Amid all the transformations in the banking sector, Nurbank remains stable. Today it ranks 15th in terms of assets, but last year was a breakthrough for it: the bank grew faster than the entire sector, and in terms of loan portfolio dynamics, it ranked fourth among second-tier banks. This year, Nurbank is celebrating its 25th anniversary. The bank has outlined its future for the next five years, having adopted a development strategy for 2017-2021.
"Expert Kazakhstan" met with the CEO of the bank, Eldar Sarsenov, and discussed the current state of the banking sector and, of course, Nurbank's place in it.
Liquidity Without Issues
— The banking sector, having survived the global crisis, has again entered a period of turbulence and is slowing its growth rates. What factors are affecting banks today?
— I would not say that the banking sector is in decline; rather, it has entered a period of transformation. Over time, all areas of life change, including the global financial system. Like any organism, banks process information and adapt to changes. But the fundamental factors affecting banks remain unchanged: the exchange rate, oil prices, and most importantly, the alpha and omega of banking activity — liquidity. For two consecutive winters, many banks experienced a significant shortage of tenge liquidity and suffered significant losses. The good news is that we have finally emerged from this period. The exchange rate of the tenge against the dollar has stabilized, we understand where possible fluctuations may occur, and we do not expect any market shocks. Banks have had excess liquidity for about a year now. It should be noted that many banks, like us, always maintained liquidity, but it was mostly in dollars. Now, Nurbank has accumulated a significant amount of financial resources, including funds in correspondent accounts and the interbank market, which will help us avoid or mitigate possible market shocks. The stabilization of tenge liquidity has been observed for a year already, which means that banks will be bolder and more optimistic in working with their clients.
— How diversified is your funding structure?
— Our deposit base is diversified adequately alongside our loan portfolio. Approximately 46 percent come from corporate deposits, both from large businesses and state-owned enterprises, about 15 percent from SME deposits, and 31 percent from individuals, with the rest being balances in card accounts and securities. We are not dependent on any single "egg"; we have a well-diversified basket, which allows us to withstand even large withdrawals and cover all obligations. Our stability is confirmed by independent analysts and the rating agency Standard & Poor's, which yearly awards us good ratings. Currently, we are at a "B" rating.
Mismatched Terms
— Will solving liquidity problems affect its cost?
— A trend towards cheaper liquidity started to form last summer. Given that inflation today is within the corridor set by the National Bank, and the base rate is also falling, it might be possible to revise loan rates. The only question is how ready we are for medium- and long-term lending. It is difficult to lend with those deposits that we attract from the market. The average life of a personal deposit is one and a half years, and the same goes for corporate deposits. The term for a mortgage is 15–20 years on average, and as competent financial managers, we cannot lend such long-term products with short-term funds. We hope that other opportunities will open up for attracting long-term funding, and we will be able to fully work with this type of loan. For now, consumer loans, loans secured by real estate, car loans, and credit cards remain relevant for us, as these are our usual range of products with short terms.
It is more challenging for small and medium-sized businesses. The lending term for investment purposes is five to seven years, and the rates should be appropriate. Today, it is difficult for many banks to independently attract such funding. Here, we are helped by state programs for supporting the economy. Thanks to budgetary funds, we have the opportunity for subsidizing rates and additional financing for priority sectors. Thus, the government, through the National Bank and the DAMU Fund, compensates for the losses incurred due to market conditions.
— Is there demand for investment money today?
— Business is a very sensitive organism. Entrepreneurs see the stabilization of the geopolitical situation and improved conditions in the currency market, such as the positive trends of the tenge-dollar exchange rate, and they have the desire to rise on this wave. Businesses now have a high demand for investments in production and new projects, and for this, cheaper and longer-term money is needed. Here we hope for the regulator, the Unified National Pension Fund, and state and quasi-state companies to provide such instruments, the more of which there are, the better.
— According to the results of 2016, the loan portfolio for the sector as a whole fell, but yours grew by 15 percent. Which business segments ensured this growth?
— Indeed, we have something to be proud of. In 2016, the bank grew faster than the market. Our assets increased by 21 percent, while the sector as a whole grew by only 7.5 percent. In terms of loan portfolio growth, Nurbank ranks fourth in growth intensity, while the market as a whole fell by 0.3 percent. There's no secret here; two-thirds of our growth was provided by small and medium-sized businesses and about a third by retail. We are not yet talking about mortgages, as it is a complex issue. However, today the bank has enough funding for lending to large corporate clients and SMEs, not to mention retail businesses. The liquidity is there, and we thank the regulator for its thoughtful monetary policy. All of this is a guarantee that the transformations observed in the banking market are not occurring in such shocking conditions as before. If we were also burdened by liquidity and funding issues, the conditions for clients might have been much worse.
