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Despite challenging economic times, some financial market players manage to successfully overcome all hurdles, and Nurbank is one of them. As it turned out, the bank predicted the sharp depreciation of the tenge in advance, had a pessimistic scenario that mitigated the potential risks. The business publication 'Kapital.kz' talked with the new chairman of Nurbank Eldar Sarsenov about whether he intends to radically reconsider the institution's strategy, how he evaluates the regulator's policy, and with what means the bank plans to recapitalize.
- Eldar Rashitovich, your career has progressed steadily. You worked in marketing in the retail business, then entered the banking environment. After three years as managing director at Nurbank, you recently headed the bank... How predetermined was your path?
- Looking back on my life, I can say that I always aspired to try myself in banking, I was interested in global projects... Initially, I earned a higher education in the USA, graduating from Suffolk University with a Bachelor of Business Administration degree. Later, I decided to consolidate my knowledge and completed a Master's in Business Administration from Northeastern University. Western education helped me think on a larger scale...
I started my journey as an assistant marketing manager, gradually rising to the deputy director of sales and marketing at the Helios gas station network. Some marketing tools I used in the retail sector, that is, in the C2C area, I now apply in the bank. The position of managing director at Nurbank gave me an understanding of how the institution works, I saw the bank from the inside. A bank is a mechanism where each component should work orderly, smoothly, and efficiently. At the institution, I oversaw advertising management, launching several very successful large-scale campaigns involving foreign actors... Advertising is a very fine line, requiring a clear understanding of the client, which I undoubtedly project onto my current work. After all, the most important thing, I believe, is to competently build relationships and dialogue with partners.
Apart from advertising, I also oversaw the card business, remote service channels, and refining operational work in the bank.
The events in my life can be layered over the words of Apple CEO Steve Jobs. At one point, speaking to Stanford University graduates, Jobs shared that when studying in college, he could not foresee that in the future, a random series of events would lead to a significant meaning that was unclear to him at the time. I think my links have also formed and created some correct and clear pattern.
- What new contributions do you want to make to the bank?
- Plans include actively developing remote banking services and retail business. The demand for online services grows every year, we continuously introduce innovations to make remote channels convenient, comfortable, and simple for our clients. Having contacted the bank once, clients can further carry out all financial operations remotely, without spending personal time visiting branches.
We intensified this direction in 2014, conducting a series of updates to our digital channels. Specifically, for retail clients, it's the Internet banking Nurbank24, and for corporate entities — 'Korrektes'. In 2016, our goal is to launch a fundamentally new mobile banking for the Kazakhstan market, expand the client base actively using digital channels. Here we see enormous potential. For example, through Nurbank24 one can access 90% of banking services, pay for mobile services, taxes, fines, airline tickets, utility services. Our bank cooperates with over 100 partners in this segment.
Through 'Korrektes', companies can work with documents in a multi-user mode. For instance, an accountant can generate a document in the office and immediately receive feedback from their manager. That is, a manager can sign a payment order while being outside the country. We also plan to implement a unique 'Cash off' module, which will allow viewing transactions on payment cards, deposits, accounts, loans through 'Personal Account', not only of Nurbank but also other banks.
Speaking of developing remote channels — we strive to simplify and speed up communication with clients as much as possible, which is why our website offers a 'Chat' module for online consultations. And if visiting the site is not possible, clients can write to us via WhatsApp at +7-707-000-25-52 and receive instant information.
- Do you plan to introduce any card products? What's interesting about them?
- We have a wide selection of Visa and MasterCard payment cards. In 2016, our clients will have access to IPCard, designed for individual entrepreneurs, and WebCard for secure online payments. The WebCard can be used worldwide.
In 2015, we launched a Nur Club discount club for cardholders. Today the club unites various Kazakhstani companies offering discounts on goods and services to all Nurbank cardholders. For example, paying for purchases at 'French House', our client gets a guaranteed 5% discount and a 3% discount when buying fuel at the Helios gas station network.
- You mentioned you intend to develop remote channels... What about POS terminals?
- In 2016, we also plan to significantly expand the POS terminal network.
- Given this, can we say that the bank plans to strengthen the retail direction?
- Absolutely correct. Following a pessimistic scenario that includes several assumptions, we plan a significant increase in the credit portfolio of individuals in 2016. However, it should be noted that everything will depend on the situation in the economy. Currently, the retail sector's share is insignificant. According to reporting, by the end of 2015, it accounted for 15.1% of the loan portfolio, 18.6% was for small and medium businesses, and 66.3% for the corporate segment.
We have adjusted the bank's strategy considering the economic situation and plan to update and purchase equipment to expand the 'gateway'. That is, the bank intends to put the client flow on some conveyor, improving the quality and speed of service.
- Let's move on to the deposit market... Will your bank also compensate depositors for devaluation if they had up to 1 million tenge on their accounts? What results can be summarized?
- A total of 2,830 depositors submitted applications amounting to over 923 million tenge. The average deposit amount was 300 thousand tenge.
- Did you expect that the National Bank would switch to inflation targeting as early as this summer, rather than in 2020 as planned earlier? Did you foresee that tenge would depreciate by more than 40% following this policy?
- We work ahead of the curve; several scenarios were developed by the bank. The main criteria taken into account were the dollar rate and energy prices. Even with a positive development of events, we assumed that a rate adjustment would occur in any case, but no one knew exactly when.
One of the scenarios regarding the dollar rate began to materialize at the end of 2014, and accordingly, a plan was developed to protect against the tenge rate adjustment. By the summer of 2015, the situation on global oil markets was ambiguous, while the ruble rate started to weaken. In mid-July, the National Bank decided to widen the tenge-dollar fluctuation band from 170-188 tenge to 170-198 tenge. It then became clear that the financial regulator was unable to spend huge gold and foreign currency reserves to restrain the weakening tenge. This year's gradual slippage of the national currency rate adversely affected the export potential of Kazakh producers, influencing the country's balance of payments. We anticipated that inflation targeting would occur soon, given that Kazakhstan experiences the lowest inflation in summer.
