We have entered phase of active growth
Nurbank is going to get back into the top ten banks of the banking sector of the country in the near future.
To honestly recognize the problems, not hiding them from the shareholders, depositors and state regulator, and to work within the legal frameworks is an immutable formula for success in the banking business. According to Chairman of the Board of Nurbank, Kantar Orynbayev, exactly this formula helps the bank to actively grow and demonstrate excellent performance.
Kantar Bekaralovich, will you share with us information on the intermediate financial performance of the bank in the current year.
Since the beginning of the year the bank's assets grew by 17% from 253 billion to 296 billion tenge. I am glad that our rates are higher than within the system in a whole; as the assets of the latter have increased by 12%. For us, it is very important, since the main target of the bank is to get back into the top ten banks on this performance indicator. With this, against the background of a slow growth of the first tier banks, the banks comparable to ours are developing very aggressively.
Despite the last year's write-off of bad debts to the amount of 17 billion tenge, the spread of the bank has risen above 3% from 0.56% at the beginning of the year. Prior to this, the idle portion of the portfolio washed out the revenues which the healthy part of the portfolio earned. Moreover, to achieve a higher growth, we had to do dumping, and we can say that the bank gave loans on cheaper terms than in previous years. Today, the misbalance is improving in favor of the working portfolio, and therefore, the spread increases.
In addition, our deposit base grew by 22% and the NPL reduced from 45% to 24%. In general, the interim performance of the bank is really encouraging. After a new shareholder had joined us and we had improved management in 2010, then for a few years we were sorting out what happened in the bank and were cleaning assets. Starting this year, Nurbank has entered an active phase of growth, and I hope that this is only the beginning.
Nurbank makes a focus on consumer lending. Which niches and products in this area would you call the most promising?
In the past year we focused on provision of consumer loans with regard to the goods for credit directly in shops, achieving good results in this segment. However, this year, the state regulator introduced a restriction on banks on the growth of their portfolio of unsecured consumer loans to 30% as the maximum. This is despite the fact that the most successful banks in this segment showed the growth of to 80% last year. It's hard to judge now whether these measures will be successful or not. Whatever it will be, the adopted regulations cause changes in strategy, and now we are working on a number of new products for retail sale on terms of secured lending.
In 2013, we increased the retail portfolio share from 10% to 15%, and now, it has reached 20%. This was not due to the reduced share of SMEs, but the reduction of the corporate sector share in the total portfolio from 70% to 56%. In the future, we intend to increase the share of the retail portfolio to 30%. This does not mean that Nurbank is eventually going to become a fully retail bank. Any narrower specialization involves high risks, but we are committed to diversification and universal banking.
Does the development of retail lending presuppose the availability of adequate infrastructure? Do you have such?
Despite the fact that originally Nurbank was aimed at the corporate sector, currently we have an extensive network of 16 regional branches and 75 centers of banking services in all major regions of Kazakhstan. With nearly 350 ATMs, we rank 8th on this indicator. All this allows us to successfully engage in retail lending. Of course, this assumes a sharp increase in the number of transactions to be processed by the automated banking system. Before the end of the year, we have to make a choice and start introducing new software. The introduction of modern IT-solutions requires extensive preparatory work – the creation of the database, the update of the servers that will handle the increased number of transactions. In parallel, we will enhance our Internet banking.
Do you agree that in the retail lending segment the level of risk management should be both high and specific?
The retail lending segment is like McDonald's: You need to tune up the process and at the same time to distribute the service in a way so that at any bank branch throughout Kazakhstan the level of service would meet a high standard. The last year’s growth gave us the opportunity to gain some experience. We have completed work on the bugs, and are tuning up our scoring model. Of course, it is very hard without this to move further ahead in the retail lending segment, especially in the field of fast loans. The population of Kazakhstan has already become accustomed to the practice that you can get a loan in 15 minutes. Having managed to make a decision in such a short time is top performance! Of course, a well-organized external environment helps much: the credit bureau, which collects all the information on the credit history of a person, as well as the SCPP, where we see the official salary transfers. There is a problem only with the self-employed and those receiving wages in envelopes. In this case, the scoring model is a kind of sieve.
Sensitive issue for all Kazakhstan banks is non-performing loans. What is the progress with this at Nurbank?
As I have said, we have managed to reduce NPL to the level of 24%. In general, any loan is considered non-performing if it is overdue by more than 90 days. However, even among them there are loans that can be restructured and "revived". Our subsidiary created by Nurbank in the current year for managing distressed assets, deals with such loans.
With the other group of our debtors, more severe, we work via collection agencies. In 2012 and early 2013, we passed them the problem loans to the amount of about 50 billion tenge, and this year to the amount of 14 billion tenge more. We also pin hopes on the Fund of Bad Loans, although it is not clear yet what requirements they will set for the loans to be redeemed by them.
Well, the last group of debtors is bad loans. There is only one thing which is left – without any illusions to take courage and recognize the loss. Our bank has always maintained adequate and conservative approach in the assessment of the quality of our portfolio. This is very important – to honestly recognize a loss and move on, rather than clutter up the balance sheets.
How is your new tool, contract financing, developing?
This product is designed both for SMEs and corporate clients. We understand that entrepreneurs which actively use loans are experiencing problems with collaterals today. Again, life has shown that the collateral itself is not always a guarantee for repayment of the loan.
Therefore, we have created for our internal use a registry of customers that are trustworthy, which includes more than 200 of the largest companies. For those of our clients who are their contractors, we provide a loan "on reputation." If the client is really a professional in its area, has a good reputation, and large organizations trust the client the execution of large projects, we understand that the bank can also trust such of the client. Of course, such a tool requires greater openness from the borrower. As an additional indirect service, we provide an external auditor to our borrowing client, which very thoroughly evaluates the project and the risks of non-performance of the contract.
At the moment, contract financing takes a small niche. However, as the rules of the game in the business will increasingly move to the field of law, this product will fully uncover its potential.
As far as we know, you do not have external debt. What are the main sources and the structure of funding at Nurbank?
The main thing here is, of course, the deposits of legal entities and individuals. In 2013 we released to the local market 6 to 10 year bonds worth about 30 billion tenge. The rating assigned by Standard & Poor's helps in this matter. We want to be transparent to our investors, shareholders and depositors, so chose the most "picky" agency. This year, S&P affirmed the long-term and short-term credit ratings of Nurbank at B/B, while the rating on the national scale is kzBB+, with a stable outlook.
Another step that confirms our intention to be transparent is the fact that we changed the previous auditor for the KPMG Company. Prior to that, we have had another auditor for nine years. In our opinion, the change of auditor after several years of cooperation is an effective way to control the quality of the audit, as it gives an opportunity to look at the business with fresh eyes.
With regard to external borrowing, earlier we deliberately refrained from using this source, because we did not want to take the currency risk. This year, with the introduction of the SWAP, the National Bank is offering banks the opportunity to change our dollar-denominated assets for ones in tenge for a certain fee. If we do so, we will be able to use external sources of funding. But then another problem appears – to what extent creditors abroad trust Kazakhstan in general? Now we are working in this direction, and, most likely, next year we will have foreign loans, but they will be covered with the SWAP umbrella.
Please tell in short what are the main challenges for the Nurbank in the next five years?
Get back in the top ten, to get rid of old problems, to increase assets and so to form a new healthy loan portfolio.