Soon it will be a year since the position of chairman of 'Nurbank' has been held by the young and ambitious financier Eldar Sarsenov. In this regard, 'Kz' decided to find out whether the bank's policy will remain unchanged or if we should expect new changes in the coming year.
— Eldar Rashitovich, it will soon be a year since you assumed the position of chairman of the board of JSC 'Nurbank'. In this regard, I would like to remind you: you once said that the bank's policy changes in three directions at once. Were you able to hold and develop them as planned?
— Over the past year, according to our strategy, which we generally write for 3 years ahead, changes have occurred in the bank across all three directions.
One of the goals was to move even more into the retail business. We have essentially achieved this goal.
Since the beginning of the year, tremendous work has been done to improve the product line and optimize processes, which has helped us not only maintain, but also increase the bank's customer base. I want to note that the cost of our credit products is not overpriced, we have low extra charges for clients. Because first of all, we always think about whether it will be interesting and beneficial for an individual to bank with us. To this end, we strive to create accessible and clear products. For example, since household appliances, phones, and other goods are always in demand, we offer a merchandise loan and installment plan for 12 months. And in the near future, we are ready to surprise the market with a completely new and unique installment plan. We also offer another type of unsecured loan—with amounts up to 5 million tenge for 5 years, which we can provide within one day. In our retail product line, we also have secured loans up to 30,000,000 tenge for up to 10 years, refinancing, educational loans and more. All this is done so that each of our clients can choose the product they need on favorable terms.
The bank has always worked with SMEs, and we actively cooperate within the framework of state programs. We know this segment, and we have extensive experience here. There is strong competition between second-tier banks in the market now, and accordingly, we needed to become more active to remain efficient. We have expanded the product range, the conditions of banking service have become more flexible, and extensive analytical work has been carried out on all market segments and development trends.
A special note on government-backed programs. The state today offers many different measures of government support—grants, interest rate subsidies, funding contributions for business development, and so on. As of October 20, 2016, the bank had fully utilized the funds from the first tranche of 7.1 billion tenge from the JSC 'ENPF' to support small and medium-sized business entities. And joint cooperation with the Damu Fund allows our clients to receive subsidized funds. Now we are signing a number of agreements with international financial organizations to receive subsidies for our partners in SMEs.
I'll back up the facts with numbers: as of January 1, our assets were 333.4 billion tenge, and on September 1 of the current year—372.1 billion tenge. Over 9 months, our growth was almost 12%. Regarding the deposit portfolio—we aimed to diversify and dilute the corporate sector. Of course, we did not abandon the development of our corporate and successful portfolio, but we believe that the concentration of our efforts and energy should be directed primarily to retail and SMEs. Because this is the foundation of the banking market. In the corporate sector, everything depends on more subjective factors.
Another priority and profitable direction for us is the card business. Today it is one of the most sought-after on the market. Many of our colleagues have entered this sector, but its specificity is that it has a very long payback period.
We have a stable portfolio and a good size of payroll projects in corporate business, SMEs, which allows us to have a wide client network. Today, this is 456.6 thousand clients, many of whom actively use our plastic and to whom we offer other bank products, increasing passive income and our commission income.
This year, we also successfully launched a mobile application, continue work on expanding services in Internet banking (including increasing the number of service providers), expanded the terminal network, and installed 201 payment terminals, which are already showing good results in terms of volume and turnover. Today, Nurbank is the 8th bank in terms of the presence of POS-terminals, ATMs, and payment terminals across the republic. Our new products—WebCard, Instantcard, IP-card are already successfully sold in branches and affiliates.
Furthermore, this year we expanded the bank's client segment by launching a number of products together with Processing.kz. These are products related to the provision of Internet acquiring services not only for trading points but also for partner banks and financial organizations.
Overall, the competitive advantages of Nurbank I would call mobility, flexibility, and an individual approach to each specific client. But of course, we still have a lot of work to do.
— How are risks accounted for here?
— Risks are undoubtedly embedded. But the question is more about how much the bank is willing to take on, i.e., the appetite for risk. Our bank's appetite for risk is reserved.
— Currently, the 'DAMU' program has started, offering to work with microbusinesses through MFIs at a fixed rate of 16%. What if Nurbank were offered the same conditions?
— Yes, we are interested in any form of cooperation.
— Late last year, when the National Bank let the tenge float freely, banks encountered problems with tenge liquidity as most bank clients converted their tenge deposits into foreign currency. How are things with liquidity in your bank today? What other sources of liquidity do you use besides internal ones?
— At present, the bank has sufficient liquidity in tenge and foreign currency. Moreover, the bank is investing excess liquidity in Kazakhstani financial instruments. The choice of an investment strategy in Kazakhstani financial instruments is primarily related to changes in the prudential regulation indicator of the National Bank of the Republic of Kazakhstan (investment coefficient in domestic assets).
If you look at the bank's situation over the last and current year, you can observe a positive change in tenge (including foreign currency) liquidity. We have our client base, most of which have been cooperating with us for an extended period. To improve the tenge liquidity indicators, the bank, together with clients, extended the deposits that were maturing. We also sold less profitable securities from the bank's portfolio and attracted new clients.
In the case of the lack of liquidity in the Kazakh market, several alternative options have been developed to obtain additional liquidity in the external market, such as establishing trading lines with major international credit organizations (CreditSuisse, J. P. MORGAN, etc.).
