On November 30, it was exactly 5 years since significant changes occurred in the top management of Nurbank: a representative of a major shareholder, Eldar Sarsenov, joined the leadership. In an interview with "Kz", the chairman of the bank's board talked about how the financial institution emerged from the crisis, what changes occurred in the company's development strategy, and why Nurbank applied to participate in the banking system rehabilitation program.
— Eldar Rashitovich, 5 years ago, following the results of 2012, Nurbank's financial situation was difficult: losses amounted to over 1 billion tenge, NPL level reached 27% of the loan portfolio, individual deposits decreased by 13.7% over the year, legal entities by 5.2%, and the loan portfolio by 12.4%. How did you emerge from the crisis? What were your feelings when you joined the bank 5 years ago and had to solve these issues?
— The feeling was that the bank was going through a transitional stage, so to speak, a transformation. In May 2010, we became shareholders, acquiring 75% of the bank's shares. After analyzing the bank's financial condition, we concluded that the 2008 crisis affected its stability, which led us to decide to increase the authorized capital by 96 billion tenge.
The first thing that caught the eye and was the most challenging— was the high share of problematic loans. 27% NPL was just on the surface; in reality, it was almost twice as much, and we are still clearing those "Augean stables." A significant portion of our current problematic portfolio— are our old clients who took loans from us before the global financial crisis. Nevertheless, we accepted the commitments and continue to work with them.
The second issue— is the corporate bank culture: more than 60% of the loan portfolio was occupied by large corporate businesses, but this was after some work from 2010 to reduce this share.
Subsequently, additional investments were also made. In total, we infused more than 100 billion tenge into the bank after we acquired it. So the situation was not simple.
How did we come out of the crisis? We set priorities: first— of course, working with our problematic portfolio. A large comprehensive program is being implemented to improve it through restructuring, extensions, changing repayment schedules, and constant work with our borrowers.
Second— working with special companies and collectors. You know that the bank cannot directly help borrowers and intervene in the operational activities of companies, so a special company was created - an Organization for Managing Stressful Assets (OMSA), through which we help our partners and clients to heal their business. We are interested in our clients staying afloat, moreover, getting out of their difficult situations and starting to operate normally.
And thirdly, lending guidelines were revised. Even then we began preparations to increase our presence in the retail segment. In 2013, we launched our product— consumer loans. At that time it was trendy, and we were the last bank to enter this market before an annual growth restriction was introduced in April 2014, limiting non-collateralized loan portfolios to no more than 30%. Thus, a kind of veto was placed on a sharp increase in non-collateralized loans in banks' loan portfolios.
From 2014, this law came into effect, and we were the last bank to enter this market and closed the door behind us.
We also became active in the small and medium-sized business segment. If in 2014 we worked with only three government programs for SME support, now we have 17. Today, our SME loan portfolio amounts to 34.7 billion, of which more than 57% are projects financed under state programs.
— As a result of these reforms, what results has the bank achieved today?
— The most important thing— is the growth of the loan portfolio: since 2012, it grew by 48% or 52 billion tenge, from 109 billion tenge to 161 billion tenge. In the corporate business, it grew by 45%, SME lending grew by 34%. The retail portfolio grew by 78%.
We increased the deposit portfolio by 71.5% or 106 billion, from 149 billion tenge to 255 billion tenge.
We very cautiously approached the increase of our branches and placed them very selectively in remote locations. The number of branches grew from 55 to 89 over 5 years. We opened branches in remote regions of Kazakhstan such as: Bakhty village, located 500 km from Semey, Saryagash, Aksukent, and Zhetisay in the South Kazakhstan region, Kulsary, located 240 km from Atyrau, Zhana-Ozen in Mangystau region, and Ekibastuz in Pavlodar region.
We reduced the NPL level from 27% to 6.6%. We are now more than proud of it. Today we are among the best indicators in the market.
As I said, we increased our presence in consumer lending— it now accounts for 17% of our total retail portfolio. Considering that initially we positioned ourselves as a corporate bank and became universal— this is a good value.
