The banking sector, as such, will change and change significantly over the next fifteen years. In an interview with 'Kursiv', Eldar Sarsenov, Chairman of the Management Board of JSC 'Nurbank', discusses client relations, work done to improve the credit portfolio, new development strategy, and current events in the sector, commenting on the bank's latest financial indicators.
– Eldar Rashitovich, JSC 'Nurbank' has shown excellent results for 2016. If I'm not mistaken, the bank is among the top three in terms of utilization of income-generating assets. The net income related to NurBank's earnings in 2016 increased more than 6 times compared to 2015. How did you manage to achieve this positive dynamic of key financial indicators?
– There is a short and a long answer to this question. Briefly, we are working. In detail, we have been making great efforts over the past two years to overcome the aftermath of the 2008 crisis and its lingering effects still felt in the real estate market and the shock after the devaluation across the market. As you've noticed, our core financial and economic indicators have grown, but the crucial aspect we've focused on is the safety cushion. We significantly strengthened the deposit base of individuals. They are our most diligent, stable, and promising depositors.
Interest income grew due to targeted efforts. We are very careful in selecting our borrowers. Firstly, we have a rather capacious and concise selection process, which can be considered conservative. Given that we have a very good funding base, we can compete with the top three banks in terms of provided services and rates; here, we feel comfortable both in Almaty and Astana, as well as in other regions.
The second is the customer base. Many banks focus their advertising campaigns on attracting new clients, but when such a bank issues a loan to an individual or a company, the matter is, for the most part, closed. That is, if I were a traditional business unit, I would produce a product or service, then sell the goods or provide the service, and that's it, my relationship with the client would end. When NurBank issues a loan, our relationship is just beginning. Therefore, we do not emphasize enticing advertising; it's used merely to highlight our products, focusing more on long-term relationships.
The banking sector, as such, will change and change significantly over the next fifteen years. Therefore, today we are focusing firstly on comfortable conditions regarding collateral or the credit history of our borrowers, and secondly, on personal service. I and my colleagues know all our clients personally, enabling us to engage in dialogue, finding mutually beneficial terms.
– At the beginning of 2016, NPL levels at NurBank were at 9.32%, reduced to 6.94% by the year's end of the total loans issued. How did the bank work to improve the credit portfolio?
– It's a one-on-one dialogue with the client. No reasonable person wants to be in a debt pit, nor does the bank. 99% of them simply fell into a difficult life situation and need dialogue. The bank is not interested in repossessing assets, whether apartments, factories, etc. That's not our business. Therefore, it's far more beneficial for us to help our client, who is experiencing temporary difficulties, get back on their feet and continue working with them as an income-generating individual. There’s nothing extraordinary about it; it's personalization, patience, and empathy.
– Recently, S&P downgraded NurBank's long-term rating from 'B' to 'B-', confirming the short-term rating at 'B'. According to S&P Global Ratings, JSC 'Nurbank's' business position has been reassessed due to low profitability indicators amid uncertain external conditions. What caused the rating change?
– In brief, S&P noted, in particular, that our market share and profitability indicators did not meet their expectations. We would like to note that we are a conservative bank. An institution dealing with loans or, given more emphasis on deposits, cannot afford to be aggressive; this would be a very risky strategy. Therefore, our conservative policy has had an impact on the bank’s profitability. We are not chasing super-profits; for us, stability and future confidence are key components.
The conservatism with which we operate has justified itself. This year marks our 25th anniversary, during which we've survived several crises. If we had followed all the wishes of our partners, regardless of who they are, we wouldn't be having this conversation today. Rating agencies have their own tasks – to present an optimal picture of how a country or company should develop. My task is to safeguard the interests of shareholders, and most importantly, the depositors.
– NurBank has announced the launch of a new strategy for its 25th anniversary. What are the main directions of this strategy? Is it really something new, and how does it differ from what other market players offer? How will NurBank surprise its clients?
– We are not accustomed to making grandiose statements. What we will surprise our clients with is continuous daily operations. In essence, we will provide comfortable lending conditions. How will this manifest?
