Clare Nuttall in Almaty -

Halyk Bank is well capitalised and has low exposure to Kazakhstan's problem sectors. The bank's chairwoman, Umut Shayakhmetova, plans to take advantage of the disarray among two of the other top four banks to become at least the second biggest in Kazakhstan.

Halyk managed to avoid many of the problems experienced by the rest of the sector thanks to its conservative lending policy under the previous chairman, Grigory Marchenko, who is now the head of the National Bank of Kazakhstan. Shayakhmetova, who previously served as the deputy chair responsible for corporate clients, plans to build on this to grow the bank further during the crisis period. "This is a year of opportunity for Halyk Bank," she says. "We have seen a big increase in clients, both corporate and retail. We have also increased our fee and commission income. A large part of our balance sheet is non-interest income."

Data for the first six months of 2009 shows that Halyk was profitable and grew its balance sheet by 22% during the period. Deposits were up 37%. While Halyk's loan portfolio has shrunk slightly, "it is performing fine in terms of redemption of loans," Shayakhmetova tells bne in an interview.

The bank is also the best-capitalised lender in Kazakhstan, according to a recent stress test carried out by the country's financial regulator, the AFN. At present, Halyk's capitalisation ratio is 15%, and by the end of this year this will have increased to 17%. "We have no liquidity issues, in fact we have excess cash. We also have no external repayment issues - we have $200m of Eurobonds to repay in October and $700m of syndicated loans due in 2010, then nothing until 2013," Shayakhmetova says. "Although our asset quality is deteriorating slightly, we have increased our provisions to 16% and are planning to increase them to 18%. We can increase provisions as high as 23% without negatively affecting capitalisation."

No real estate problems

In addition to its reliance on deposits rather than international borrowing during Kazakhstan's boom years, Halyk has little exposure to Kazakhstan's troubled construction sector, in particular residential real estate. Its commercial real estate projects have a high completion rate compared to those of most other banks. Investments include the Holiday Inn in Almaty, the Mega shopping centre in Aktobe and the Kerkoen trade centre in Astana, all of which opened after the crisis started.

Shayakhmetova expects growth to resume in the real estate sector in the short to medium term. "We expect real estate prices to increase in two to three years' time. The banks have frozen investments in construction, so when the economy starts to improve there will be an increase in demand and a shortfall in supply," she says.

While Halyk is no longer providing loans for residential real estate, the bank is still lending to other construction projects. "We are involved in industrial projects. We like projects such as new pipelines and factories, especially where there is state participation," says Shayakhmetova.

Halyk also considers agriculture, the oil and gas sector and related industries, metals and mining, infrastructure such as pipelines, and some retail segments, to be promising. However, the small business sector is suffering. "Our worst affected clients are the SMEs. They are doing badly because of the crisis and the devaluation," says Shayakhmetova. "Their businesses are not stable since they depend on the purchasing power of the population, which has decreased."

Halyk's current focus is on the local market. While the bank is maintaining its subsidiaries in Kyrgyzstan, Russia and Georgia, it has already closed its Mongolian office. "We think this is a time when there will be more opportunities to grow in Kazakhstan," says Shayakhmetova. "We are diversifying our sources of income, to rely more on non-interest income. We want to increase the quality of our services, so we are concentrating on internal procedures, business processes and IT. We have a large number of retail clients, and some of our offices do not yet provide them with the level of service we require. Overall, our target is to become at least the number-two bank in Kazakhstan."

The short-term future of Kazakhstan's banking sector remains cloudy, given that no firm decision has yet been reached on the restructuring of BTA Bank, and this uncertainty is bad for the rest of the sector.

Shayakhmetova forecasts that even when the sector does start to grow again, the banks' role will have changed due to the lessons learned during the crisis period. "In the next three years, we do not expect banks to be a driving force for the economy. Their external borrowing will be limited, and it is still difficult to find good clients to lend to because the market is not big enough," she says. "Banks are not going to grow their balance sheets by 100% a year any more, but growth should be more stable."

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