Asiamoney best bank awards 2019: Kazakhstan

Best Domestic Bank: ForteBank

Best Bank for SMEs: ATF Bank

Best Corporate & Investment Bank: Halyk Bank 

Best International Bank: Citi

Best Digital Bank: Alfa-Bank

Best Bank for CSR: Home Credit Bank

ForteBank neatly encapsulates the ambition of Kazakhstan’s banking sector. It has pushed hard into digital, launching its own online marketplace. It is putting serious effort into expanding its lending to small and medium-sized enterprises. It has used acquisitions to increase its asset base and boost its technology. It is far from the only bank in the country to have such widespread ambitions but, under the stewardship of chief executive Guram Andronikashvili, it has managed to stay a step ahead of the competition.

The modern incarnation of the bank came about in 2015, following a recapitalization and merger with AllianceBank and TemirBank, two state-owned lenders. It has since won approval to acquire Bank Kassa Nova. But the more important acquisition may prove to be the takeover in 2019 of One Technologies, which gave ForteBank a leg-up on the competition by bringing in-house a tech company that was formed outside the staid halls of finance.

That points to a big part of ForteBank’s growth plan. Andronikashvili sees technology as a crucial driver of future growth. He has clearly learned lessons from Kaspi, a corporate bank-turned-fintech. Like Kaspi, ForteBank has launched its own marketplace, an Alibaba-style online store where use of ForteBank products is optional but clearly convenient.

Unlike Kaspi and many other rivals, ForteBank is focused on the middle market, eschewing the opportunities for micro-lending to a swathe of customers to instead concentrate on Kazakhstan’s emerging middle class.

Executives in the country admit that private banking has yet to take hold, but ForteBank is arguably as close as it gets.

By the end of September, ForteBank’s assets had grown 5.3%, the same rate as Kaspi and behind only Halyk Bank among the country’s 10 biggest lenders. That growth rate has helped ForteBank join the upper echelon of the banking system.

Halyk, which absorbed rival Kazkommertsbank two years ago, is far and away the biggest in the country by assets, but ForteBank is now challenging Sberbank for the number two spot.

The bank has made a push into unsecured retail lending, increasing its portfolio in this segment to KT343.3 billion ($890 million) by the beginning of October, a 22.4% year-on-year rise. This is partly because of its extra reliance on technology: ForteBank introduced a credit-scoring model that has cut the time for loan approvals by two thirds.

ForteBank executives can reel off an impressive list of initiatives aimed at making things easier for their clients: the ability to accept payments by QR code; the introduction of Apple Pay; the ForteKassa point of sale terminals; and an e-money partnership with KaR-Tel, a local telecommunications company. This appears to be just the beginning of the digital transformation enabled by the purchase of One Technologies.

ForteBank managers have created an institution that is proving flexible enough to respond to the rapid changes takingplace in Kazakhstan’s banking system, in particular the growing importance of digital banking. They have also shown their ability to spot a good deal and make cultures mesh after acquisitions. Forte may not be the biggest bank in the country, but during our awards period, it was the best.

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There is no financial institution in Kazakhstan quite like Halyk Bank. When Moody’s Investors Service surveyed the country’s financial system in September, it pointed to a common complaint: the system is fragmented. Halyk Bank, which has 34% of total banking assets, is the exception to that rule.

The bank was given a vote of confidence by the government in 2017, when it was chosen to play a crucial role in a series of bailouts and consolidations that rescued the banking system, struggling in the wake of a plummeting oil price and a devaluation of the currency.

Halyk absorbed Kazkommertsbank, the biggest bank in the country. It was helped by the government’s willingness to take bad assets off the latter’s book.

Halyk emerged as the undisputed leader in Kazakhstan’s banking system. Its strengths mean it was a strong contender for all of the best bank awards of 2019, but it is in corporate banking where the bank really stands out from the crowd, partly because so many of its rivals are concentrating on the low-touch, high-growth consumer market.

Halyk lent KT9.32 trillion ($24 billion) to its corporate clients in the 12 months to the end of September, representing almost 60% of its gross lending activity. It banks all the main client segments, lending sizeable amounts to the service sector, traders, construction, transport and agriculture.

Kazakhstan’s capital markets are still barely formed, despite the presence of two stock exchanges, but Halyk Bank is doing its bit. The lender, which is already listed on the Kazakhstan Stock Exchange, went for a secondary listing on the newly launched Astana International Stock Exchange (AIX) in early October.

Perhaps unsurprisingly, it picked itself as a global coordinator for that deal, but it has also won business from elsewhere. When Kazakhstan’s sovereign wealth fund Samruk-Kazyna turned to the London Stock Exchange and the AIX for a sale of depository receipts in September, it picked Halyk to help manage the local tranche. That ended up being the marginally bigger portion of the deal, representing $63.3 million against the $62.9 million raised in London.

Halyk casts a shadow over smaller banks scrambling for business in the country. But unlike Kazkommertsbank, its predecessor atop the domestic banking system, Halyk appears a safe pair of hands to a client base and a domestic economy that desperately needs strong, responsible banks to help Kazakhstan unlock its vast potential.

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Kazakhstan’s banking system should be understood in the context of its history.

Several Russian banks, even those who did not operate in the country before the fall of the Soviet Union, have enough of a cultural heritage in Kazakhstan that they are seen as local institutions. Sberbank, the country’s second largest, is the flagship example – despite only entering the market in 2006, it is widely treated as a local player.