— It must be admitted that you have worked hard on the bank's image. Please tell us about it.
— When you have such a large amount of work ahead, the best thing you can do is to focus on small tasks and solve problems as they arise. We were offered to rebrand, completely change the bank's name, and start life as they say "from a clean slate."
But considering that rebranding does not always work (usually we only know successful examples and do not know about the dozens of failures of others), we approached it simply— we decided to do rebranding from the inside. How? First— is to change the associative series at the thought of us. We started with a small advertising campaign with Ivan Okhlobystin. It was 2014, he was very popular then thanks to a well-known series, and we presented ourselves in this playful way. The main work, of course, was outside the spotlights— work with customers. How could the situation be corrected here? Only through personal communication.
We are a small bank, so we decided to communicate personally with each client from a medium-sized entrepreneur to a large company.
With retail, it's a little easier, here the important factors are good conditions— speed of service, affordability of products, high service, internet banking, etc.
— How did you form the team when you came to the bank? How do you address HR issues, and in general, what is your management approach?
— Firstly, I tried to retain those who were there, which was quite difficult given that we have some of the lowest salaries on the market among top managers. In the 5 years that I have been here, there have been no bonuses for top managers and no salary increases either.
We have quite restrained salaries across the bank, and we try to compensate for this with motivational programs (KPIs).
Secondly— is setting KPIs, building a motivation and reward system, etc.
Next comes finer tuning. I chose the tactic of personal example for myself. Taking advantage of the fact that we are a small bank - about 2,000 employees, around 600 work at the head office, here the focus is on morale and spirit.
In all our events, I try to be both the initiator, participant, and role model. Every month we have some cultural events. In the spring we have community clean-up days, we clean the territory, in the summer— mountain hikes, sports competitions, participation in marathons.
If I tell a colleague that they need to be ready for work by 9 a.m., I cannot come at 9:30.
If I say that one should meet clients in person, talk to them, and find a compromise, then first I myself meet more than 100 clients a year.
If I say that at the credit committee one needs to delve into every detail, every figure and know it, I do it first and expect the same from our colleagues.
Nevertheless, we have turnover, like everyone else, but if 5 years ago it was at the level of 40%, today— no more than 20%. We understand that one cannot work in a bank all their life. The average duration of work in a bank is 3-5 years. And turnover, as a rule, is observed at the initial stage of the career ladder in the bank - cashiers, credit managers, etc.
— How much have the funding sources changed in 5 years? You said you are now working more with government programs...
— Yes, but this is not funding in itself, conditionally speaking, we take 100 tenge from the Damu fund and direct the same 100 tenge to entrepreneurs. This is funding in a conditional sense.
In the absence of a live stock market, banks have several funding sources: firstly, the deposit base – today it is the main source of liquidity for most banks. Secondly, shareholder's capital: retained earnings plus authorized capital.
During the existence of the private pension system, it was possible to place bonds with pension funds. The market was very active then, and it was easy to attract money and even more than needed.
Today, unfortunately, the entire market still has liquidity problems. It is quite difficult to attract longer than 1 year, and almost all deposits are demand deposits, meaning they can be withdrawn at any moment.
Therefore, we primarily rely on our reputation, client trust, i.e. deposits. And the second source— is government money, which still remains the main driver in the banking system.
Has funding changed? Yes, it has, we started participating more in government programs, but it didn’t add to our liquidity. Our clients add liquidity to us.
— You are not raising money on the debt market, why?
— No, because it is very difficult to offer investors coupon remuneration less than 13%. For us, it is expensive. When large businesses request loans at the rate of interest, and the bank attracts resources on the debt market (this is not even considering administrative expenses), there is no point in attracting such resources. Therefore, only banks that can sell their credits expensively, for example, retail banks, can afford bonds.
— It was recently announced that Nurbank applied to the National Bank to participate in the bank rehabilitation program. Why does your bank need this? Could you manage without this program?