Regarding long-term money in the domestic market—two bond issues are already listed on the JSC 'Kazakhstan Stock Exchange' for future placement. An agreement with an underwriter has been concluded for these purposes.
I believe that in 2017 we will be fully prepared in this regard.
— What is the situation with non-performing loans? I remember that at the beginning of the year, the rating agency S&P confirmed Nurbank's long-term and short-term credit ratings at the level of B/B. Will you be able to maintain stable financial growth indicators and client trust by the end of the year?
— Let’s say, most of the non-performing or poorly performing assets are results of our last crisis in 2007–2008. The bank conducts ongoing work on non-performing assets. The most important thing in dealing with problematic borrowers, and they always exist and will exist, is the borrower's willingness to work with the bank. We were never and are never interested in taking possession of some clients' collateral property because, as a bank, we do not have experience in such management, it is not our nature. In fact, I believe that no one can promote their business better than the clients themselves. Not even the largest or the best bank in the world. Therefore, we are vitally interested in the success of our clients and partners getting out of difficult situations. And we will help them with this.
Client trust arises from a relationship with them. Our bank has always been transparent with everyone. And we feel loyal attitudes from most clients towards us. And our financial performance, I believe, will allow our clients to be confident in us.
— I have to ask what happened to the high-profile story of the Astana residential complex '7th Continent'; when the bank demanded the return of a loan taken by the developer, and tenants of the complex asked all government bodies to protect them from eviction? What did the bank gain from this, and what did it lose? How did this unseemly story reflect on Nurbank?
— I note that today it is premature to put a final point in the story of the '7th Continent' residential complex. The parties to the litigation have the opportunity to appeal the decisions in the Supreme Court of the Republic of Kazakhstan. The bank exercised its right to defend its interests in judicial bodies. Saying that the bank won or lost from this is not entirely correct since, as I said, the litigation is not over yet.
Judicial practices regarding the invalidation of transactions in Kazakhstan are diverse. In such disputes, one party always remains dissatisfied with the decision rendered. In this specific case, the repercussion was caused by the bank disputing a large number of transactions and many respondents, residents of the '7th Continent' complex, were involved in the proceedings.
— Why did the bank sue the tenants of the complex, rather than LLP CapitalPetrol, which did not repay the loan for 8 years?
— LLP CapitalPetrol was primarily involved as a defendant in these court proceedings. However, since the LLP unlawfully alienated the property to third parties, the bank brought all subsequent buyers as defendants. It was the unlawful actions of this company that led to the consequences of filing claims against apartment owners.
— Does the bank's portfolio have similar dishonest borrowers? What does the bank do to avoid stories similar to the '7th Continent' complex?
— Our Bank's portfolio, like other second-tier banks, contains dishonest borrowers with whom necessary measures are undertaken. The bank has a clear system for loan issuance, but even this does not protect against changes in a borrower's financial condition or their subsequent dishonest actions.
— Six months ago, you suggested that the regulator would tighten requirements for reporting and provisioning. As a result, individual second-tier banks would transition to MFO or put themselves up for sale. Has your viewpoint changed?
— There was an opinion expressed about the consolidation of the banking sector and the possible transition of some banks to MFO. We are already observing consolidation, the number of banks has decreased. Tightening the provisioning requirements derives from the transition to the IFRS 9 standard. It has long been announced that we, as a country living by international financial standards, will move to the new standard along with the rest of the world. Therefore, banks and the regulator have prepared plans to transition to this standard. For some banks, adapting to these new requirements will be painful, as transitioning to IFRS 9 will pressure capital. Hence, our opinion has not changed.
— What will Nurbank expect in the wake of new reforms in the banking sector?
— We've been in the market for 24 years. And during this time, we've gone through many reforms. So naturally, we are not going to give up.
— Is the bank cutting expenses in the administrative and economic sector, laying off employees?
— Certainly, reducing administrative and economic expenses is a real necessity during a crisis. It's a clear, structured process that requires considerable attention and interest from all structural units involved in the bank's business processes. The bank is taking measures to optimize these expenses during the current period of 2015-2016. We've made significant progress in this regard, discovering things we can easily live without, such as reducing vehicle expenses.
However, it should be noted that reducing administrative and economic expenses must be a balanced and considered process; otherwise, it could lead to the disorganization of the bank's material and technical support activities and negatively impact its core activities.
Regarding employee layoffs—no. We haven't laid off a single employee for the purpose of reducing staff this year. Moreover, there hasn't been a single forced leave. I won't deny, that last year, in anticipation of the devaluation, we slightly reduced staff to optimize our expenses. However, the bank endured this difficult period.
— What are your plans for 2017? What indicators do you plan to achieve, and how? It will soon be a year since you took this position... How is the bank's policy changing?
— As I said, we adhere to the previous course, regardless of who heads the leadership. I repeat, the bank will continue to develop retail and small-medium businesses, introduce new technologies and IT solutions, optimize and expand the product line, and reduce the share of problem loans in the bank's lending portfolio.
In 2017, the bank plans a 7% growth in the loan portfolio, an increase in the client base of the deposit portfolio, thereby ensuring a 17% growth in the deposit portfolio, and a 20% increase in commission income growth.