Pension Savings Informer enpi.kz
Enpi.kz met with the Chairman of the Board of JSC "Nurbank" to understand how Kazakhstani banks utilize UAPF funds.
— The banking sector is one of the active consumers of the pension savings of Kazakhstanis. Nurbank is also among the UAPF borrowers. Please tell us, for what purposes does the bank use and attract pension savings?
— Before answering your question, let's recall how pension funds were invested in the banking sector. The pension funds of Kazakhstanis were placed by private pension funds in subordinated bonds and shares of commercial banks even before the creation of the UAPF. Firstly, since the maturity of these investments (bonds) has not yet arrived, they are still in the investment portfolio of the UAPF. Secondly, the simultaneous early withdrawal of pension funds from banks will shake the stability of the entire banking system.
How does Nurbank work with the UAPF pension funds? The funds allocated by the UAPF are kept in separate accounts, which makes their control more transparent. In 2016, the bank received 11.4 billion tenge from the whole pool of pension funds that the fund had placed in commercial banks.
In 2016, following the devaluation, banks experienced an acute shortage of tenge liquidity until the end of the year. The infusion of several hundred billion cheap tenge into the economy from the UAPF, coupled with state subsidies, was decisive for representatives of the real sector and businesses.
— You mentioned cheap several hundred billion tenge. Cheap — how much is that?
— In 2016, a rate of 15.2% per annum in tenge was considered cheap financing, now it's already expensive.
— In 2016, the infusion of funds from the UAPF into commercial banks was a strategically important decision, but it cannot be long-term.
— If the entire banking sector relies on the UAPF's money and subsidies — it's certainly not a long-term solution. However, at that time, after the devaluation shock, it was an important step.
— As I understand, you use pension funds for targeted lending to SMEs.
— This is a requirement of the "Damu" programs — the fund acts as an agent for the means allocated from the UAPF.
— Mr. Smagulov, as a representative of the real sector of the economy, took pension money to build a shopping center and returned it early due to public criticism, although the profitability was 18.5%. Should pension funds be used to finance such projects, since you work with businesses in various industries?
— The pension funds which Nurbank took are 3-year funds and cannot be compared with the long-term funding that the bank could attract by issuing its bonds or receiving funding under business support programs from the DAMU fund. It is necessary to understand that the UAPF was a temporary solution to the systemic problem of the banking sector. The systemic liquidity problem has passed, and funding from the UAPF in its previous form is no longer relevant to the banking market. The 18.5% profitability mentioned by Mr. Smagulov was a quite market rate at that time.
The real sector, including exporters and manufacturers, was effectively credited at a preferential rate of 10% per annum. That is, the bank financed clients at a market interest rate, of which 10% per annum was subsidized by the state. Thus, lending covered a very wide layer of exporters and manufacturers in various industries.
The positive aspect can be called the fact that the pension funds allocated to banks and further placed in the real sector had a positive multiplicative effect: company employees receive salaries, pay taxes, pension contributions, etc. Here, the UAPF played an excellent role, and I would like to thank everyone who participated in providing such a tool to Kazakhstani business.
— Should the pension funds, placed as deposits in banks, be covered by the Kazakhstan Deposit Insurance Fund? After all, essentially, the beneficiaries of this money are the same - individuals (and most have savings in the UAPF of no more than 1 million tenge)?
— Firstly, the banking sector is very important to the economy of any country. They, to some extent, are conductors of state support for the real sector of the economy. After all, it is not profitable for the state to provide financial aid directly to a small entrepreneur in some region. Therefore, the state has a special relationship with the banking system, which is one of the most regulated in the economy. Banks are constantly audited by independent foreign companies and various governmental bodies.
Past devaluations and global crises have demonstrated the positive role played by banks for the economy and society.
Currently, the banking sector is severely limited in attracting external financing due to high currency risks and the cost of funding. Unfortunately, the main source of funding is the funds of state companies.
Secondly, preserving pension savings and state funds is a top priority for the state, and in case of bank liquidation, their return is prioritized after the payment of wages and taxes.
