INTERVIEW: Bank Caspian uses private equity partner to challenge for top spot

By bne IntelliNews November 25, 2008

Guy Norton in Almaty -

Nobody could ever accuse Mikhail Lomtadze, chairman of Bank Caspian, of displaying a lack of ambition. When asked about the bank's primary goal, there's no flim-flamming, just a simple and direct response: "We want to be the best retail bank in Kazakhstan."

Coming from virtually any other medium-sized bank in the country, Lomtadze's reply could easily be dismissed as a piece of public relations bravado. But if any bank has the wherewithal to challenge the current incumbent Halyk Bank for the retail-banking crown in Kazakhstan, it's arguably Bank Caspian. With the strong backing of its principal shareholder, private equity powerhouse Baring Vostok Capital Partners, Bank Caspian looks well placed to make serous inroads into the market share of its less fortunate banking brethren and considerably boost its number-eight position in the Kazakhstan banking rankings.

While many of its less prudent rivals are facing a severe funding squeeze, Bank Caspian can call on money from a variety of different sources to finance its ambitious drive to the top of the retail banking pile in the Central Asian state. Already this year it has raised over $160m in much sought-after funding from international financial institutions (IFIs), with $100m from the International Finance Corporation (IFC) in Washington and $60m from the European Bank for Reconstruction and Development (EBRD) in London. As Milena Ivanova, Kazakh banking analyst at Renaissance Capital in Almaty notes: "This [IFI funding for Bank Caspian] may be one of its major advantages vis-à-vis competitors during 2008, as others scramble to pay down debt."

Lomtadze says that securing IFI funding is a priority for the bank, since as well as being a source of competitively priced capital, the ability to attract money from prestigious IFIs serves to enhance the financial credibility of the bank. He adds that both the IFC and the EBRD are participants in private equity funds managed by Baring Vostok and so know and trust the plans of the bank's main shareholder.

Root and branch

Before moving to Almaty and taking over the helm at Bank Caspian in December 2006, Lomtadze himself worked for Baring Vostok as a partner in Moscow where he was in charge of the firm's financial sector investments. In 2007, when many of its rivals were leveraging up, Lomtadze and the new management team at Bank Caspian spent their time working on a root-and-branch restructuring of the bank, with an emphasis on streamlining the bank's product line and improving its information technology platform. For example, the number of different deposit accounts on offer from Bank Caspian has been slashed from 12 to just two. As Lomtadze explains: "I couldn't memorise and sell 12 different deposit products, so how could I possibly expect my staff to do that?" It's an approach that's paying dividends, with the bank seeing year-on-year deposit growth of over 36% in the first six months of this year, a spectacular result at a time when many of its competitors have been losing depositors.

As a bank that prides itself on providing a better quality of service than its rivals, Lomtadze says that the fact that every new customer receives a welcome call from the bank's recently established call centre is proof positive the bank actually walks the walk rather than just talks the talk when it comes to service quality. He adds that at a time when many banks in Kazakhstan have had to slash their marketing budgets as part of urgently needed cost-cutting measures, Bank Caspian has been able to afford an extensive marketing campaign to support its deposit and lending business. "We're now one of the biggest advertisers in the country," says Lomtadze. That's not a situation that's going to change in the near future. In November, the bank is going to unveil a new corporate identity, a move that Lomtadze says "will demonstrate to people how much the bank has changed."

A new name and logo is unlikely to be the last major change on the horizon. "We are very proactive about potential acquisitions," says Lomtadze, although he refuses to name names when it comes to prospective takeover targets. The bush telegraph on the tree-lined streets of Almaty suggests, however, that Bank Caspian is preparing to launch an audacious bid for fellow retail banking specialist Temirbank, the seventh largest bank in Kazakhstan. If Bank Caspian can persuade current owner BTA Bank to sell it Temirbank at a mutually acceptable price, it would be a major coup and mark an important steppingstone on the bank's path to achieving its goal of retail banking leadership in Kazakhstan.

After 18 or so months in Almaty, Lomtadze is convinced that Bank Caspian's ambitions are no pipedream and are more than achievable. "If you build a good business here, you can get right to the top."

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