- A significant event for us was the completion of AQR. This is an incredibly valuable experience, likely happening once in a generation. The point is that there is no common standard for AQR—a detailed audit of a bank's financial activities. When conducting assessments in its market, the regulator tailors the process so extensively that it is challenging to compare it with other countries. Moreover, Kazakhstan conducted the evaluation in very tight timelines—less than a year, whereas in other countries it can take up to one and a half years. Successfully conducting the AQR is, in my opinion, largely the achievement of the National Bank and consultants, who managed to carry out this process in a short time, providing a rigorous but accurate assessment.
As a result of the AQR, as you may recall, a banking sector recovery program was proposed, in which Nurbank also participated. As part of the program, the bank issued subordinated bonds amounting to 47 billion tenge.
The second significant event for the bank was its recapitalization. In May 2020, the shareholder injected 20 billion tenge into the capital.
All this enabled the bank to increase provisions. In 2020, the additional provisions in Nurbank amounted to 68 billion tenge. The loan portfolio as of December 1, 2020, is 235 billion tenge. This is a good result. Provisions are a safety net created by the bank itself in case of deterioration in asset quality. With an extremely conservative assessment, based on credit risk indicators, some of our loans were classified into the third basket—loans with signs of financial deterioration—and were digitized. The rules are such that loan restructuring, for example, when a client changes the repayment schedule, increases the chances of this loan falling into the third basket. Although, in principle, restructuring is a quite functional tool for both the client and the bank.
I can also say that during the challenging pandemic year, the bank did not stop its branch operations, although Nurbank was one of the first to switch to remote work. The head office began the transition online even before Nauryz. Nevertheless, our branches operated normally from March to August, following the recommendations of the chief sanitary doctor. And of course, to ensure their work, we took all measures to minimize epidemiological risks: sanitizers, mask regime, social distancing.
We grew well over the challenging 2020. By not letting our clients down, fulfilling our commitments on credit lines, and effectively yet conservatively assessing new borrowers, we issued 69 billion tenge. Just in October, we issued 1 billion tenge. Looking at our credit "pie," over 60% is the corporate sector, 24% is SMEs, and the rest is retail. Notably, the share of SMEs in the loan portfolio increased by 15%.
The expansion of lending was facilitated by the increase in deposits. How stable is this funding for you?
- In 2020, the net deposit growth amounted to 9.2 billion tenge. Our advantage is that our deposit base is well-diversified. We do not have a single large depositor. The top 20 depositors account for a small percentage of the deposit base and are well-distributed between SMEs, whose portfolio grew by 15% this year, and individuals, whose portfolio at the end of 2020 accounted for almost 40% of the deposit base. We are not a bank relying on a few large depositors. We have thousands of depositors. You’ll agree, this plays well on the bank's reputation.
If I were choosing deposits, I would first look at the bank itself. Its diversification and credit rating, and ultimately the responsibility of the management. I have been working at Nurbank for eight years, four of which as the first leader, bearing primary responsibility to our depositors.
In March 2020, the bank received a rating confirmation and an improved outlook to "Stable" from S&P. The bank could have aimed for a higher rating, but the pandemic situation played a role. We are working to improve results and hope to show our depositors and partners in 2021 that our rating confirms our viability and ability to move forward.
How did the bank manage to increase the loan portfolio in SMEs amid such fierce competition?
- We don't have any particular know-how. It's the simple human factor. We have an excellent team of managers and credit officers who know their clients well and also strive to build warm relationships with them. Although, in reality, the credit process is quite a boring and meticulous job, only the result is visible.
Many banks in our country and abroad are trying to automate SME lending. But I think this is not always justified because SMEs are not standard clients. There are enough small enterprises in SMEs that do not undergo audits, and do not keep important statistics for bank scoring. Therefore, flexibility in understanding such clients is needed. The delicate balance plays its role, which depends on the culture of a particular city.
A partial refusal from automation, focusing on the human factor, greatly improves the interaction process with the client. The cost of banking products and services is gradually leveling out, services are improving everywhere, but human communication is expensive. Here, our branches play their role. But again, the key is balance. If the bank bets on fast service, online undoubtedly becomes paramount. But if we talk about banking classics—loans and deposits that have existed for hundreds of years, then personal interaction is essential. By the way, I try to communicate with clients personally. This helps me better understand their preferences and issues, to improve our marketing and business processes.
You are talking about banking classics. How does Nurbank work with technology?
- We are developing the good old classics, without forgetting about modern IT developments. As early as 2019, we started implementing a new operating system that will modernize our back-office. From early November 2020, the transition to the "combat," industrial version of the system began. This work may not be directly visible to clients, but it will impact aspects. The bank's business processes will become more efficient and qualitative. This is a necessary thing, which, by the way, also happens once in a generation.
We took a long time to consider modern interfaces. Some of them had not been tested in our market, so we settled on an option already used by other banks. Naturally, we chose the latest version, including the latest updates. There has been intense work over a month and a half, and I hope that from early 2021, we will become better and more powerful.