Entire pension funds were withdrawn from the liquidated "Delta Bank", essentially, from "Kazinvestbank" as well, so there is no historical precedent for the real loss of pension funds. But if the Kazakhstan Deposit Guarantee Fund decides that banks should further hedge risks with UAPF funds, which can be used and operated, I think banks will agree to this. I won't speak for all colleagues, but as for "Nurbank", we are ready to pay additional contributions on pension funds if necessary and at the same time have the opportunity for funding from the UAPF. These are normal, honest conditions.
— In my opinion, Russia and China are two players who will increase their influence in the Kazakhstani banking sector. How do you feel about foreign bank subsidiaries working with the same pension and state funds alongside Kazakhstani banks?
— You can look at this from different angles and get different answers. I will try to look at this issue from 3 positions.
First — competition. The banking sector is now one of the most competitive. A serious competitive battle sometimes unfolds between banks for good clients. As a result, the client wins, getting the best conditions and great advantages. The more players enter the market, the better for the clients.
Second — the labor market. In all subsidiaries of foreign financial organizations, many Kazakhstanis work. These are jobs for our compatriots, who receive salaries and support families and relatives. They gain experience, skills, connections, pay taxes. This is a huge social plus.
The third aspect — the market. The UAPF issues funds at a market price, that is, in fact, sells money to banks on terms of payment and return. And if foreign banks receive UAPF funds, they receive them on market terms, on the same as Kazakhstani banks.
As for providing them with state benefits, it should be noted that foreign banks have strong capitalization and funding from parent companies, as well as the ability to sell money expensively, getting good returns. The position of the parent companies is almost the same for everyone — you must take the money where you lend it.
Foreign banks do not receive benefits, and this is correct. For example, the National Bank's financial sector recovery program does not provide for the participation of any foreign bank. But in state programs operated by BRC, Damu, UAPF, any bank can participate on market terms.
— What would you recommend Kazakhstani citizens 35+ to do now to make their future more secure when we are no longer beautiful, young, and professionally in demand in the market?
— I would advise becoming entrepreneurs and investing in the real sector of the economy. Only your own business gives a return that neither a bank nor a pension fund can offer.
Become an IE, become the head of LLP — this is the most reliable way to ensure your old age. Salary and bonuses set a limit on the deposit in the bank and pension savings. The only way to earn more is to start your own business. And that’s great. No market and economy work solely due to the financial sector. Yes, the sector has a large share in GDP, but the rest is driven by entrepreneurs. And God forbid it should be otherwise.
The more entrepreneurs, the more clients banks have, more taxes, more jobs, goods, and services. Right now, "Damu" has a huge number of different programs to encourage our citizens to open their own businesses. There are many local lending programs for each region, where you can get a cheap targeted loan — from traditional restaurants to souvenirs manufacturing.
If you become an entrepreneur, it should be right now. There might not be such opportunities later. In your business — the highest return.
— Does your bank plan to offer interesting banking products as alternatives to savings in the UAPF for the 55+ audience? Why is not a single bank working with this quite affluent audience from the savings perspective? What's the problem?
— If we're talking about banking services as alternatives to a pension fund, then banks are unlikely to offer them. We can certainly create an absolutely mirrored thing that the UAPF does — collect money from clients and through brokers place it on the market in various investment tools, but we won’t be able to get the same amount of money and discount from brokers that the pension fund can get. This is the first. The second — if we offer purely investment tools, they will be naturally more profitable than just a deposit, but they will be risky.
To achieve double-digit returns and return the money, you need to invest in startups. Therefore, no investment portfolio can become an alternative to a deposit.
Let’s look at our deposit rates. No conservative investment portfolio in the West offers similar conditions. These things limit bankers in offering such tools.
— Let’s summarize the year for your bank. Where did you finish in 2017, and what will happen this year?
— We diversified our loan portfolio. Nurbank is a universal bank, we do not change strategy. Our market is very small to bet on only one segment.
The universal bank is good because it relies on several pillars. When one sags, another supports us. We want to bring retail to 25% within two years. Also, plans include increasing presence in mass entrepreneurship and actively developing the digital direction.
What else will we do in 2018? Focus even more on internal processes, things that affect cost. In general, in 2018, Nurbank will be better, faster, and more successful.