For the modern Western people it’s hard to imagine the reality of Kazakhstan. Thirty years Nazarbev, once a CPSU-apparatchik and then the leader of independent Kazakh nation is in power. He left the chair of the president only to occupy the throne of the ‘leader of the nation’ and will remain there until the very death. Nazarbev’s shadow is cast on everything that happens in the country. It is tempting to paint the picture in dark tones. But even fierce critics of the regime are acknowledging some of the successful efforts on Nazarbaev’s account. Sadly it is overpowered with a wide spread corruption and money laundering. Nazarbaev’s clan has taken nearly every viable business in Kazakhstan. Halyk Bank is not an exception to the rule as it is owned by Nazarbaev’s daughter and son-in-law. But there are some green shots under the thick cover. Umut Shayakhmetova is an amazing person in many ways, the British Talk Finance news site considers. There are not so many people in the world that are so fit to be a banker. This woman might be able to lead any economic-related leadership position in any country. She manages the main bank of Kazakhstan, Halyk Bank (it is People Bank in Kazakh language). Due to the extreme importance of the bank to the country it is quite truthfully established as proxy name for the entire nation. She is probably number two in the economic block of the country, but many are suggesting that she is truly the number one. Being employed by the closest allies and relatives of the regime icon she is brave enough to call the things by their true name. She is critical towards the government. She does not cover the troubles in economics of the nation. Hey, she even mentions that there were wide street protests after Toqaev was elected without the true and democratic elections! It is kind of taboo to even mention it in the press. We don’t know if the Kazakhstan will ever come to the true democratic government. But if it will Umut Shayakhmetova is the best person imaginable that can lead the nation to the prosperity. The changes in political landscape [long-time president Nazarbaev abdicated and the new elections were held – editor], protests and strikes in the first half of the year 2019 affected the banking. The main economical events are centered around the continuing bank merging, shrinking loan programs and state-sponsored bank salvation. This is the vision that the main bank of the Kazakhstan, Halyk Bank, CEO Umut Shayakhmetova, reveals to the KazTAG media outlet. We’ve found a rare and amazing occasion to get the insight on the Kazakhstan economy and we are offering to our readers a comprehensive translation of the KazTAG interview of Umut Shayakhmetova. In this frank interview she reveals her own political statement among the other. She is opposed to the current form of economic integration with Russia in a form of Eurasian Union. It is heavily dominated by Russia and it is abusing the power. Instead of it Umut Shayakhmetova proposes tighter integration with the regional states and even unity with the Kyrgyzstan. The idea is not a new one, but it is not just a dream: Halyk bank CEO has some recipes ready: cultural, economical and political. She is critical towards what the government does thus acknowledging the oligarchic, clan-based and corrupt type of the leadership. She does not go to the extremes and stops short in labeling some of the projects as nothing more than earmarks. But most important: Shayakhmetova sends a clear message to the government that the country can’t go in the same way they were thirty years long. Nations’s opinion is crucial and it is the people of Kazakhstan that demand to put an end to the Nazarbaev’s era. The original interview was taken by KazTAG journalist, Valentina Vladimirskaya. – Umut Shayakhmetova, tell us what events were worth noting in the first half of year 2019? – Indeed it was the merging of Halyk Bank and Qazkom [the other major bank – editor]. It resulted in introduction of the market giant with a total share of 35 percent and more. The second one is troubles in which Cesnabank got into and the state bailout that has been followed. The salvaged bank changed its name to Zhusanbank. Cesnabank was the second most important bank in the country. Those events were crucial for the banking. And of course I should mention the ongoing process of the bank merging at the expense of the state. There are also the other important events though. It is the rise of the importance of retail banking and retail portfolio. Another trend was first spotted in the last year and rose to the full might is a shrinking loaning to the ‘real branches of the economy. It’s only retail loans portfolio that’s growing. In the first half of this year we observe the major shifts among the core players. The salvation of Cesnabank was finalized and in was merged with First Heartland Bank. The resulting bank got a Zhusan Bank name. There was another merging worth mentioning. Three minor banks: Tengri, Asia Credit and