That means Kazakh bankers and executives asked about foreign competition in the banking sector often leave out Russian banks entirely, instead arguing that few foreign banks have managed to get a good foothold in the country. Citi, they admit, is the exception.

The bank first entered the market in 1993, following US oil firm Chevron. Citi’s strategy is still not drastically different from its original rationale: banking multinational corporations keen to invest in the country. That’s an important role for a market that relies on foreign capital in crucial industries, including oil production.

Citi makes up about 25% of foreign exchange trading on the Kazakhstan Stock Exchange, has worked on all of the country’s offshore sovereign bonds and won an eye-catching mandate on Kaspi’s pending London Stock Exchange IPO, although that has since been postponed.

It has launched an all-in-one digital treasury solution, CitiConnect, in the country, as well as rolling out InstantFX, a platform to help companies manage currency risk.

Citi, run by local chief executive Andrey Kurilin, has navigated the country expertly. Domestic bankers widely applaud the bank’s understanding of the country; Kurilin too wins kudos from non-banking executives. Citi has few rivals for this award, and it shows no signs of giving up its pole position any time soon.

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You get a bit of a sense of deja vu when interviewing bank chief executives in Kazakhstan. They all talk about digital, they all talk about SMEs, few of them care about investment banking. They all have an app to brag about and a story about how client acquisition has become ‘streamlined’.

Alfa-Bank, run by chief executive Andrey Timchenko, is no exception to any of this. It does much of what its rivals do; it is simply better at it.

Entering the top floor of the bank’s head office in Nazarbayev Street in Almaty is like walking into a stereotypical Silicon Valley startup: colourful sofas everywhere, break-out areas, young bankers wearing jeans and T-shirts. This could be nothing more than window dressing except for one key point: Alfa-Bank has the numbers to back it up.

The bank, a subsidiary of a Russian lender, reckons that roughly 1,500 entrepreneurs create an Alfa account every month, out of about 8,000 starting up new businesses. Some 95% of its client transactions are now done online or through a mobile app.

It joined Swift’s cross-border payment system at the start of 2019 and has since processed about $600 million of transfers.

Alfa-Bank’s customers no longer need to go into one of its branches to open an account. SMEs can open accounts online with nothing more than an ID card, a mobile phone number and a home address. After that, every client is assigned a dedicated account manager, so they’re always talking to the same person when they call up Alfa.

The bank is determined to make its digital offering help it acquire SME clients, a key growth market. Earlier in 2019, it launched a pilot programme bringing together 130 small stores and their five largest distributors, allowing the retailers to get instant loans to purchase supplies. The shop owners can then pay back these loans using Alfa-Bank ATMs or Kassa 24 machines, a series of bright yellow terminals dotted around the country.

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This was a category that almost every bank wanted to win; lending to small and medium-sized enterprises is a big part of the growth plan for almost all banks in Kazakhstan at the moment.

But ATF Bank’s commitment to smaller clients makes it the standard-bearer.

The bank, managed by chief executive Sergey Kovalenko, increased its lending to SMEs by 40% in 2018, capping a 150% rise in its loan portfolio over three years. Echoing the moves of its rivals, it has partly been doing this by relying more and more on technology.

In July 2018, it created its Landau credit analysis system, a credit-scoring software that dramatically speeds up the approval of new loans. ATF says the average speed of SME loan approval fell from 43 days in 2016 to between 10 and 14 days in 2018. This is still slower than some of its rivals, but ATF Bank’s total-banking offering is enough to attract that steady growth in clients.

ATF is now focusing its efforts on serving SMEs in a more comprehensive way than simply offering loans, which is where some other banks start and finish. It is eyeing a variety of product launches in the sector, including help with documentation and settlement.

The bank’s loans and guarantees may help it win business, but in a highly competitive market, that additional help will help it keep business – giving it more chance of maintaining clients as small enterprises become medium-sized ones, and medium-sized ones grow large.

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Home Credit Bank has a business model that is socially responsible almost by definition. The bank has built a strong consumer loan business, offering customers competitive rates in a market segment that often encourages predatory lending. It has since moved into lending to small and medium-sized enterprises, helping fund the growth engines of the future.

In many emerging markets, that would be enough. Banks in fast-growing economies often allow CSR to fall by the wayside, saying when pressed that their lending contributes, in a vague way, to the greater good. Not Home Credit.

The lender, which has been run by chief executive Karel Horak since August 2018, has made improving financial literacy a key part of its mission statement.

Home Credit first committed to improving financial literacy in Kazakhstan in 2014 and has since hosted more than 200 large events, attended by over 370,000 people, as well as 230 smaller-scale seminars. It has set up a website, Finclass, where its own staff offer tips to existing and potential clients alike.

The fully licensed bank, a subsidiary of a Czech consumer finance company, is also attempting the difficult job of teaching financial literacy to children, creating a Monopoly-style board game called ‘Financial forest’ and partnering with a local TV network to launch two seasons of a children’s show that has financial literacy as a key theme.

The bank appears to do little beyond financial literacy, but in a fast-growing economy where consumers are spoiled for choice by a large number of banks that is perhaps the most important topic for a financial institution to focus on.

Other banks might take a wider approach to CSR – a touch of sustainability there, a pinch of gender pay reviews there – these often feel like box-ticking exercises. Home Credit’s approach to financial literacy has gone well beyond that.

The bank was in the running for several awards this year but was pipped by stronger local rivals who remain a step ahead, but in its investments in CSR, Home Credit has no equals in Kazakhstan. That will engender customer loyalty and may be enough to tip the scales in those other battlegrounds it has with its rivals – those that will have a real impact on the bottom line.

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