— Against the backdrop of constant global financial crises and Kazakhstan’s accession to the WTO, it became clear that our financial system needs to strengthen its competitiveness. Therefore, the president gave clear tasks to the NB RK to improve and enhance the quality of our banking system. For this, NB RK developed its own requirements for creating regulatory provisions, i.e. reserves aimed at a complete cleansing of banks’ balances from toxic and problematic assets.
Thus, since October 1, 2017, the National Bank tightened capital adequacy requirements. If previously the size of capital was affected by provisions formed as required by international standards, now capital is additionally affected by the provisions developed by the regulator. Moreover, the regulator’s requirements are quite stringent. Despite the fact that we pursued a conservative policy in lending, complied with all norms requirements, sufficiently provided ourselves a "liquidity cushion," the impact of regulatory provisions in subsequent years will put pressure on the size of our equity capital.
Absorbing this impact is possible through the bank’s capitalization or through profits. It turns out that the impact of regulatory provisions is already putting pressure, but the bank cannot earn profits in the same amount now, as achieving high profits in a short time carries hidden risks in the future.
Given that our bank has never pursued aggressive policies and always fulfilled all its obligations, to avoid high risks, our bank decided to seek help from the state. Thus, the bank will continue its conservative lending policy, and the income received over 5 years will be systematically directed to absorb regulatory provisions. It should be noted that government assistance is not gratuitous. Within 15 years, the bank must repay the debt with interest. However, I think we will finish much earlier.
— According to the program's conditions, shareholders must recapitalize the bank to a certain sum. Are you ready for this?
— Yes. The condition is 1 to 3, meaning for every 2 tenge of government money, the shareholder must recapitalize the bank with 1 tenge.
— What new products has the bank introduced over the past 5 years?
— During this time, we made the product line simpler and clearer. For individuals, we organized four simple products whose names speak for themselves— secured, unsecured, educational, and car loans, we launched mortgages, and car loans.
We opened new products and services— GONS, the "Educational" loan, IP cards, Instant, Icard and WEB cards, the nurpay.kz money transfer service, free card delivery with individual design in the cities of Almaty and Astana.
We were one of the first in Kazakhstan to launch the P to A service— the ability to transfer money from card to card and from card to account over the internet.
We installed over 200 payment terminals across Kazakhstan, where clients can pay loans, replenish their wallets, pay utility bills.
We changed the interface and functionality on the website— www.nurbank.kz, internet banking Nurbank24.kz, and created the mobile app Nurbank Mobile Banking.
We launched a nationwide social project "Path to Life," which provides orphanage graduates with higher education and jobs. We opened a museum of folk and applied arts from the 18th to 20th centuries in the French House, located at 187a Furmanova Ave., Almaty, and became participants in the Almaty City Tourism Roadmap.
— What can clients and potential clients of Nurbank expect in 2018?
— Only the best (laughs). Naturally— beneficial conditions. There are several paradigms of how to work with clients— some accrue interest on account balances, others invent new products, etc.
For us, it's simple - we emphasize rates. But what’s our peculiarity, I believe that we offer the most honest rates. In the sense that our effective rate never has a big gap with the nominal.
When someone comes in for a consultation, we always tell our fees in advance and do not embed them in the loan, as other banks do.
We always aim for compromise and dialogue. All our top management knows almost all our clients by face. Last year I traveled all around Kazakhstan, I had 124 meetings. I was on business trips for exactly 32 days, visited 16 branches, spending 2 days in each. I met roughly 5 clients per day. I shook 124 hands, looked at production, enterprises, how they work, and our top managers do similar work in our bank.
Therefore, our conditions today are among the best. We’ve looked, and out of all the client mass, only 13% go to other banks (refinance). Everyone else closes loans with us. This is a very good indicator in the market, meaning our conditions are so comfortable that the client generally doesn’t waver.
Perhaps we are missing out on superprofits somewhere, but our clients stay with us.