Firstly, today we are already working with ten state programs: these are joint programs with 'Damu', and we have successfully strengthened our relations with the Development Bank of Kazakhstan and the Unified Accumulative Pension Fund.
The lines allocated to us have been successfully mastered on time. Along with preferential lending programs, the bank successfully utilizes subsidizing tools – reducing the interest rate for the final borrower and guaranteeing loans to end borrowers when collateral is insufficient. This measure of support from the government is one of the most effective and is popular among entrepreneurs. Timely support provided by the state ensures entrepreneurs have access to preferential and long-term financing, which in turn prevents deterioration and slowdown in entrepreneurial development. In this respect, as I mentioned in previous interviews, state support continues.
We've also entered regional Damu programs – 'Almaty Tourism', 'Astana Retail', similar programs in East Kazakhstan, with plans for Atyrau, Shymkent, Karaganda, Taraz. We've signed a preliminary agreement on obtaining a tranche with the Asian Development Bank, and an agreement with the European Investment Bank is also planned. These agreements are aimed at micro-lending to small business entities for which traditional banking lending is unavailable.
Secondly, today we are dealing with our problem borrowers – individuals who previously had loans in foreign currency. The amount allocated to us was utilized promptly. Moreover, for individuals, we have launched a mortgage at favorable conditions, despite many banks rolling back such a program. Conditions for granting traditional unsecured loans, the speed of issuance, etc., are constantly being refined. The direct task I set for our staff is to improve our product line for individuals every month.
– In recent months, the Kazakh banking market has experienced volatility. There is a merging of capitals and financial structures. Some players leave the market while others emerge. What is Nurbank’s position in this situation?
– We definitely will not sell, as I mentioned earlier. The reason for such deals is usually a lack of liquidity or capital. The main cause of capital shortage is problematic assets, as they erode capital. In our case, we possess a well-cleansed structure, a result of years of work, letting us maintain sufficient capital that exceeds the regulatory level by 1.5 times.
Following the bankruptcy of KazInvestBank JSC and issues faced by some other banks, a crisis of trust disrupted the market. This crisis led to a withdrawal of liquidity from smaller and less stable banks. However, our bank did not experience a significant outflow of clients. The bank has a sizable client base, including several thousand reliable long-term clients. We have fairly stable funding, evidenced by liquidity ratios that exceed the required standards several times over, providing no groundwork for a sale or merger.
We currently see no need for acquisitions. Our focus is more on expanding the current business. This year alone, we are opening 16 branches, being an objective necessity given the geographical spread of our population. In addition, we are by no means winding down our online program.
– How relevant and necessary do you think is the National Bank's proposal for a new instrument to preserve funds, investment – gold bars?
– These are preliminary steps to provide our consumers with opportunities in the stock market. Physical purchasing of gold bars is the first step towards becoming a financially literate investor. Unfortunately, our stock market is still in its initial development stages, but it presents a very attractive platform primarily for our wide population as a source of profit with unlimited yield levels.
Buying gold is an investment dependent on price conditions, which is not much different from investing in real estate. It is likely that the yield from this instrument will not surpass bank deposit rates.
The next step is buying stocks through an app. Speed is crucial in the stock market. Today, computer algorithms execute orders in nanoseconds, so having an app will benefit the investor.
– Lately, for banks and their clients, the topic of external intrusions and data preservation (hacker attacks, antivirus attacks, spam) has been quite relevant. How is Nurbank addressing this issue?
– The hacker attacks that began this spring are still ongoing. Frankly, I expected them. We had been warned by our foreign counterparts. The organizations involved in this unlawful activity have been active in the Caucasus, Bangladesh, and Russia. It was only a matter of time before they reached Kazakhstan, given that our protection systems are less advanced compared to Europe and America.
The principle is that hackers attack the organization that is least protected. For the last five or six years, we have made substantial investments in early detection and protection systems, against both viral and external attacks. Hence, during the spring attacks, we suffered the least. One could say that our conservatism is reflected in our protection systems. This incident was a lesson for all that skimping on information security is inadvisable.