Kazakhstan has not escaped unscathed from the global economic
crisis, the country’s biggest bank by assets, Kazkommertsbank, is upbeat about its prospects. The bank’s
managing director,
Andrey Timchenko, tells Farah Halime an
increased focus on boosting retail deposits will position the bank
for further growth.

Kazakhstan - Retail deposits market share, January 2010Kazkommertsbank (KKB), the
largest bank in Kazakhstan by assets, is aiming to overtake rival
Halyk during 2010 to become the country’s biggest bank by retail

KKB started 2010 with a 17.2 percent share of
retail deposits compared to Halyk’s 20.4 percent, but according to
KKB’s managing director, Andrey Timchenko, the bank is well
positioned to achieve a market leading position this year.

Timchenko told RBI that KKB was
targeting a 25 percent share of retail deposits by the end of

“We are pretty comparable in size [with
Halyk],” he said. “Throughout the crisis our deposits have been
growing by an average of 15 percent to 20 percent a year.”

While this is a far cry from annual deposits
growth of around 60 percent to 80 percent attained in the years
running up to the crisis, “it is still a good and healthy

“Up to the end of 2007, we were making massive
market share gains in all segments and we gained market share from
all rival banks including Halyk,” Timchenko said.

But come the crisis, KKB suffered from a
growing sense of unease among some of its customers, which resulted
in a loss of some deposits to Halyk due to its widely perceived
status as a “safe haven”.

Halyk, privatised as recently as 2000, enjoyed
what Timchenko termed a near “monopoly of retail banking during the
years when the country was part of the Soviet Union”.

“When it was state-owned, people had no choice
but to have an account with them. To this day, more than 50 percent
of people still believe it is state-owned and to a large extent
Halyk benefited from this perceived stability,” he added.

“If people did not have these fears, we would
be 30 percent to 35 percent larger than we are today in terms of
retail deposits.”

To target KKB’s retail deposits drive, a
comprehensive marketing campaign has been rolled out for which
Timchenko has high hopes.

“In Kazakhstan, deposits are a very intimate
product. You cannot just go to people and say ‘I want you to have a
deposit with Kazkom’,” Timchenko said.

“People are apprehensive about telling others
how much money they have and where they have it. The only real way
of getting clients is through advertising and a good service.”

He said that KKB’s ad creative uses visual
metaphors, such as images of money falling into a pile at regular
intervals, to support the notion that it is a stable retail bank,
“like a watch that is ticking”.



Kazkommertsbank – fundamentals




% change

Retail loans (KZTbn)




Retail deposits (KZTbn)




Total assets (KZTtr)




Retail net profit (KZTbn)




Group net profit (KZTbn)




Source: Kazkommertsbank

A strong prospect

In the retail loans sector, KKB
ranks second with a market share of 23.9 percent, compared to BTA’s
26.1 percent. Almost 80 percent of KKB’s lending customers
represent the mass market segment with loans of up to $50,000.

In terms of segmentation, the remainder of
KKB’s retail lending book comprises mass-affluent (for loans of
between $50,000 and $300,000) and VIP segments (for loans in excess
of $300,000).

Across all market segments, Timchenko expects
an overall increase in retail lending of around 30 percent to 40
percent in 2010.

The downturn in the economy resulted in a
soaring non-performing loan (NPL) ratio at KKB, up from 8.1 percent
at the end of 2008 to 20.6 percent of gross loans by the end of the
third quarter of 2009.

Timchenko said such a rise was inevitable but
was being tackled with a range of initiatives, including early
warning systems being put in place to guard against future loan
losses and increased dialogue with customers in financial

“Whatever system you have you cannot be
protected, so of course NPLs have risen. If we had not acted so
quickly and been proactive in managing the early stages of overdue
loans, then we would have suffered many more problems,” he

For Timchenko, “it’s not realistic” to expect
lending growth at a similar rate to the anticipated growth in
deposits, as a nation-wide collapse in house prices, high
unemployment and falling living standards discourages people from
taking on loans.

