Information portal about personal investments and finance
In 2014, JSC "Nurbank" not only stayed afloat but also increased its capital by 1.5 times. Bank's Chairman, Kantar Orynbayev, spoke about the institution's development prospects and how devaluation could boost the liquidity of the tenge.
State Program Growth
Nurbank intends to increase its share of retail business to half of its portfolio. “According to our strategy, by 2016 we plan to bring the corporate business share to approximately half by increasing the share of retail business and small and medium enterprises (SMEs). The direction will depend on the market situation, with the SME sector currently being more flexible,” stated Kantar Orynbayev, Chairman of Nurbank, at a year-end press conference.
Nurbank is traditionally a corporate bank. However, the bank's portfolio structure has changed over the past few years. In 2010–2011, the corporate sector accounted for 70%, at the beginning of last year it was 59%, and by early 2015 the share decreased to 57%. As a result, the SME share increased from 22 to 24%, with retail business share increasing to 19%, which was previously around 11%.
The bank is not interested in mortgage lending. “Mortgage has very stringent requirements for borrowers, and currently it poses great risks for the bank, so rating agencies view this type of lending negatively. Additionally, long-term funding for mortgages is lacking,” explained Kantar Orynbayev.
The bank was able to grow its SME credit portfolio thanks to state programs. Mr. Orynbayev acknowledged that currently the bank can carry out SME lending activities only through state programs, with no other methods available. According to the National Bank's program, funds are disbursed only for targeted use, meaning the bank must immediately transfer funds to the borrower’s account.
The banker presented the participation in the state program with pride: “I believe participation in state programs is a very correct move. Not only did we help our clients, thereby improving our portfolio, but we also supported the country in the SME sector, and in today's situation, where one-day swaps are issued at 12–14% on the market, loans at 6% for many years in tenge are an absolute gift,” he is convinced.
Last year, the bank received two tranches under the "Damu" fund program for SME lending, and an agreement for a third tranche was recently signed. In total, the bank received 12 billion tenge under this program. “Last year, through support programs, we financed about 113 projects, creating more than 800 new jobs. These funds were issued at 6% for up to 10 years, which I consider to be great support for small and medium enterprises,” said the banker.
Meanwhile, informal comments in the banking community are more skeptical about state programs. “For banks, it can’t even be called funding – all funds go to borrowers at low interest rates. A couple of percent to the state fund. The rest is for the bank. However, for the bank, the risk of non-repayment (the bank is responsible for state funds from the moment the loan is granted) is on one side, and the margin at 4–5% in a gross calculation is on the other. It’s better to give consumer loans,” an anonymous source in a Kazakh bank stated.
Barriers of Dollar Thinking
“The situation with devaluation expectations and last year's devaluation revealed two major issues for me: firstly, our deposit base isn't a deposit base in the classical sense. We have on-demand accounts, which anyone can withdraw without losing interest, and that's a huge problem. People need to be motivated to choose classic deposits so that the bank can have long-term funds. Otherwise, we face the risk of people leaving any day. The second problem is the high level of dollarization,” says Kantar Orynbayev.
Currently, 85% of retail deposits in the bank are in dollars, and only 15% are in tenge. Before the February devaluation of 2014, the tenge represented more than 50% of deposits.
Mr. Orynbayev believes that eliminating dollarization within a month or a year is impossible; the issue could have been resolved during devaluation. “The problem lies in mentality, as we are used to recalculating everything in dollars. A normal economy should gain from devaluation, yet we lose out. During devaluation, prices and wages remain unchanged, making our goods more competitive. However, as soon as devaluation occurs, real estate prices and rent are calculated in dollars, which means we don't benefit from devaluation,” he says.
He states that the term “dedollarization” is not very successful. It carries a negative connotation, as if we plan to fight the dollar, whereas the main idea of dedollarization is to enhance the national currency's role. Trust in the national currency must be restored through incentivizing methods, not prohibitions like closing exchange offices. “The currency issuer should be predictable, and the currency behavior should be opposite. When you do not know where your currency is heading, there's no desire to convert to foreign currency,” he believes.
He added that devaluation consequences might be negative, manifesting in defaults, inflation, and price increases. However, in this matter, he proposes relying on the National Bank's opinion and macro analysis, as banks have an interest in devaluation since it is currently difficult for them to fulfill their primary role as lenders.
Movements of Non-Performing Loans
By the end of the year, Nurbank's loan portfolio size grew nearly 1.5 times, reaching 369 billion compared to 251 billion at the beginning of the last year. Preconditions for the bank's improved financial situation emerged several years ago.
“After the bank's shareholder and management changed in 2010, an additional 100 billion tenge was injected into the equity. In 2012, an unprecedented deal took place, where ‘bad’ loans amounting to nearly 50 billion tenge were sold to collection companies. This was assessed by a rating agency, and in 2013 our rating was raised from B- to B,” he said.
During 2013, the bank issued bonds for nearly 30 billion tenge, which at that time became one of the leading indicators in relative terms for the bank’s assets. The NPL level then was 45%, prompting the creation of huge provisions that worsened the bank's financial results. Nevertheless, Standard & Poor’s did not downgrade the bank’s rating.
“Throughout 2014, we grew nearly 1.5 times in assets, attracting funds not through bonds but deposits. Despite write-offs amounting to 17 billion tenge during the year, we managed to reduce the NPL share to 30%. Today, we are at a level slightly below 15%. Again, this work was positively evaluated, despite the sovereign rating downgrade. Our rating was confirmed at B with a ‘stable’ outlook. I consider this an achievement, as the sovereign rating gap with us has decreased from six steps to five, while the country's outlook is negative,” Kantar Orynbayev stated.