The following executives from Bank TuranAlem (BTA) participated in the interview: Gulnara Galyamova, associate director, loan and capital markets and IR; Roman Solodchenko, chairman of the management board; and Erkin Tatishev, member of the board of directors.
Kazakh banks have been borrowing a lot to support the fast growth in corporate and retail lending, indeed they borrowed around $18 billion last year on external debt and credit markets. Do you think BTA borrowed too much?
Galyamova: The Kazakh economy in general has been booming for the past several years due to its stable political situation, its high credit ratings, and the constant increase in global oil prices. To facilitate such growth, and given the relatively small population of the country (only 15 million people) and the limited domestic financing opportunities for banks, the banks were forced to switch to external borrowings. This was, until recent times, the cheapest and easiest way given the volume of liquidity in the international market. External borrowings had been heavily increasing over the last years and comprised 51.6% of the total liabilities of the banking sector.
BTA, due to its size and strong market share (around 20%-25% in different products), has been growing along with the market, and therefore is able to borrow as much as is demanded by its customers.
So does that mean you expect to borrow more in 2008? Are you concerned that some of your peers will default and this will look bad for all banks in Kazakhstan? There have been, after all, some ratings reductions for Kazakh banks.
Solodchenko: I donÆt consider the current situation a crisis. I would like to say it is a recession. No bank has defaulted. All the banks have been (and still are) paying their debts to international banks.
It is good that the recession has happened. We are now discovering new ways and methods. This situation has given us much experience. Because we are the biggest private CIS bank and a leader in Kazakhstan, we will take advantage of this recession and gain the market share that is being lost by other banks in Kazakhstan. [The CIS stands for Commonwealth of Independent States, which is an alliance of 12 of the 15 former Republics of the Soviet Union; including: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldava, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan].
In regard to the rating downgrading, I am concerned that rating agencies did it without consultating Kazakh banks and did not know the real situation in Kazakhstan. I think that they reacted to keep their image.
I'm told BTA plans to open a bank in China or purchase one of the Chinese banks. Have you narrowed down your potential targets?
Tatishev: We applied to the National Bank of China for a license to open a bank in Urumchi. Now, we are waiting for permission to start our work. And as soon as we are granted the license we will gradually build the infrastructure. It is the closest province to Kazakhstan and we have very large trade interests in the area, so it is a logical place to look at. We are, in fact, planning to increase our presence in two countries: Turkey and China.
Solodchenko: We definitely look to China for growth. As mentioned, we are now in the process of receiving permission from the Chinese regulators to open up a subsidiary in Urumchi.
WeÆve chosen Urumchi because it is biggest city and closest to the Kazakh border. Most of the trade between our countries goes through Urumchi. We see these trade flows increasing year-to-year. And that trade is increasing mostly in the segment that as a bank we are most interested in, which is small- and medium-sized enterprises and retail businesses. We will serve both import and export trade deals. And this will make it easier for our clients.
According to Chinese legislation we have to stay in the market for four years before we can get a license for retail operations in renminbi. We have to work for these years serving Kazakh clients and only after that will we also have access to the Chinese retail market.