Capital Bank Kazakhstan were merged. It is a definitely a trend for the market consolidation. There are some minor changes in the regulation also. Literary two days ago Dosaev [the president of the National Bank of Kazakhstan – editor] informed what exactly will be changed in the retail banking regulations in 2020. Several things will be changed for sure. In first half of the year the important political changes came. Of course they affected the banking. Shares of the Halyk Bank and other companies, like KAZ Minerals and Kaztelecom, tumbled and rebound shortly after it. For sure, political protests [Kazakhstan has seen mass protests as an aftermath of the election which were held in a rather authoritarian way] and strikes also put a pressure on the banking. There were popular demands for debt relief. The state has dispensed some targeted aid. The year was all in all very stormy, there were key events every month. Every day we are focused, we are tracking the international and domestic markets, looking for everything that may affect the bank. Therefore we are working quite against hard. – At the S&P conference analysts forecast that the M&A of the Kazakhstan banking will go on. It is a worldwide trend and Kazakhstan is not an exception. Do you support such statement? – Banking is capital-intensive market and it becomes less profitable. While chasing the broader customer base banks are abandoning the service fees. – But customers seem not to notice it. I don’t observe the mood change, I don’t see such [happy – editor] customers. Some experts were reported that banking services became cheaper. They stated that fees were either abandoned or got cheaper. – It is such a trend on Facebook. It looks like that people are whining, that they are ever not satisfied. Nobody wants to start from themselves. Let’s go to basics: nobody will take the trashed paper from the street but everyone is complaining that streets are a mess. People throw trash at the streets and are complaining about the trash in the same time. Speaking of the banking fees I am strongly opposed to the statement. Today, if you pay with the mobile app the fees are zero, everything is free. I should point out that loans are not free and they can’t be free. Loans can’t be free because the banks are taking money from the others customer’s deposit accounts and we pay interest to them. We see the trend to a lower loan interest too, however. The interests are definitively getting lower. If people take the expensive loans in pawn shops and micro-loaning companies – it is their trouble, to be honest. It is their illiteracy or the fear of the banks. Of course banks will demand the papers, we demand transparency of the income and the sources of that income should be revealed. We will analyze the probability that funds will return to bank, that the loan terms will be fulfilled. That’s perfectly normal and standard drill. Moreover we have to educate people to act in accordance to what banks are demanding. I travel much around the globe. I travel to Tajikistan, Uzbekistan, Kirghistan, Russia and Georgia to name a few. I can assure, that in Kazakhstan it is better of all. People just don’t get it. I mean our overall political and economical state is the best in the region. In all the CIS-counties, including Ukraine, it is much harder than in Kazakhstan. There are opportunities to work and live well. I am sure about it. It is both actual for SME’s owners and regular workforce. Why Russia and Kazakhstan enjoys the influx of the foreign workforce? It happens because in own countries they do not have jobs. I don’t intend to be more specific about countries, but Kazakhstan is much better. It could be even better, but take it as a proven fact – we live much better than others. – How do you scale the overall interest of investors in Kazakhstan and your bank in particular? TIm Bennet from the International Financial Center Astana (AIX) told that our economy is way to small for foreign investors. – Yes, perhaps the market we have is not a big one. Kazakhstan has a population of slightly over 18 millions. The more I work the more I got reaffirmed that we should progress with regional integration. We are much the same in many ways. It is the culture, a common language first of all. Why we don’t develop a common Latin-based script for Central Asia? In Uzbekistan their have their own script, in Kazakhstan – the other. But the language is common. Why not introduce a common script? There is a high potential in tourism, trade and workforce exchange, financing. I have even bolder thoughts. Why not to open borders, not to unite with Kirghistan? We will both win. The market would be bigger. There is a lot of SME’s there [in Kirghistan]. There is a good potential for growth in a country and region alike. 