TBY talks to Michael J. Eggleton, CEO of Eurasian Bank, on surviving the global crisis, commercial banking in Kazakhstan, and plans for expansion.
TBY What are the strengths and prospects of the bank?
MICHAEL J. EGGLETON We were well positioned going into the global economic crisis. Even though we weren’t in the top five banks coming into the crisis, we were presented with a fairly significant opportunity, as we didn’t have the losses, problems, and foreign borrowings that other Kazakhstani banks had. This meant we were able to avoid the major restructuring challenges many banks faced. We currently have no financial issues. In fact, we’re one of the strongest banks in the country. We’re also part of a very significant faction in terms of the Eurasian group in general. Our main challenge now is to take advantage of that position. We are working to develop a properly operating institution under the best practices. From an opportunity standpoint, it’s a very nice situation being in the middle of a country with reasonably significant growth compared to its peers or compared to other countries in the world.
Could you elaborate on the key measures that the bank’s management team took to ensure operational stability throughout the crisis?
There are a few things that happen in a crisis that one has to be concerned about. One is liquidity, or the lack thereof. Another aspect is what to do regarding asset quality while maintaining overall profitability and capital adequacy. There weren’t any liquidity issues. In fact, we had excess liquidity as customers moved from other banks to our bank. We had some basic challenges regarding asset quality. One of the decisions that our shareholders took as a result of discussions was to really take a hard and honest look at the asset quality of our bank. As a result of that, we effectively took a provision against those assets to a conservative level that we were comfortable with. Thus, the shareholders brought capital into the bank to support operations against the losses created due to the slowdown. This is really the overriding point of success in how you move forward in a crisis.
What is the significance of the acquisition of the commercial banking subsidiary of Troika Dialog in the framework of the bank’s expansion strategy?
We’re consistently looking for expansion opportunities and acquisitions. The acquisition of Bank Troika Dialog was significant for our regional plans. A view held by many bankers and investors is that the size of Kazakhstan’s population is limiting. It’s a very significant country in terms of land mass and its natural resources, but the population only stands at 16 million people. This limits the development of a bank to some extent. The idea of the Bank Troika Dialog acquisition was to expand our regional footprint, and was a logical step considering our group already had 10,000 employees in Russia. In addition, the price was right and startup costs were low. The idea is to break even or push a small profit under a plan to focus our growth targets in Kazakhstan before being fully prepared to expand into other countries.
How has the acquisition of ProstoKredit from Société Générale contributed to your bank’s transformation into a modern, full-service financial institution?
From an earnings standpoint, it contributes around 20% to 30% to our overall earnings going forward. It’s a very significant contributor to our business. More importantly, if you look at the strategy of our bank, we’ll eventually be forced to reduce our reliance on corporate lending. We must build and develop our retail segment with the overall aim to create a comfortable balance. The benefit of the ProstoKredit deal was an automatic expansion in our platform of almost 500 locations throughout the country, as well as a few hundred thousand clients.
Eurasian Bank is the seventh biggest in Kazakhstan. What is your competitive edge?
Most banks are in a period of restructuring, and that makes exact rankings difficult to formulate. We are in seventh position in real terms, and two of the top six banks are foreign, and therefore relatively well-run businesses. Those banks have limited appetite as international companies more often than not tailor their services to international clients and investors. Two banks are undergoing vast restructuring, leaving two fully operating domestic banks. My analysis of the competition amongst the top seven is that it isn’t so severe, and Halyk Bank, being the largest of the banks, is certainly a significant competitor. Our competitive advantage is our liquidity. We operate under professional processes, and the system we have in place is watertight. Our reworked risk-management system and the acquisition of ProstoKredit will contribute to a strengthened overall operation, and we are now working on bringing all the elements together and raising brand awareness through advertising. We will then work on delivering our promises to our customers.
What is your outlook for the bank in the framework of the cautious optimism that defines post-crisis Kazakhstan?
We want to grow, and thanks to the tough decisions we took in the past we can grow. The focus is making sure we can be the absolute best in international practice. We grew well in 2010, and we expect to continue growing in 2011 and 2012. I want the bank to be large enough that it can support its clients and build its business in a sustainable way with a good return on equity for its shareholders.
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