EYES RIGHT

Kazakhstan 2012 | FINANCE | VIP INTERVIEW

TBY talks to Michael Lomtadze, Chairman of the Management Board at Kaspi Bank, on credit card usage, NPLs, and new banking laws.

What are some defining elements of Kaspi Bank's strategy under your leadership?

We have very simple vision; “to be the best retail bank in the country," and therefore our focus is primarily servicing mass-market retail customers. Our general idea is to provide the right customer with the right product through the right channel at the right time. We are developing 360 degrees around the customer, which means we are building our business around customers and integrating customer acquisition, sales, and service channels to provide the best quality service. The speed of service and sales has been an important competitive advantage, which we have been constantly building. Over the past three years, we have developed innovative products. We have introduced the first mass-market credit card in 2008. To date, we have issued more than 1 million credit cards, which put us in the number one position in Kazakhstan, and 6th or 7th in the CIS region. We have also been introducing products such as the cash loan, which is a simple product to satisfy the various needs of our customers. Every second a retail loan in Kazakhstan is issued by Kaspi Bank. More than 2 million people used our services in 2011 to obtain loans, make deposits, use credit cards, perform payments, and carry out money transfers. Our company has been heavily focused on distribution and has built one branch every three days over the past year. As a result, we have established more than 650 outlets, branches, and points of sale, which is not only the largest distribution in the banking sector, but the largest retail network in any sector in the country. We have been investing into direct marketing, and we make 2 million calls every month to our customers, more than all the mobile operators combined together. We are the only bank open until late hours and on the weekend. Currently, we are introducing a new sales channel—kaspi.kz, which is our unique internet outlet. Our internet outlet will enable our customers to use our services for free and it will provide our clients with amazing functionality, like an internet retailer, rather than traditional internet banking. kaspi.kz will reinforce our 360 degree strategy by adding internet as an important client acquisition, sales, and service channel. We have been one of the leaders in terms of deposit growth and as a result, the loan-deposit ratio is approximately 100%.

What trends have you observed with your credit card users' consumption behavior?

At the moment, we are at the stage where people are starting to realize the revolving capacity of a credit card. Since Kaspi Bank is the largest card issuer, we are taking on the responsibility of educating our customers. We invest a lot to build customer awareness around all the qualities and benefits of a credit card. Considering our significant market position in this business, we are educating the market also for benefit of other banks planning to enter.

“There are important lessons learned from the crisis, such as the fact that banks should not lend to the extent they did before."

The IMF noted that the ongoing weaknesses in Kazakhstan's banking system are a cause for concern. How would you assess the IMF's statement?

The IMF report needs to be taken into account, and the government has been working on addressing the concerns of the IMF, such as the writing off of non-performing loans (NPLs). Compared to other banks in the region, Kazakhstani banks seem to have more provisions and NPLs on their balance sheets. The reason is because our banks cannot write them off or sell them to collection companies, and this is due to tax regulations. We always have to explain to investors that if we could write off loans, our numbers would not look like this. The government is making this issue a priority, and so hopefully we will come to a resolution in 2012. It is not a matter of collecting more taxes, but of having a competitive, operational, and sound banking system. There is no example of a strong economy with a weak banking sector, and unless the bad loan situation is resolved the development of Kazakhstan's banking sector will be significantly limited.

How do you assess the structural changes in Kazakhstan's financial regulatory system in 2011?

There are always pros and cons. The most common disadvantage comes from combining monetary policy with supervision policy. There is a conflict of interest between those two roles. On the other hand, many believe that during difficult times it makes sense to consolidate. However, what is most important is leadership and I do believe that National Bank of Kazakhstan has some of the most professional leadership among all the region's central banks. At the end of the day, this is what matters the most.

What are your expectations from the new banking law?

The new banking law combines many policies into one legislative package. There are important lessons learned from the crisis, such as the fact that banks should not lend to the extent they did before and should not be investing outside of Kazakhstan to such a large extent. Moreover, our banks will not be permitted to carry many speculative financial instruments on their balance sheet, as they were doing before. Today, we enjoy a much more transparent system that functions as a manual for the banks as lenders. Banks should refrain from participating in activities such as hedge funds or real estate funds. This is simply too risky. These are the factors that led to the demise of many banks worldwide and in Kazakhstan. The legislation creates limitations on international expansion, and now banks cannot invest more than a certain percentage of capital outside of the country, which may be temporary. I still believe that Kazakhstan needs to expand its business into bigger markets. This will be good both for business and country. If we decide to work outside of Kazakhstan, we would like to invest more than the specified 10% of our capital. All drawbacks aside, the laws bring personal responsibility to the management and the shareholders.

© The Business Year - March 2012