Not Just a Toothpick
— In the early and mid-2000s, most banks opted for a universal development model. Do you think universality will be relevant in the future, or will a narrow specialization be more successful?
— For us, universality remains a priority. At the end of the 2000s, Nurbank was predominantly a corporate bank, but we tried to move away from this one-sidedness. We are developing, and more than successfully, our retail business and have opened a very strong small and medium-sized business unit. What is the advantage of a universal bank compared to a so-called "toothpick bank," which is focused on one or two products or one audience? Certainly, when you do the same thing constantly, you eventually achieve perfection. This is beneficial when the economy is growing, and citizens' net income increases adequately with economic growth. But during a prolonged stagnation or decline, such fixation risks structural difficulties. We made the decision to become a universal bank and diversify our product and, correspondingly, client portfolio as widely as possible. Since 2013, we have been moving in this direction.
— You have adopted a new development strategy. Could you tell us what the focus will be for the next five years?
— The strategic goal in the medium term is to increase the share of retail lending in the bank's loan portfolio, actively lend to SMEs through both our own programs and joint programs with the state, develop remote service channels, and provide clients with convenient and easy-to-use tools for working with the bank.
— In what proportion do you plan to develop corporate business, retail, and SMEs?
— As of January 1, 2016, the corporate block accounted for 66 percent of the loan portfolio, and by the beginning of this year, this figure had decreased to 60 percent. According to our strategy, we aim to bring the share of corporate business to 48 percent. Retail grew from less than 15 percent to 17 percent over the year, with plans to reach 29 percent by our determined timeframe, the SME share a year ago was 19 percent, now 23 percent, and we intend to maintain it at the same levels.
Approximately 57 percent of the SME portfolio is funded through state programs, which provide long-term guaranteed funding, and this is very important. Additionally, we are ready to cover temporary risks — long loans and short funding — through our own resources.
— During a period of economic slowdown like we saw last year, household purchasing power declines, reducing demand for loans. Is retail lending profitable today?
— In fact, the demand did decrease, but it is there. Regardless, people still have certain needs: improving their living conditions, travel, treatment, unforeseen expenses, and much more. For the bank, consumer loans are profitable due to the low diversification in the term base of funding. Retail consists of short loans, quickly revolving and matching the excess short funding. The average deposit term is one and a half years, and the average retail loan term is also one and a half to two years. It is rational financial planning.
— How do you manage to keep the loan portfolio relatively clean? Nurbank does not have the lowest, but also not the highest NPL share, and it has decreased since last year.
— I can't reveal any significant secret because there isn't one, nor do we have a unique know-how or super method. Even in 2015, our NPL share was below 10 percent, last year we reduced it to 7.6 percent. We've been cleaning our loan book for five years now, so we've gathered a lot of experience. It involves sales, write-offs, and, in some cases, debt restructuring. We also work with clients and debtor management and transfer assets to our subsidiary OUSA. In stress asset management as well, there is nothing particularly complicated; the main thing we focus on is generating income from these assets to repay the debt. It's methodical daily work.
Just Business
— What new products are you ready to offer the market?
— We have already started to actively develop in this direction. Today, SME representatives have access to the IP Card, which facilitates payment processes not only for individual entrepreneurs but also for lawyers and notaries. This year, many new products will be available for SME clients, such as "Microbusiness," the "Credit Partnership" deposit, and electronic bank guarantees. More details about these products can be found on our website. Regarding individuals, we have released card products like WebCard for secure online payments worldwide, and a card with a customizable design option called ICard. Additionally, in the near future, our clients can expect many new products with favorable lending conditions.
— What results do you expect by the end of the year?
— The banking business, in its essence, is simple. It depends on the state of the economy and the state of its clients. Everything is interconnected here. The lower the inflation, the more cheap long-term money in the market, the faster the economy grows, the better our clients feel, meaning they won't default or need to restructure their debt. I believe that if there are no 'black swans,' no unforeseen negative events, we will enter 2018 with a significant plus. I'm speaking not only about Nurbank but about the whole banking sector.