15 years ago direct foreign investment in Kazakhstan were blooming. There was explosive growth of capital markets. There was an influx of investors. Major projects – Kashaghash, Karachaghanak – are working now. We had issued euro-bonds, syndicated loans, corporate bonds and so on. We are now even bigger and even stronger in economic terms. Why investors hesitate to come to us? Maybe there are reasons. There is no internal stock market like it was ten years ago. It was killed by the “Samruk” fund [National Wealth Fund, formed by excessive oil incomes and taxes]. The state share in economy has been increased, which has reduced the options for private investors. It is not coincidental that “Samruk” fund was established in years 2005-2006. In 2008, when crisis struck the local economy it was merged with another fund, “Kazyna”. The joint “Samruk-Kazyna” dominates on the market leaving no space for investors. By comparing the Kazakhstan now and 20 years ago we come to conclusion that the reasons why investors don’t come is of internal, administrative nature. – That it is the size of economics does not matter? – Look at Georgia. Two local banks got premium listing at LSE. A lot of investment options were found in tourism. Tourism attracts other investments both big and small. Success is not always hanging on economics. It also depends on investment barometer and on being able to work within the country. – How well were Halyk’s GDR received? – I assume that GDR deal was successful. We boosted the liquidity of our shares nearly twofold. Before the deal our GDR’s were at the 17 percent level of total capitalization, now it is 27. We successfully accomplished our task to gain capital. The price has grown after the offer. Investors favored our shares. We attracted first-time investors in Kazakhstan. Those are major investments funds. I don’t have right to disclose it in the details though. Investor base has been broadened twofold. Before the GDR offer we had 40 investing funds trusting us, now it is 80. It is major and high quality investors. In some way we are representing Kazakhstan as a whole. Proxy name, as we often hear from our partners. – Why is it so? – First – we are the biggest bank and we are reflecting economics of the country. If it is good for Halyk it is more or less good for the country and vice versa. As our portfolio grow so grows the economics. It means that we provide loans to small and medium business, corporate customers as well. If we do not forecast our portfolio growth it means that the economics is not growing. It means that our reports are indicating the economy in the whole country. Halyk bank in such way is representing Kazakhstan. We are introducing and showcasing the corporate management standards, we represent all branches of the economy. We are not a single-purpose bank. We work with corporate business, with SME’s, with retail and foreign entities. We are present in the six surrounding countries. Investor watch for our reports, they know and understand every number, asking technically advanced questions. They want to know our strategy for the coming weeks or months. We are active not only in banking. Halyk Bank has seventeen affiliated ventures. It is insurance, telecommunication, physical money transfer, investing and so on. – Let’s get back to the bank. What kind of growth of portfolio do you prioritize? Is it corporate or retail? – In general we try to pursue all three targets. Judging from our credit portfolio the most important part is tcorporate – 60 percent. 25 percent is retail and 15 percent is SME. It can mean that we are skewed towards corporate, but I disagree. You can’t decide it based on the loan portfolio only. We are the biggest retail bank in the country. We have most ATMs, offices and card issued. – In Kazakhstan? – Yes. – Is it [retail network] bigger than that of Kaspi Bank? – Indeed. By absolute numbers. Halyk serves 70 percent of retirement payments, more than a half of salaries and 37 percents of retail deposits. Your judgment is untrue. – I am judging by relative numbers. – Perhaps it is more important to judge by type. What kind of operations is targeted by whom. I want to underline yet another time – we are not a single purpose bank. Halyk is even not a bank only. We are universal. But in retail we are the biggest. 58 percent of card processing is also under our control. – Is Kaspi outsourcing their card operations? – Yes, they use our services and other’s banks tools. They develop P2P card transfers, it’s true. But we are the biggest in retail. – I understand that Halyk is first and all others are left far behind. But I hear quite often that “Kaspi is about to overcome”. What do you think about the competition? – We always operated in a competing environment. Halyk wasn’t always a dominant bank with 35 percent of market share. It is only the last year that we are. We competed with Qazkom and with BTA. Halyk was always number 3 and even number 4. It was back in 2006-2007. We were shortly outperformed by Alliance Bank then. We watched as Alliance had advertised their loans under every light pole. We understood the risks the competitors bear. We refused to join the dangerous race. We were watching as