Kazakhstan's weekly newspaper 'Panorama'
With this phrase from 'Alice in Wonderland', the chairman of the board of Nurbank described the situation related to the need for small and medium banks to increase their market share. The results from last year for Nurbank, linked to a significant increase in assets and the deposit portfolio, seem to demonstrate the potential for the bank to grow faster than the market, following a meticulous phase related to reducing problematic loans and changing the business model. Strategically, the bank envisions itself in the top ten in the Kazakh market, according to Mr. Orynbayev. When asked by Panorama whether large banks have a pricing advantage in funding, the banker noted that it's not just an advantage in funding but the very possibility of access, for example, to ENPF funds.
The only motive for reaching out to shareholders for additional capitalization in a certain timeframe might be to achieve the level of capital that allows attracting ENPF funds, as per the regulator's wording, this will be available for banks with above-average capital levels in the system. Excluding this factor, the current capitalization of 14.2% by National Bank methodology allows not only to maintain current operations but also to almost double the assets. As for how small banks feel, "it's already visible how hard it is for them now." According to the banker, it appears there are prerequisites for a decrease in the number of banks, though he believes this may occur without dramatics, more likely through M&A deals than bankruptcies.
As for Nurbank itself, it would like to return to a growth model faster than the market this year, but first, it is necessary to navigate the unclear current situation related to the shortage of tenge liquidity. The National Bank is lowering rates on overnight currency swaps; however, its return to providing more extended hedge instruments has not yet occurred. The dollarization share of deposits is growing, with the bank's retail sector having an estimated 85% dollarization, while the currency ratio in the loan portfolio remains roughly the same as before the significant increase in the dollarization of liabilities. Certainty is crucial for the banking system. For the speaker, Mr. Zhandosov's proposal to move to a free formation of the tenge rate looks more understandable and appealing. Regarding suggestions from economists Olzhas Khudaibergenov and Anuar Ushbayev, the introduction of a guarantee mechanism for tenge deposits seems a non-market and challenging solution. As for the proposals from the Cabinet and National Bank, they appear almost indisputable, except for using the somewhat negative term 'de-dollarization' instead of terms about building trust in the tenge. Returning to growth after normalizing liquidity will involve further diversifying its loan portfolio for the bank. The share of corporate clients should decrease from 70% to 50% in the medium term. However, there is no clear understanding of how the retail or SME sectors will develop more accentuatedly. Regulatory restrictions on unsecured lending growth somewhat constrain development in this direction and, perhaps, with government programs aimed at this segment, it will occur here. The speaker believes it eminently correct and far from obvious to participate in funding programs through 'Damu' and BRK, as many considered participation unpromising given the very low margin set for banks. In reality, the results were quite good, and Mr. Orynbayev speaks of certain successes in financing the food industry, which for the bank was significantly above the minimum limit of 25%. These are regional companies producing high-quality products and working on the market for a long time. One borrower, a regional sausage king, was not previously enticed by the most advantageous conditions related to market funding. He would take a calculator and deliver a verdict: "This is not beneficial for us." Even obtaining a loan at 6% per annum within a government program involved considerable hesitation for the company, yet the borrowing was eventually made. The speaker does not feel that borrowers within the program pose greater credit problems than the overall portfolio. Even stress related to cheap Russian imports affects not all regions. Moreover, borrowers have a significant reserve of resilience to service loans, even if losing some market share due to current circumstances. Furthermore, the situation seems temporary and cannot last too long. As for the impressive progress of the bank in reducing the level of problem loans from 40% to about 13%, the bank was not in much doubt that regulatory requirements of no more than 10% NPL could have been reached by the end of 2015.
It remains unclear how the macroeconomic situation will influence the process since, apart from complicating the situation for borrowers, macroeconomics might predetermine not such high growth rates for the loan portfolio, which is a key factor in reducing the NPL share. Over the past two years, Nurbank has restructured loans, sold pools of problem loans, and made large write-offs. The speaker does not believe that in the remaining part of the problem loans, a high share of borrowers is related to construction and real estate. S&P noted the effectiveness of the bank in resolving these issues related to reducing problem loans. The bank itself sees maintaining its S&P rating at the same level after the sovereign downgrade as an achievement. "Previously, we lagged 6 notches behind the sovereign level, now only by 5."