In the nine months to the end of September
2009, KKB reported group net profits of KZT14.6 billion ($98.8
million), down 71 percent on the corresponding period in the
previous year, while loan provisions increased by 182 percent
year-on-year to KZT160.1 billion.

KKB’s retail banking unit remained in the red:
it posted a loss of KZT5.7 billion for the first three quarters of
fiscal 2009 compared to a loss of KZT2.3 billion in the year-ago

Standing out from the

One area where KKB has enjoyed
success in differentiating itself from rivals has been its
promotion of what it terms the most comprehensive rewards scheme in
the country.

Initially, KKB offered a card loyalty scheme,
Go-Cart, and has now implemented a bank-wide rewards programme
using France-based vendor Welcome Real-Time’s loyalty platform.

KKB is also an exclusive partner for issuing
American Express cards in the country and will launch American
Express Blue this year, targeting its premium segment with the
option of an additional card for those who already hold a Visa or

In terms of distribution, KKB kicked off a
branch expansion programme in 2007 in an effort to bulk up its
national presence and target retail banking rivals such as Halyk
and BTA. By the end of 2009, the KKB branch network had grown to
186 outlets, compared to Halyk’s 625 branches and sales outlets and
BTA’s 312 units.

Sector-wide, the country witnessed a massive
increase in total bank branches from 1,730 in 2005 to 2,546 in
2008, when numbers dropped back to 2,301 at the end of 2009.

In the coming year, Timchenko said KKB would
look to maximise its competitive advantage as a result of dwindling
competition following the collapse of many Kazakh banks.

“We have much less competition because banks
that are being restructured are basically out of the market,” he

Kazakhstan has been trying to resurrect its
financial industry after bailing out BTA in early 2009 before the
government allowed it to default in April.

BTA is looking to restructure debt of more
than $12 billion in the third quarter of 2010 and has been linked
with a possible alliance with or takeover by Sberbank, as Russia’s
biggest lender accelerates its plans to derive 5 percent of net
income outside Russia by 2014.

Timchenko does not, however, see any merit in
KKB pursuing any such alliance with an international partner.

“No. We are not [looking at agreeing any such
alliance]. I think we are really well equipped to keep and grow our
market share in this competitive market and also we think in the
next year, or year and half, we have a very good opportunity to
grow,” he said.

A struggling sector

Kazakhstan - retail lending market shares, January 2010The global economic crisis
also plunged JSC Alliance Bank (JSC), the sixth-largest bank in
Kazakhstan by net loans, AO Astana Finance and Temirbank into
default, leaving lenders with $20 billion of debt to

The government took control of JSC on 30
December with a restructuring plan covering more than $5 billion of
debt approved by regulators on 1 February.

Across the banking sector, the country’s
lenders continue to struggle to sell property acquired after
foreclosures on bad loans, according to the central bank’s
quarterly survey of banks published in early

Kazakhstan’s economy had enjoyed a boom with
annual growth rates of over 10 percent annually from 2000 to 2007,
until the global crisis slashed the price of two of Kazakhstan’s
key exports, oil and metals, and ended the inflow of inward

“Kazakh banks had been heavily relying on
external borrowing in the past, so when the crisis started we
couldn’t refinance those external borrowings,” Timchenko said.

“We have already paid back about $6 billion.
We had to shrink substantially

“But despite the fact that we have been hit
quite substantially by the economic crisis, we have quite a healthy

“Kazkom has a strong brand as an elite,
sophisticated business, aggressive to a certain extent and
orientated to international standards. We have come through the
fears that we could not cope with external debt, and we have proved
that we are strong, smart and successful,” he added.

Timchenko’s bullish forecast is supported by
the government’s latest estimates, with gross domestic product in
2010 expected to rise between 1.5 percent and 2 percent compared to
1.1 percent in 2009.

International support for the Kazakh economy
was evidenced by the 18 February statement from the European Bank
for Reconstruction and Development, which said it would invest up
to around $1 billion in projects to be identified in collaboration
with the Kazakh government.

Kazakhstan - Biggest four banks by assets 2005 - 2009