Informational banking portal “First Banking! — Banker.kz”
Kazakhstani banks have become more active in the retail sector, unlike the corporate one. It turned out that the level of bad loans in the corporate sector is higher than in the private sector, and SMEs pose significant risks for banks.
According to the National Bank, the total volume of loans issued by banks to small business entities across the republic as of March 1, 2015, amounted to 1.8006 trillion tenge. Despite the high risks that SME lending poses for banks, the volume of lending in this segment increased by 23.9% over the past year, to 1,370.683 billion tenge.
Previously, Minister of National Economy of RK Yerbolat Dosaev announced the allocation of additional funds from the National Fund to support SMEs: “Probably, additional allocations from the National Fund will be provided to support primarily small and medium businesses, besides the 100 billion tenge envisaged this year,” the minister stated.
The total volume of loans issued by second-tier banks of RK in the national currency as of February 2015 is 8,476 billion tenge. Over the year, this indicator increased by 6.32% (by 536 billion tenge) from 7,940 billion tenge.
In foreign currency, the volume of loans for the same period decreased by 12.69%, from 4,128.796 billion tenge to 3,604.717 billion tenge.
Bad loans vs. welfare
Kursiv.kz decided to find out if there is a trend towards retail in the banking sector of RK.
Earlier in 2015, Nurbank was the first to announce a change in strategy. According to representatives of the management board, in 2015, the bank intends to increase the share of the retail business to half of the portfolio. “According to our strategy, by 2016 we plan to bring the share of the corporate business to about half by increasing the share of retail business and small and medium businesses (SMEs). The direction we will move in will depend on the market situation; today the SME sector is more flexible,” stated Nurbank's board chairman Kanat Orynbaev at a year-end press conference. Over the past few years, the bank's portfolio structure has changed. In 2010–2011, the corporate sector accounted for 70%, by the beginning of last year – 59%, at the beginning of 2015, the share was reduced to 57%. As a result, the share of SMEs increased from 22 to 24%, the share of retail business increased to 19%, earlier this figure was about 11%.
“Active entry of banks into the retail lending market began back in the mid-2000s, with an increase in the level of solvency and purchasing power of the economically active population. It’s not about the profitability of the lending direction, but rather that the population was not massively covered by banking services, unlike companies,” reported JSC “Kazkommertsbank.” However, 80% of the bank’s loan portfolio is concentrated in the corporate sector.
The probable reason for banks cooling towards corporate borrowers lies in the highest concentration of bad loans in this segment. According to DB JSC “Sberbank,” the share of bad loans is most pronounced in the corporate sector. “This is due to the delinquency of some corporate borrowers,” responded the bank.
“The share of NPL is more pronounced in the corporate bank portfolio, at least because the share of corporate loans is significantly higher, about 4 times,” admitted Kazkommertsbank. However, the share of loans with arrears over 90 days in 2014 decreased to 22.1% from 29.4% a year earlier, the volume fell from 730 billion tenge to 506.2 billion tenge.
A source “K” reported that when comparing the benefits of banks operating in corporate/private sectors, one should rely on two parameters – volume and rate.
“Consumer loans are more profitable for banks due to rates, however, corporate loans are advantageous because of larger volumes and cross-sales of retail products to the same company employees,” noted a representative of a major bank. “It still heavily depends on the bank's business model: there are universal banks, retail players, and corporates. Banks engage in what the management is strongest at. But for banks now, any sector is not the most profitable time — funding is not cheap at all.”
SMEs rely solely on state programs for funding
Nurbank reported that the bank was able to grow its SME loan portfolio thanks to state programs. Board chairman Kanat Orynbaev stated that the bank can carry out lending activities for SMEs only thanks to state programs, there are no other methods. Under the program, funds are issued only for targeted use, meaning the bank immediately transfers money to the borrower's account.
According to experts from DB JSC “Sberbank,” the main risks in SME lending are related to the borrower's ability to repay their obligations. Besides this factor, the bank takes into account potential risks and changes in the market and economy as a whole when considering business financing applications.