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Umut B. Shayakhmetova

KAZAKHSTAN - Finance

Top of the Ladder

Chairperson of the Management Board, Halyk Bank

Bio

Umut B. Shayakhmetova was appointed as Chairperson of the Management Board in January 2009. Since 2004, she had acted as Deputy Chairman, having previously worked with ABN AMRO in a number of increasingly senior positions. She is a graduate in Economics from the University of People’s Friendship in Moscow, and holds an MBA from Rutgers University, New Jersey.

"We are outperforming our budget, improving net interest income, and generating new commission business."

How far has Halyk Bank progressed toward being Kazakhstan’s number one bank?

If we talk about the period since 2011, then we can see that Halyk is continuing to grow as a bank and business. We have, on average, around 5%-9% annual growth in total assets. Net profit is increasing at an even higher rate and, overall, our loan portfolio is increasing at an average of around 10%. In 2012, the major milestone was that we approved a new strategy for the next three years. We are on target to become the number one bank in Kazakhstan. We are number one in most market segments, including net income, retail deposits, and total deposits, though we are not number one in terms of total assets. This is the main target for us. We also will continue to grow and develop in the other markets in which we’re present, namely Russia, Georgia, and Kyrgyzstan. Halyk Bank is diversified with regard to its products and clients. In 2012, we approved and looked at a new strategy on dividend payments, where we said that Halyk Bank will pay dividends on common shares each year amounting to 15%-50% of consolidated net profit. In 2013, we already paid dividends on common shares within the framework of a new dividend strategy. Also in 2012, we established a new company, a subsidiary of Halyk Bank, which is to deal with the management of distressed assets. This was allowed under new regulations to oversee the cleaning up of bank balance sheets.

It is expected that the merging of Kazakhstan’s pension funds will be completed by the end of 2013. What impact will this have on Halyk Bank?

The pension reform was announced in January 2013, and has been an ongoing concern for us. Halyk Bank was offered BTA Bank shares in exchange for our pension funds. With more than 33% out of overall pension assets under management in the pension system, we have the biggest pension fund in the country—even larger than the state pension fund. It is the best pension fund in the country in terms of quality of assets, branch network, and presence around the country. For us, it is bad news that we are losing part of our commission business, which was profitable for us. We were earning fee and commission income of $100 million per annum on average from the management and administration of pension assets. At the same time, if you look at the total income of the group, the income derived from the pension fund was around 10%, so it is not extremely significant, but in terms of commissions it was quite significant. Despite this, we’ve been growing in accordance with our targets in the retail business, more than 20%, while corporate banking is growing around 10%, SMEs are growing around 15% for medium companies, but in small companies there is no growth. We finalized the due diligence of BTA and provided our indicative and non-binding terms regarding the potential acquisition to JSC Samruk-Kazyna, which were not accepted. Therefore, our negotiations over the potential acquisition of BTA have been discontinued and we are no longer considering this transaction. We opened two new branches in Georgia, and we continue to look to the Russian market as a strategic target. Kyrgyzstan is growing organically and we are looking at the competition that is growing in the local market there.

“We are outperforming our budget, improving net interest income, and generating new commission business.”

What were the main drivers for such growth?

We are outperforming our budget, improving net interest income, and generating new commission business. These are the major drivers, and it is because portfolio growth is better than we expected. The rates were conservative, but we achieved a better result in our portfolio in the commission business despite the negative news about our pension funds. They are not performing on the budgeted numbers because pension assets today are not invested properly. The National Bank, in January 2013, implemented an embargo that does not allow the investment of pension assets in corporate securities. Over the year, pension assets were only invested into government securities or deposits, which were mostly current accounts because there was no long-term strategy for the pension funds. Overall, the returns on pension assets on the country this year are far lower than usual. That is why the income from the pension funds is lower than we budgeted. Our net income will be around KZT74 billion.

What is the distribution of your portfolio?

Around 58% of the balance sheet of the bank is represented by the net loan portfolio, out of which about 20% is retail, more than 10% is SMEs, and about 70% is corporate.

Halyk Bank has regional operations in Russia, Georgia, and Kyrgyzstan. How do these markets compare to that in Kazakhstan?

Of course, all three markets are quite disparate and we see different challenges. There are different regulations, competition, and it is a dissimilar market as a whole. For example, in Kyrgyzstan, we were making a profit and being quite successful even during the financial crisis and the war there. People were still repaying their loans, which was really surprising. The performance of the Kyrgyz bank is really good and it is growing organically. We are number five or six in the market. In Russia, of course, we are a relatively marginal player, as there are around 2,000 banks, which contrasts with Kyrgyzstan’s 15. The client base is also different. In Russia we target clients who already have business links to Kazakhstan under the new Customs Union. We seek out Russian companies that have business in Kazakhstan and Kazakhstani businesses in Russia. In addition, we focus on SMEs there because of the limited exposure. Competition is tough because our rates are higher, so we have to compete differently, also looking more at retail in the coming years. In Georgia we also feel quite good because we entered the market after the crisis. The bank was created in 2008, and we started working with clients in 2009.

Non-performing loans (NPLs) are still an ongoing issue for Kazakhstan’s financial system. What needs to be done to address the problem?

Many new instruments have been created, including the distressed assets fund under the umbrella of the National Bank and also new legislation on taxation, allowing banks a two-year grace period if they write off the loan from the balance sheet, or create a company for the distressed assets. However, the procedures are so cumbersome and difficult that they take several years for completion, which means you cannot use any of the instruments. For example, the write off of the bad loans for the tax exemption has meant that it has been two years and no banks have managed to clean up their balance sheets because you almost have to go bankrupt. You have to go to all the regions of Kazakhstan and must go through all the assets and guarantees to sell everything to figure out what the defaulted borrower has in or outside the country. Only then can you go for the write off. It is the same situation with the state’s distressed assets funds.

What is Halyk Bank’s strategy for growth and development locally and regionally?

We are targeting a minimum of 10% growth. We will continue to grow in each segment in Kazakhstan, and will put more effort and investment into developing our IT and human resources. IT, online services, mobile banking, and an expanded ATM network all form part of our strategy to reduce costs, as building new branches is expensive. Some bubbles are going to be created in this sector, as can be seen in Russia, so we intend to remain conservative, especially in our consumer lending practices. In Kazakhstan, where consumer lending is growing more than 20% and some banks are growing at 70%, I do not foresee a healthy development of the sector. Halyk Bank is the only bank to provide loans backed by the salaries of employees of companies that have projects with the bank, either through overdrafts or by automatically deducting the amount due from their salaries. In contrast, other banks just issue loans at shops or online without proper analysis. It is a lot of work to maintain the high quality of the loan portfolio. In 2013, we repaid two outstanding Eurobonds, one with original placement of $300 million in May 2013 and the other with original placement of $500 million in October, 2013 out of our own funds utilizing existing liquidity. In 2014, we may look into returning to the capital markets.

© The Business Year – November 2014

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