TBY talks to Rauan S. Daukenov, Deputy Chairman of the Management Board of Nurbank, on changes in the banking system, the increasing importance of risk management, and the role of SMEs in Kazakhstan’s finance industry.
TBY Nurbank has recently seen a series of structural changes. What have been the highlights from this process?
RAUAN S. DAUKENOV Our shareholder structure has changed, and so has our management. When the new management came in, we analyzed everything and performed many structural modifications within the bank. The changes were also applied to the corporate, SME, risk, and retail business departments. Moreover, we worked heavily on the optimization of the members’ structure of our financial group. In 2011, the most important event was the successful completion of a $150 million Eurobond tranche in October. There were five-year bonds issued in 2006, and they were listed on both the Luxembourg and Kazakhstan stock exchanges. It was not an easy period; however, Nurbank demonstrated itself as a reliable partner so that every investor could believe in its future. This bond repayment sent a good message to our potential investors. We expect that if we decide to issue new financial instruments in the future, interest in Nurbank will grow. We received a $650 million capital injection that we have allocated to create provisions. In fact, we now rank eighth among Kazakhstani banks in terms of provisions. We have taken a more conservative approach to risk management and the evaluation of the assets and financial position of our borrowers. I am confident that another difficult period in banking history was successfully passed. However, we still have some post-crisis difficulties to deal with; we have aggressive plans for the coming year.
How has the bank worked to expand its SME coverage and open new credit lines?
The bank shareholders and management have approved a new development strategy. The main priority was given to the enhancement of the SME and retail business in the common pool of banking services. Our main goal is to bring down our corporate business share, which historically was at 70%, and our medium-term target is to decrease it to 50%. If we talk about SME credits, for example, that segment seems more attractive in terms of growth potential. Moreover, the SME sector risks are more diversified. It is worth underlining that this not an easy task. If you look at the official statistics, the corporate business sector is comparatively developing in a more rapid way. This does not translate to closing doors for SMEs, but to the fact that the corporate sector is performing relatively better, hence its heightened share of GDP. The government undertakes variable measures to support the SME sector, but the share of corporate activity in the economy is still very high. Tourism, entertainment, food services, and retail are nevertheless good areas for SME investors. From our standpoint, the SME market is tough and represents many challenges. Competition between commercial banks for the SME segment is continuing, especially between Russian banks, which are aggressive in our market. In this situation, the banks have to decrease their interest rates. Moreover, it applies to the three main segments of credit. On the other hand, Kazakhstani banks do not decrease their interest rates infinitely. Reasons for this include that the internal deposit funding base is still expensive, there is a low level of liquidity on the Kazakhstan Stock Exchange, there are many toxic assets in second-tier banks’ portfolios, and funding from the Western capital markets is still limited and comparatively expensive for Kazakhstani banks. Taking into consideration these factors, we continue working to provide excellent service and additional products to our customers so as to build up long-term business relations.
What competitive advantages do you have over your rivals?
There are 38 banks in Kazakhstan, and for a population of 16 million, this is a large number. Among these banks, our competitive advantage is that we have a transparent financial group structure, shareholders, and management structures. We are represented as a universal bank that provides a wide spectrum of financial services and covers the entire territory of Kazakhstan through 16 branches and 54 outlets. We are planning to open new outlets in 2012. Moreover, we have widened our range of banking products. New proposals covering all business directions of our bank include unsecured and mortgage loans, account services, overdrafts, working capital injections, project finance, collateral realization, bank guarantees, and letters of credit.
The IMF has noted that “the ongoing vulnerabilities in Kazakhstan’s banking system are a cause for concern.” How do you assess this statement?
Like any other banking system in the CIS, we have both advantages and disadvantages. We have a strong two-level banking system in terms of infrastructure, legislation, and human resources, as well as in many other aspects. The main challenge is still toxic assets in Kazakhstani banking portfolios. We cannot consider banking separately from other sectors of the economy; the banking sector always indicates the overall situation. The dependence of several dominant industries of the Kazakhstani economy on world prices for natural resources such as oil, gas, metals, and wheat affects the financial position of our clients and bank revenue inflows. The government undertakes definitive measures aimed at reducing this dependence, but the influence of world prices is still substantial. For banks’ credit portfolios, it is necessary to point out that the government regulators are working constantly to settle this problem through reserving special funds to buy these assets from and clean up their balance sheets. It leads to a series of negotiations. In accordance with the law on risk minimization, signed by the President at the end of 2011, a legal entity specializing in improving credit portfolio quality will be created at the National Bank.
What are your expectations for 2012?
We have huge expectations for 2012. We made some structural decisions and a number of significant changes through business process optimization and the widening of services in 2012. We are planning to obtain the results by the end of the year. There are several fears regarding the situation in the capital markets of the eurozone and the US, but our bank is going to focus on the internal market in terms of sales and funding. We expect moderate GDP growth of around 5%-6% in 2012. This is the forecast, and time will tell.
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