, thanks to the support of their parent banks. Moreover, banks with high international ratings find it easier to get better funding conditions abroad. But the share of construction and real estate in the overall loan portfolio of Kazakhstani second-tier banks is still high. And foreign rating agencies, when assessing a bank's position, pay special attention to the share of real estate lending because there is concern that real estate prices in Kazakhstan are unstable.
— Should we expect a significant reduction in lending rates this year?
— I do not see reasons for a significant reduction in rates and lending cost. The margin on consumer and especially unsecured loans is quite high, and perhaps some banks can afford to lower this rate. But I do not think this will be a significant reduction.
— The Single Economic Space is about to be introduced, and it will affect the financial sector. How do you assess the competitiveness of domestic players should Russian banks enter our market?
— On the one hand, this is not a short-term issue. On the other, our banks are in no way inferior to Russian and Belarusian banks in terms of competitiveness. This concerns business methods, products, and rates — I do not see significant differences. In some aspects, Kazakhstani banks even have advantages. So, we expect healthy, normal competition, from which the consumer will ultimately benefit. And our banks have new opportunities to enter those markets. At the same time, I would like to highlight Russian banks with state participation operating in Kazakhstan. They certainly have one advantage — state support in funding matters, but here, I think the regulator should monitor to prevent dumping of rates and tariffs.
In general, we are not afraid of Russian expansion into the domestic banking sector.
Author: Veronika Sabitova
Business weekly magazine 'Capital'