Qazkom and BTA were on the way up. They have credited the purchase of land. I was vice chairman of the bank then. Customers came and asked for a loans to purchase land plots. But we refused. The prices such as half million for hundred of square meter are unsustainable. We were proved right [prices collapsed – editor]. You should not run amok as something is growing rapidly in price. There was a rapid growth in “Astana Bank”. Every bank has its own niche, own growth strategy. A year ago we and Qazkom were the two biggest banks with market share 16-17 percents each. We overpowered Qazkom even before the merge. That’s what I have to say – we were always operating in a competing environment. Now we are experiencing the competition too. Sberbank, Forte Bank and ATF, CenterCredit is competing with us for corporate customers. Kaspi is competing with us in retail. Fortebank is competing in a retail banking too. Our main competitor for today is Kaspi. That’s perfectly normal. It could be much worse for the country would Halyk be alone without competitors. Competition pushes us forward, forces us to move. There are other players out there. Customers have a bank to choose from. We’ve always been surrounded by competitors. And we were growing organically. We are watching for each other. We are watching for Russian market development, for international trends. We are tracking the coming of new technologies, products and services. There are no magic powers that someone possess and others can’t obtain. We are slightly behind the curve because we lost two years assessing the Qazkom acquisition. Technically we froze all our planed enhancements. But now it is all in progress. – Will you launch a marketplace [application – editor]? -Yes we will. We will do it in a partnership. – Can you tell when it will be available? – It will be launched until the year’s end. Perhaps you have seen our new credit card? – No, I haven’t. – It is bright yellow. It gives 1 percent bonus on any purchases and payments. Most service fees are at minimums and there will be some additional bonuses added later. We are updating Homebank application. We will definitively not abandon retail banking. – It was some time as Halyk has acquired Qazkom. Has it stunned the development? – Yes, indeed. It was one of the largest M&A deals by the worldwide scale. It was performed in a Big Bang format. It is all the legal, technological, naming and business processes were done in one day. – What was the benefit of doing it in one day? – There are plenty. In short we got united in one day, acquired all assets and taken all liabilities. There are numerous nuances. It is actually harder to merge step by step. But technologically the Big Bang merging is much harder to perform. It puts pressure on the employees, additional computing power. BTA and Qazkom merger was of other type. BTA had its own banking automation system, Qazkom had his own. They merged it and reported to National Bank. They had a special introduction period in National bank. They lagged behind the reporting schedule up to one moths behind. They weren’t sanctioned though. Halyk had no such opportunity. We merged all the customer’s data bases together, it was Halyk database. We began reporting to National bank three day after the Big Bang was done. – Please tell me what’s up with Light Rail Transit project in Nur-Sultan? – We financed the LRT company by buying their bonds. The bonds we bought are $400 million worth and they are earning 3,25 percent annually. It is profitable deal for Halyk. It is also a good deal for the state and LRT company because it is nearly two times cheaper than regular loan. As I understand there was no option to abandon the project. We don’t discuss the LRT project as such. The decision to build the LRT was taken by the city council, the LRT company, state and the government. We are financing the deal and it is warranted by the ministry of finances. The risk is up to them. We are sure that we will get our money back. – Are there some projects in Kazakhstan or other countries that are interesting to Halyk Bank, the projects you would like to join? – We are very interested in Uzbekistan market. It has a good potential as there is 35 million population in there. Uzbekistan is in the middle of large reforms. Those are economical, banking and financial reforms. We went in and become the first and only foreign bank. We already started some minor loan lines. We will work with companies and persons. There are no big projects in Uzbekistan yet. We hardly can find good customers for our loans in Kazakhstan. Credit lines are shrinking. You can see it by the numbers. Our corporate loan portfolio has shrunken by 10 percent from year to the date. – It is a common topic of discussion. Rating agencies and bankers are speaking about it. – That’s a very bad trend indeed. The results are growing only because of retail. The retail had jumped 30 percent annually and it is equal to corporate loans already. It is unseen through all