The bank's pessimistic scenario included the Brent oil price at around $40 per barrel, a ruble exchange rate corridor of 68-70 per dollar. We also did not rule out the possibility of sanctions against Russia being tightened or expanded.
- Currently, the dollar rate has exceeded 360 tenge. What rate was factored into the pessimistic scenario?
- Under this scenario, the Brent oil price in 2016 was expected to be $28.5-25.67 per barrel. Accordingly, the dollar rate was anticipated to range between 365-380 tenge.
- All banks now face a shortage of long-tenge resources. How are things in your bank?
- We are no exception; the bank operates under the same conditions as all financial institutions. At the same time, we have enough resources to fulfill all our obligations in both tenge and other currencies. We have a sufficient margin of safety.
- What is the currency structure of the bank's deposit portfolio?
- By the end of 2015, the share of dollar deposits was 58.3%. Before the tenge devaluation in August, the share of foreign currency deposits was roughly at the same level. Kazakhstani people expected devaluation.
- How can the status of the tenge be improved?
- Undoubtedly, it will take time. One lever is that banking services in tenge should be more attractive than in foreign currencies. This relates not only to loans but also to deposits and remote channels. Comprehensive work on import substitution should be conducted, ideally so that the agrarians can provide 100% of Kazakhstani food supply. After all, a significant part of each of our budgets goes to food. Also, Kazakhstan should produce goods with high added value. They don't necessarily have to be smartphones, but they could be high-tech components for construction, light, and processing industries.
- To provide banks with long-term funding, the government has launched several instruments. For example, in 2014, the National Bank opened a currency swap line of $10 billion for 12 months at 3% annual interest. At the end of April 2015, the regulator announced that this currency swap line had not been exhausted. Are there negotiations for extending this line?
- Our bank, like other financial institutions, used the currency swap line, which is now fully exhausted. Access to this instrument was closed by the National Bank as early as November 2014, and the conversion of depositors' funds from tenge to dollars in large volumes was observed later, after December 16, when the ruble dramatically depreciated in one day. I would like to note that this currency swap line is not, in fact, long-term. The year's duration of the line did not allow financing investment projects. As a result, our bank directed resources attracted through swaps to short-term aims, including short-term loans. If the line is opened for 24 months or longer in the future, we can finance larger projects.
- How optimal was the 3% rate?
- Quite acceptable. The most important thing is that the cost of money is the same for each bank.
- Liquidity was also provided to banks through the Unified Accumulative Pension Fund (UAPF)... The head of one of the large banks once noted that the state fund's funds, placed on bank deposits, can de facto be considered demand deposits, thus uninteresting to some banks. Can you comment on whether this is the case, given that you do not place the fund's resources in your bank? Why is that?
- As you correctly noted, in reality, UAPF funds on deposits can be considered short-term, as money can be withdrawn from the bank at any time. Accounts can be zeroed by a national company, the pension fund, and retail clients. In essence, no preferential conditions through deposits were available for banks from the fund's resources. We do not have pension funds in our accounts. This is related to the National Bank's capital requirement, which grants access to the fund’s resources only to banks whose capital exceeds the market average. Nevertheless, we believe that the financial institution's stability is ensured not by the absolute size of the capital but by its adequacy. In terms of capital adequacy, our bank is one of the most capitalized.
- Recently, President of Kazakhstan Nursultan Nazarbayev announced that pension funds will now be inaccessible to banks. He stated that 'bankers started to play with and lend these funds to their shareholders'. Could you comment on this initiative...
- Uncontrolled allocation of pension funds is unacceptable as it would only lead to rising inflation. It is unacceptable for banks to use UAPF resources to buy foreign currency in anticipation of further tenge weakening. Therefore, only banks capable of ensuring the targeted use of these funds should have access to state fund resources. The state has multiple government programs through which funds can be directed to the real economy.
- In mid-October 2015, the National Bank declared a shift to countercyclical regulation of the banking sector. Many financiers positively appreciated this initiative. In particular, the deadlines for full transition to Basel III standards have been postponed from 2019 to 2021. Can you share your opinion?
- We positively assess this regulator's policy. Kazakhstan's economy is highly dependent on the financial system. Thus, we believe that the National Bank, having considered all aspects, made the right decision.
- As part of the Basel III transition, banks are expected to recapitalize. Although in 2016, financial institutions will be allowed not to increase their capital to 30 billion tenge, they will eventually have to do so. By 2019, the bank's capital should be no less than 100 billion tenge, or it will face restrictions in attracting deposits. How prepared are you to increase capital?
- As of now, the bank's capital exceeds 47 billion tenge (as of 01.01.2016), which allows for significant growth in asset volumes, including deposit attraction. If there is a need to increase capital for business volume growth, we are ready to recapitalize, and it will be a systematic process.
- Some financial institutions consolidated this year. Are there negotiations for a merger with any bank?
- At the moment, there are no negotiations about acquiring another bank. There are also no discussions about selling Nurbank.
- Currently, 35 banks operate in the market. How do you feel the banking sector might shrink?
- It's challenging to make exact predictions, but it can be said that by 2019, some players will leave the market.
- Do you anticipate the regulator's policy will significantly change overall?
- As practice shows, the National Bank has always approached its decisions deliberately and thoughtfully. Drastic changes may adversely affect the financial sector. Therefore, in our view, the financial regulator will introduce systematic and balanced changes, considering market conditions.