100% GOVERNMENT-OWNED IN ABU DHABI

Kazakhstan 2018 | FINANCE | VIP INTERVIEW

TBY talks to Gordon Haskins, CEO of Al Hilal Bank Kazakhstan, on setting up in the country, the timing of the move, and key objectives for the coming year.

Why did Al Hilal Bank select Kazakhstan as the hub to branch out into?

Al Hilal Bank's decision was very much a product of the growing ties between the UAE and Kazakhstan. There was an interest on the part of the Kazakhstan President and government to foster Islamic finance in the country and in 2009 an intergovernmental agreement was signed regarding establishing an Islamic bank in Kazakhstan. As a result, it was a natural first step for Al Hilal Bank to look at Kazakhstan as its first foreign market outside of the UAE. We were established, licensed, and registered here fairly quickly after that, and started our operations in early 2010. Cooperation and support on the legal and regulatory framework from the Kazakhstan government has continued ever since. Most recently, the President's support has been evident with the AIFC's focus on Islamic finance as one of its key pillars. Not surprisingly, the first few years for Al Hilal were investment years, where we set up the business, hired people, developed processes, and built our client base. However, for the last five years we have been profitable with our corporate business here. We have an established client base that has appreciated our commitment to customer service, and we have continued to build the business, though on a careful basis and risk conservative approach. For example, in terms of our credit reviews, we ensure we lend to solid businesses that are able to service their financing arrangements with us. We have been quite successful with this business and do not have any non-performing financings on our books.

In 2017, Al Hilal took the step to establish its retail business in Kazakhstan. Why now?

Retail banking has been part of the strategy for the bank for a while. Our ambitions were clear, though it was a matter of finding the right opportunity and window, which emerged in recent times. We ran a pilot program in 2016 to attract retail deposits from individual customers. We had conservative targets and far exceeded those within weeks; we realized there was a demand for this. People see that we are 100% government-owned in Abu Dhabi, which speaks to our credit-worthiness. The market here also understands the UAE because there are many business and government connections and many people holiday there. We decided to launch our flagship retail branch in Almaty and the timing was fortuitous. With other developments in the local banking market, we have been able to present Al Hilal Bank as a strong partner for people seeking a safe and secure place to deposit their money.

How would you describe Al Hilal Bank's typical client base, particularly in the retail segments? Are you going for market share or quality of customer?

We have focused on the quality of our customers in the corporate sector, and we will do the same in the retail space. We are not seeking to grab a large market share; we will acquire new retail customers by applying a careful and considered approach and paying due attention to their credit-worthiness. Our retail strategy includes offering financing products for individuals, which we are in the process of implementing. We started with accounts and deposit products, partly to build the funding base we need to provide retail-financing products. We are launching our pilot financing products in 4Q2017 with the aim to launch these products publicly in 2Q2018.

How educated and aware is the market today in Kazakhstan about Islamic financing products?

Awareness and education about Islamic finance and some of the differences between it and conventional banking products are issues we have to deal with here in Kazakhstan. This has been part of our corporate mission since the Bank started here. We have done this with various seminars we have organized and special training sessions for corporate customers that have not been exposed to Islamic finance before. For example, there are some differences in the way Islamic banking products are treated from an accounting and tax perspective. And we do such training on an ongoing basis. We are mindful that there is a lack of awareness in the local market, and education is a big part of improving this. Nonetheless, this vision is also being supported and fostered from the very top. President Nazarbayev announced in September 2017 at the Global Islamic Finance Awards that Kazakhstan would issue a USD300 million sukuk in 2018. We see this as a potential investment opportunity both here and in the UAE. Judging by other sovereign bond issues in the past few years, there has been considerable interest in the Kazakhstan credit, and presumably it will be the same among sukuk holders. In the current global environment, this offering could potentially provide a good yield.

What are your key objectives and expectations for 2018?

Our recently opened branch in Esentai Tower in Almaty is our flagship branch in Kazakhstan as it is primarily focused on the retail market. We are not seeking to roll out a large number of physical branches across the country. But we will look to expand our offering beyond the three cities where we have branches now, Shymkent, Almaty, and Astana, and potentially open another branch in one of the other regions at some point. However, our expansion will be very much focused on the digital and online offering. We have an internet banking platform that we will roll out shortly. We have been doing this in steps on the retail side. We will seek to roll out a digital mobile app in the near future to offer remote banking service to our customers wherever they are in the country. Both 2017 and 2018 are again investment years, similar to the early years we spent establishing our corporate business here. However, in 2018, as we launch our financing products, we will start to build the revenues from the retail business and will see more significant growth beyond 2018. In 2017 we have remained positive and healthy from a profit perspective and we expect this to continue into 2018.