the history of Kazakhstan. – It’s usual that the corporate loans are bigger than retail? – As a rule the retail portfolio is 30 percent or something around it. I take into account the state of the whole financial market. And the retail is growing. Corporate portfolio is shrinking. That’s not a pleasant trend because retail portfolio is more risky and less supported. It affects inflation rate and the national currency. Some ‘smart’ customers take a loan in tenge, use them to buy US dollars and just hold the USD in a hope that the national currency will fall into devaluation. Most retail loans are instigating the import and it also put a pressure on the national monetary system. And it propels inflation. It is bad for the economy when the banking is growing by the retail only. It is very frightening that the loan portfolio targeted at real economy is shrinking. There is much said about it in the government and in the National bank. You can see that the last credit aid program, which is 600 billion tenge strong is only opened for 43 billions. One and half year has been passed and less than 10 percent of funds dispensed. It says that even at favorable terms this money is not needed. The market doesn’t need the funds. There is no companies that want the loans, no projects in need of funding, no manufacturing to develop, no innovation to be done. Customers do not want to invest in the manufacturing. Most of the renovation was done in 2006-2008 when the loan were expensive. There were other tools, factoring as an example which allowed loaners to attract funding as cheap as 2 percent annually. Economics was on the rise and everyone was sure that it is profitable to invest now. Today our potential loaners say that they don’t know what will tomorrow bring, what the demand will be, and will they be able to service the loans with the current turnover. They are flying low. They don’t want to grow their own venues. I suppose that there is negative influence from Eurasian Economic Union. The import from Russia is growing. The Kazakhstan export isn’t. Our companies have difficulties with getting to the Russian market. For example it is nearly impossible to get the produce to the supermarket chains. There is a need to get certification, some sanitary regulations. Russia is actively suppressing Kazakhstan export. But is easy for some reasons to do the opposite and we have a significant import from the Russian Federation. It negatively affects the national currency as Russia is under the international sanctions. The pressure is reflected at tenge too. Tenge is underappreciated and undervalued. It should be stronger but it is affected by external factors. They come through our open borders and simplistic strategy to give green light to import. It seems to me not the right thing. The trend is likely here to stay. There is an excess of cheap funds. Liquidity is very high. Such liquidity as now is unseen in the modern history of the country. It has plummeted by 1.5 trillion tenge in the last four months. It is close call and it is a reason to give the issue an extra attention. If it will fall down further it will became a negative trend. But it is still 3 trillion tenge high. The liquidity is excessive and banks are investing in the National Bank obligations. It is profitable and has no risks. It gives next to nothing to the real economy. There are no good customers to sell them loans. And the good customers and reliable loaners just don’t want to take the loans. It is a big bundle of questions to National Bank and the government. – Is there a reason why the liquidity has fallen by 1.5 trillion is such a short term? – Perhaps it was several reasons for such a rapid fall of the available funds. Corporate deposits are moving out of the Halyk and other banks. The last results, which is up to September 1, show that the process is still going. National companies, international corporations and joint stocks are servicing the international bonds and loans taken.The other reason is like I said before the funds were simply transferred out of the country because of the more favorable deposit terms. – Does it mean that this trend is significant? – It certainly affected the picture. I haven’t seen the September data yet but as for August it is definitively true. As an example Halyk has lost 200 billions in one week alone as coronations paid taxes. It is by the way one of the reasons why corporations like Halyk Bank. We will not say, um.. take it by parts. We have their money ready for their disposal. Here is where high liquidity comes in handy. I presume that some part of these 200 billions is now at the National Bank deposits. – National Bank started to open deposit accounts. How do you look at that? – It is normal for the DEPO and REPO operations with banks. It is abnormal when the National Bank opening deposit accounts for the persons and companies. – So such practice exists? – Yes, it is. National Bank has opened long term deposit accounts for the state monopolies.