What is the significance of the BTA Bank acquisition?
Kazkom acquired BTA Bank this year, which was a large and complex transition. Every branch in BTA Bank's network has now merged with Kazkom and been rebranded accordingly. We also made the decision to put all the business that we deemed as either non-core or adequately covered by existing Kazkom infrastructure on hold in order to focus on areas of growth within the bank. Since Kazkom is active in retail and lending operations and has no need for a separate mortgage business, the decision was made to spin off and sell BTA Ipoteka.
In terms of the current market conditions, what measures has the bank taken to protect its assets from the devaluation of the tenge?
There have been numerous results from the tenge devaluation. First, due to the structure of the balance sheet of the entire banking sector of Kazakhstan, the overwhelming majority of retail deposits are in US dollars, which means that these liabilities automatically have increased substantially in terms of local currency across the sector. We are not an exception. There are still loans in dollars, but clients are increasingly borrowing in tenge only because of the exchange rate over the past several months. There is also a major external factor, whereby prices for export commodities are revised based on budget spending, which in turn is tied to the exchange rate. In general, there is more pressure on the margins, and the exchange rate should help exporters and companies that compete with importers given that their costs are in tenge, though we will see within the next six months to what extent that has been sufficient to safeguard against other factors. Regarding protecting the asset base, it would be fair to say that, at the moment, we are lending only in local currency so as to not create a dollar surplus on our balance sheet. We are one of the most active lenders in Kazakhstan at the moment, which comes from a strong liquidity position that Kazkom has had ever since its merger with BTA. Obviously, we are conscious of the potential risks that are arising with respect to our loan portfolio. Another factor to watch is inflation as corrections of the currency exchange rate transform into inflation.
Do you have any expectations as to when the currency will stabilize and mature?
Historically, the Kazakh tenge and Russian ruble rates have been more or less at parity. Stabilization of the currency is important for clients and for deposits until they start converting their dollar deposits into tenge. Recently, we have seen much higher inflation on the Russian side and Russian importers have also been a lot more active. To what extent and where the exchange rate should allow the producers to regain their market share to take advantage of the Customs Union remains to be seen. That also applies to the oil prices and expectations about the key export commodities.
How do your retail operations compare to the corporate side of business and private banking services?
Following the merger of BTA's branch network, Kazkom gained a larger presence nationwide. We are not only the biggest lender, but also the biggest bank in terms of the amount of retail deposits in Kazakhstan, the number of ATMs, and number of sales terminals. We have a massive presence in the retail segment now, which we expect to grow. In fact, when Kazkom entered the BTA transaction, the bank's strategic objective was to substantially strengthen its footprint in the retail segment of Kazakhstan. The loans we deposited in Kazakhstan over the last three months were 40% corporate clients, while SME and retail accounted for 30% each. 60% of the new loans came through our new branch network. These figures are encouraging.
How important is it for the country to continue attracting FDI, and what sectors have the most potential?
Attracting FDI is essential for long-term growth. We are enthusiastic about the decision to create a new financial center in Astana and are looking forward to the development of a legal framework that would allow that to happen. At the moment, investment sentiment is less than it has been in the past, given the export commodity prices. In general, investment flows are decreasing to this part of the world, but that is part of the cycle. From the country's medium-to long-term development point of view, active and well-coordinated work with the investment community is essential. In this sense, Astana's financial center makes perfect sense. Moving forward, we are encouraging investors to look into everything in relation to logistics and trade. There is a growing connection between Europe and China. Since the domestic market is limited due to the fairly small population, the opportunities here are in commodities trading. Kazakhstan has a great strategic position.
What are your expectations for the bank in 2016?
In 2016, we would expect to complete the transformation of Kazkom. We are finished with the legal part of the merger and we have gained a substantially larger branch network. It is vital that we make this network as efficient as possible and align the product mix in order to adjust to a different network and to increase our product reach. We have made tremendous progress thus far, and we are working to be finished in 2016. Legally and in terms of branding, we have already consolidated our business and we expect to finalize our subsidiary footprint in 2016. A lot of work has been done and regardless of the state of the market it must be completed. The new Kazkom combines the strengths of both institutions, and has emerged as a bank with a solid and diverse product range.