According to experts, 2017 was a real test for Kazakhstan's banking system. While in 2016 the main issues were primarily related to the instability of the tenge exchange rate, this past year most banks were focused on cleaning up their portfolios and creating additional reserves. In an interview with 'Kursiv', bankers summarized the past year and shared their expectations for 2018.
Results: What kind of year was 2017 for the industry?
Eldar SARSENOV, Chairman of the Management Board of Nurbank JSC
2017 was filled with both positive and negative events. Speaking of negative factors, there were upheavals in the banking market involving two financial institutions - RBK Bank and Delta Bank, which led to a decline in trust in the banking sector from depositors, particularly legal entities, and negatively impacted the liquidity of small and medium banks in Kazakhstan.
The technical merger of Kazakhstan's two largest banks Halyk Bank and Kazkommertsbank, which received substantial state support (about 2 trillion tenge), played a certain role. This provided a significant cash inflow into the banking sector from the National Fund, supporting the major five banks.
Furthermore, the second-tier sector was also affected by limits closure in the interbank market, clients' lack of trust, and decreased loan demand due to rising average loan rates and declining consumer demand. Although not all banks withstood this pressure, this factor had a positive effect on strengthening niche areas: diversifying funding, improving service quality, and developing lending through attracting state funds for SME and corporate sector lending. The situation in the banking market is evidently improving qualitatively, despite significant challenges.
I believe that the outgoing year served as a very timely and proper therapy for the banking sector - mainly applying preventive and health-enhancing tools within the framework of the state support for major financial institutions by the National Bank of Kazakhstan. My colleagues-bankers and I share positive forecasts concerning the results of this support.
Pavel LOGINOV, Chairman of the Board of EurAsian Bank JSC
The year was very eventful for the industry. Significant events included the declared and real consolidation of banks, the second was the Financial Stability Enhancement Program initiated by the National Bank, and the third was the realized risks that, unfortunately, affected several banks.
Forecasts: What is your outlook for 2018? What important events do you anticipate?
Eldar SARSENOV, Chairman of the Management Board of Nurbank JSC
This will be a time of mergers and acquisitions, strengthening the banking sector. It will allow identifying the strongest banks, giving sustainable banks a competitive advantage. We will also observe service quality improvement through digitization of internal processes and sales channels, along with staff skill enhancement.
The gradual revival of the credit market based on improving Kazakhstan's macroeconomic indicators is possible; a few banks entering the Western capital market could diversify the banking sector's funding; it's unlikely, but new (including foreign) investors might enter the capital of Kazakhstan banks as their number shrinks to 30.
Galeem KHUSAINOV, Chairman of the Management Board of Bank CenterCredit JSC
We have optimistic plans regarding the upcoming 2018 – the situation has all chances to improve – including increased banking activity, lending growth, and other positive trends.
Pavel LOGINOV, Chairman of the Board of EurAsian Bank JSC
Recent years, we have observed stagnation, we are at a low point, so we expect a gradual economic growth next year, hope for a revival, business development and growth, more active inflow of investments into the country, and rising consumer demand.
It is clear that the primary problem for banks is that accumulated balance sheet issues need to be addressed using client profits, for which the clients' business needs to start growing.
Positively, the devaluation scenario did not occur this year despite high expectations; instead, we see stability in the tenge, inflation rate, and the country's payment balance. We anticipate economic growth, which will elevate clients to a new level and allow banks to lend with reduced risk levels, expecting a clear monetary policy from the National Bank of Kazakhstan – further base rate cuts and a stable tenge rate. Such are the wishes for all financiers in the New Year.
Andrei TIMCHENKO, Chief Managing Director of Alfa-Bank JSC
2018 is expected to be more favorable for the financial sector. The predicted stable economic growth and relatively stable average annual oil prices will provide an economic basis for the successful development of Kazakhstan's financial sector in terms of currency stability, bank funding conditions, and client credit availability.
The work on resolving non-performing loans and recapitalizing certain banks carried out in 2017 by the government and the National Bank of Kazakhstan within the Financial Stability Enhancement Program contributed to increasing trust in Kazakhstan’s banking sector overall and created prerequisites for its financial stability and future growth.
In 2018, the trend towards consolidation in the banking sector may continue, although significant bank merger deals are already known, and the success of this banking strategy will be of greater interest.
The concentration of the market around large banks will stimulate the competitiveness of medium and small banks by improving financial efficiency (optimizing operating costs, sales channels, and personnel), enhancing service quality, and further digitalizing banking services.