Aibek Kayip: The Banking Market Is Fairly Overregulated, Fairly Liberal

In the banker's opinion, the Kazakhstani laws enable the second-tier banks to manage the quality of their assets to the full extent. At the same time, much depends on how fast bank managers can make intelligent risk-weighted decisions.

Which problems related to the financial sector improvement require most attention, what is expected to happen to the market after the AQR and which trends will promote its development? Chairman of the Management Board of First Heartland Jýsan Bank JSC, Aibek Kayip, answered to these and other questions in his interview to a correspondent.

- Aibek, as we know, the much-anticipated AQR findings were announced last week. The results are generally satisfactory. Will confidence in the banking sector grow now?

- I believe the AQR to be an efficient tool not only for the state, but primarily for the banks and their shareholders as far as understanding the quality of their operations is concerned. Everyone knows today that the financial regulator has at its disposal more authentic data of the banks than anyone else, and that reports we submit to it on a daily basis, ensure this. The AQR, in turn, appeared to be useful due to the fact that it produced a third-party opinion verified by international advisors, and at least gave each market participant an opportunity to critically evaluate the approaches to its business. In addition, the market will feel the effect of the completed AQR some time later.

- The regulator has already announced about the new approaches to the regulatory treatment. Do you believe these will result in even a higher overregulation of the banking system? Hence, how can this affect the operating activities of the second-tier banks?

- In my opinion, the Kazakhstani banking market is fairly overregulated and fairly liberal at the same time. That means I do not see any factors that could prevent us from growing or developing in terms of lending or client servicing.

At the same time, the decrease in the lending growth rates is not mostly associated with the overregulation of the banking sector, but with the macro and microeconomic situation in the country.

As to the new approaches, I believe they will provide for sufficient space to implement managerial decisions.

At the same time, it would be wrong to expect the new approach to the regulation or risk-oriented supervision (ROS) we are discussing to become successful at once. This will be a major and long process. We, banks, will have to gradually adapt to the process in the first instance, and hence, we will have to learn to establish a proper dialogue with the regulator, as no direct ROS cases have ever been used in Kazakhstan so far.

As to IFRS 9, I would like to note that one of the AQR items was how correctly the banks have introduced the standards.

As far as the global trends are concerned, at present the banking regulation standards are really toughened, compliance controls are substantially changed, and banks' liability grows in terms of understanding their clients.

- Recently the President said that it is required to improve the banking system urgently, otherwise it would be impossible to avoid serious implications. Which issues should be paid most attention to?

- In fact, there are enough mechanisms in Kazakhstan to improve the financial sector. For example, the laws allow the banks to manage their distressed and toxic assets. As we know, the DAMA (distressed assets management agencies) mechanism has been implemented in Kazakhstan in quite an efficient way. However, everything depends on the quality of such management and if the banks are able to create a new asset themselves, or in partnership with other investors.

At the same time, it is impossible to forget that the banks are as healthy as their clients are.

The better the state understands the life of the today's entrepreneur, the more efficiently it will be able to help him. In this case, I think, it is no point to improve an entrepreneur's access to funding only, it is also required to pay attention to the other aspects of his activities. 

It is also necessary to pay attention to financial literacy. At this point, banks should undertake a part of responsibility for cultivation of the financial culture among citizens and entrepreneurs.

- In connection with this, do you support the national programs aimed to back up SMEs?

- On the whole, I do support the State's desire to provide affordable funding to SME businesses. To answer if it is efficient or not, a different, more systematized approach developed by functionaries would be required.

On the other hand, in terms of the state support it is always necessary to balance and prevent any breaches of the market mechanisms. For example, if a plant produces obsolete goods, nobody will buy such goods, regardless of the state support rendered to the plant. In this case, it is the market that has the upper hand.

- From your perspective, to what degree citizens are debt-ladened today? And should any actions be taken to ensure development of the real economy?

- I think it is not required to focus on the banking sector as the main source of support of small and medium-sized businesses.

Availability of funding is an important part, but not a component of successful support of SMEs. It is necessary to understand clearly well which difficulties the business encounters in the course of its development and to adjust the national programs accordingly. 

At the same time, there must be other motives to facilitate the development of the real economy. For example, legislative changes, easing the business operation mode, etc.

As to customer lending, in my opinion, it is currently at quite an adequate level. In Kazakhstan, the population's average loan debts are equal to two nominal average monthly incomes, in Russia – about five ones, and in developed economies – more than ten ones. Therefore, if the banks are actively accessing the retail banking sector, this is because of the situation in the market.

As to the banking sector on the whole, we expect the interest rates for individuals to go down. This will allow clients to receive high quality bank products at a low price.

- Does that mean that the margin of banking products will be decreasing?

- Yes, when it is a high-volume production, even if we consider finances only, over the course of time this will result in a decrease in the margin. I believe this to be a good trend, which will ultimately force the second-tier banks to look for other sources to satisfy their client's needs and to increase their own revenues.

The market mechanisms will predetermine the cost and margins of the products, you can bet on it.

- Many banks are complaining now about the lack of good borrowers though. 

- I am of the opinion that it is always possible to find your client, depending on a risk profile you choose. At this point, the interest rate does not always play the decisive role, especially when we discuss SMEs lending. For example, in this segment, the clients mostly pay attention to the speed and quality of the services.

Hence, those banks, which know what the market expects from them, get the best borrowers.

- In this case, which banking trends would you like to mention?

- First, it is the banking ecosystem, when clients are served according to the one stop-shop principle not only with regards to banking products or services, but also in additional aspects. The second global trend is the shift from a physical contact to digital channels. The interaction with the client is already going beyond a business day, hence the banks have to maintain the round-the-clock communications with the client, regardless of the distance. The third trend is artificial intelligence. Of course, each participant reads its own thoughts in the concept, however, it can be generally described as the in-depth understanding of the client's needs and possibility to provide the client with those products he actually needs, according to the big data analysis. 

What matters most of all is not how much we earn, but what we can deliver to the market. If the product is right, it will evidently attract funds. 

- From your perspective, how will the Kazakhstani banking sector transform in the immediate future?

- The sector was being purged from weak banks for the recent decade, therefore, I suppose the consolidation will go on. At the same time, the banking sector will be increasingly engaged in retail and SME business.

As we have already noted, margins of some products and services will fall. However, I believe all the above-mentioned changes will ultimately turn out to be beneficial for the end consumer.

- Last year, Jýsan Bank earned over 30 billion Tenge. What affected this? Which financial performance does the Bank intend to achieve this year according to its new strategy?

- Yes, according to its statements, which have not been audited yet, in 2019 net profit of Jýsan Bank was approximately 35 billion Tenge. However, I would like to clarify that such high profits were gained in the result of efforts being made throughout the year in order to optimize costs and increase revenues, to improve the troubled portfolio, and to reduce the provisions. All these have contributed to the growth in the operational figures.

At the same time, 2020 has been announced as the year of mobilization, and we are going to devote it completely to the internal improvements. Substantial investments will be made in the IT infrastructure.

In the long run, we seek to go beyond the conventional banking and transaction business and to provide products and services based on the ecosystem concept.

Furthermore, another ambitious objective of the Bank is to become one of the three leaders of the banking system during the coming 5 years, as far as the size of our assets is concerned. However, we do understand that to achieve the objective, we will have to double our loan and deposit bases. Historically, the Bank has left the agriculture, but is still open to this industry, in particular to small and medium-sized businesses, which are supposed to play a special role, together with the retail business, according to the Bank's strategy.

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