TBY talks to Umut B. Shayakhmetova, Chairperson of Halyk Bank, on the power of SMEs, the onset of new NPL regulations, and prospects for private equity investors to purchase distressed assets.
TBY What changes have you noticed since the introduction of the Customs Union with Russia and Belarus?
UMUT B. SHAYAKHMETOVA On the corporate side, it is much more challenging to openly compete with large Russian companies. When Kazakhstan is not producing enough consumer goods, it is difficult to be competitive. Our entrance to the market was asymmetrical owing to the presence of larger economies and broader consumer markets. However, we are looking at the Russian market as a strategic segment. We will definitely invest and develop our presence, trying to find a niche for Kazakhstani companies in Russia. It is a difficult and lengthy process to obtain a license for brokerage and securities sales in Russia; it takes three months to process the documents, and if there is a mistake, we have to start over. In Kazakhstan, the process is much more transparent.
How do you assess the IMF’s report into the weaknesses of the local banking system?
The report was absolutely correct. The first weakness is BTA Bank and the state banks. How these banks develop will influence the overall banking sector. Commercial banks have weaknesses in terms of non-performing loans (NPLs). The NPL ratio of the country is around 30%, which is very high. This influences the overall growth of the loan portfolio and the quality of our borrowers. Many of these debts are from our medium-sized companies, and we were waiting to write off the NPLs because the regulations forced banks to pay taxes on any losses. In order to protect the bank from the tax, we keep the debts on our balance sheets. Fortunately, a law was passed at the end of 2011 that allows us to write off the loans without penalty. In 2012, I expect many banks to begin cleaning up their balance sheets. There was also the creation of a distressed asset fund under the National Bank. The new legislation allows banks to create special-purpose vehicles (SPVs) for dissolving NPLs. It will be consolidated and included in the final report, and we are looking forward to opportunities for the NPLs at our bank and throughout the country.
What are your expectations from the new banking law?
The law approved at the end of December 2011 as well as over 70 regulations have yet to be finalized. Some articles are still open ended, and it will depend on how the National Bank decides to adopt the regulations. Working as a banking conglomerate requires more capital, regulations, and responsibility. There is more fiduciary responsibility as well. Although we have not yet operated under the legislation, we trust it is a positive—albeit strict—change.
What are some highlights from Halyk Bank’s steps in terms of optimization and innovation?
The year 2011 was the year of optimization for Halyk Bank. Every year, we have a slogan or a main target for the year, like “be professional” or “be financially strong.” In 2011, we optimized the business processes. We became the best bank in Kazakhstan, and we grew by more than 40%. The bank has grown by 50% over last three years. Our client base has been expanding, but our number of staff has been reduced by 700 people. That means that the aim to increase business and decrease manpower by becoming more productive and efficient has worked.
We have had to optimize our business procedures through technology; we have the largest ATM network in the country with more the 1,700 ATMs. In 2011, we began to purchase and establish payment terminals and internet, retail, and mobile banking. We were the first bank in the country to introduce mobile banking. These technological developments combined with less bureaucratic steps and documentation, without increasing risks, are very important in the industry. We went through many business processes step by step, looked at each stage, and studied where we could optimize them.
In which areas do you see opportunities for Kazakhstan to create an investment culture?
In terms of private equity, SMEs have a lot of power. We have a number of distressed assets, and banks always aim to clean up their balance sheets, generally by selling certain assets. There will probably be opportunities for private equity investors to buy assets such as business offices and factories at a discounted price. The agricultural sector is very interesting today because resources are limited and the population is increasing. Commodity prices are maintaining high levels, so I think the agricultural sector will play a key role in the future.
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