TBY talks to Umut B. Shayakhmetova, Chairperson of Halyk Bank, on the bank’s restructuring process, its SME strategies, and the bond market.
TBY Halyk Bank has one of the largest banking networks in Kazakhstan, and has significant regional operations. What are the bank’s targets in terms of expansion in the medium term?
UMUT B. SHAYAKHMETOVA The main concentration of Halyk Bank is the domestic market. Halyk is a leading bank in Kazakhstan—number two in terms of assets, but number one in terms of different products. In capitalization ratios, retail current accounts, and deposits we are also number one. We provide payments for state pensions, salaries, and stipends, as well as offering services to remote rural areas. Thus, we enjoy a significant social role. The bank is very profitable and we are commercially driven. The main target is the profitability of the bank, not the size. When we start to think about developing our business abroad, profit will be our number one concern. We currently have subsidiaries in Kyrgyzstan, Russia, and Georgia, and those markets are important for us. I stress Russia as a strategic market for Halyk. In view of the creation of the Customs Union, we think that our banking operations can be expanded by offering banking services for companies that have cross-border activities.
What steps were taken over the last two years to restructure the bank’s activities?
The privatization of the bank ended in 2001, yet in 2009—under the anti-crisis program—the state intervened in the four biggest banks in Kazakhstan, and Halyk was one of those. That was probably the major change in the ownership structure of the bank. Samruk-Kazyna owned 20% of common shares; however, the bank—together with the main shareholder Almex—exercised stock options and the shares were bought back, which again brought a change in the shareholding structure. In terms of organizational structural, we had to increase the number of specialists in our non-performing loan (NPL) department, close certain non-profitable cash offices, and at the same time open offices in new locations. We had to cut costs and expenses, and we closed our representative office in London and a subsidiary in Mongolia. We re-focused our attention on Kazakhstan, creating new procedures and processes for the collection of bad loans as NPL rates began to grow. We had to put more efforts into improving our service quality, and we have achieved our targets. By the end of 2010 we became the best bank in Kazakhstan in terms of retail services. In 2010 we received five awards of excellence from various global financial institutes and agencies.
How do you assess the importance of mobile and internet banking for Halyk Bank?
Quality of service is very important for us. We have 629 branches in the country, and procedures can often be quite bureaucratic. In this regard, 2011 is the year of optimization for our bank. In our strategy we have put more effort into providing different channels of service, including mobile and internet banking. In terms of mobile banking we are number one, and this product was launched five years ago. We introduced internet banking for our retail customers in 2010 and we are making up ground. This sales channel is one of the most developing and promising. As internet penetration grows in the country, our client base will also develop. We view the development of distant channels as a strategic target for
What strategies have you developed to assist SMEs?
We offer corporate, retail, and SME banking. Corporate customers account for around 65% of our loan portfolio, and retail customers make up the second largest group, approximately 20%, and SMEs 15%. Unfortunately, during the crisis the SME segment was the worst affected and we have the highest rate of NPLs in that part of the loan portfolio. Today we are working out our clients’ problems, trying to restructure problem loans, and if we do not see the potential for recovery we go for foreclosure through the sale of collateral. At the same time, we see the future growth potential of that part of our business, especially in terms of fees and commissions. In this regard, we have established service centers for SMEs around the country where we offer services and products designed especially for them.
How did the bank perform financially over 2010, and how does this compare the crisis period?
Halyk Bank has always been profitable. We have a rate of 30% non-interest revenue—one of the highest among Kazakhstani banks, which provides a healthy income structure. Of course, 2009 was difficult due to increased costs rather than decreased revenues. NPLs and the worsening financial quality of borrowers meant we had to build up a lot of provisions. This meant that the cost of risk for 2009 was around 6%, which was almost equal to our net interest margins. The bank showed a marginal profit of around $15 million. However, our non-banking operations contributed the major part of our total consolidated profits, and on a group level Halyk earned a net profit of around KZT16 billion. This proved how well diversified our group is. In 2010 we were charging less on provisions as assets and loans began to improve, and the bank achieved KZT36.2 billion in
What is your evaluation of the steps taken by the government to improve the strength of the banking sector during the crisis period?
Without the government’s support we wouldn’t have been able to pass through the crisis period so smoothly. Unfortunately, we saw some institutions default due to their more aggressive borrowing and lending strategies. The government supported the overall banking sector and real sector of the economy—around 15% of GDP was invested from the National Reserve Fund into the economy. The Kazakhstani anti-crisis program differs from the measures taken in Europe in that our government did not cut social support and created a road map program to control unemployment and create new jobs, while in the EU the main measures were to slash budget deficits through cutting social programs, which created unrest among the population in certain countries.
What activities does the bank have in the bonds market?
We are an issuer and a buyer. We have domestic bonds issued on the local market and Eurobonds. Halyk issued Eurobonds in January 2011, which was the debut bond after the crisis. As a buyer, we are very active in dealing and brokerage operations with other issuers’ bonds, including state and corporate.
What is your outlook for 2011?
We are more optimistic than in 2010. We are seeing an improvement in the economy, and positive developments in terms of loans and assets. We have noted a growth in demand for loans from our corporate and retail customers. However, SMEs will not start to recover so soon. We target a net profit of the group of around KZT40 billion to KZT45 billion.
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