INTERVIEW: Kazakh bank Alliance seeks ally for future growth

By bne IntelliNews July 17, 2008

Clare Nutall in Almaty -

Twelve months after the credit crisis hit Kazakhstan, Alliance Bank's management team believe the worst is over. The bank has already met two-thirds of its repayment obligations for 2008, and is now looking for a strategic investor to give it a competitive edge going forward.

At a press conference given by four of Alliance's media-friendly new management team on July 1, the bankers outlined their plans to sell a stake in the business to a strategic investor. Alliance's management company, Seimar Alliance Financial Corporation (SAFC), has already approached Merrill Lynch and Credit Suisse to help it find a suitable partner.

"We are interested in selling a stake to an experienced financial institution. It doesn't matter what part of the world it is from, but it should have a very good track record in terms of developing its business in different regions," managing director Anvar Khaltayev told bne afterwards. "It should be a long-term strategic investor, who will contribute not only in terms of liquidity or rating enhancement, but in helping us to bring new solutions into the market."

Paid down

The announcement that Alliance has paid off $681m of the $1.023bn of debt repayments due this year is something of a milestone for the bank. The $482m that matured in June is the last major repayment due for the next two years, allowing the bank to turn its attention to future development instead of concentrating on loan repayments. Previously, this had been its main focus. "By shrinking our loan portfolio and asset base we have been able to achieve our goal of honouring our short-term liabilities," says Khaltaev. "A lot of our portfolio is retail loans, which have an average duration of under three years. We were, therefore, able to generate extra liquidity by collecting repayments, and weakening our lending activities in order to accumulate funds."

Better this way, he says, than selling a stake in Alliance on unfavourable terms. During the lean months of late 2007 and early 2008, Alliance received and turned down several speculative offers, "most of them from hedge funds offering us funding for outrageous levels," Khaltayev says. "Our message to them was that we were not desperate for funding."

The bank has also seen several management reshuffles during this period. Most of the management team are new hires who have joined since the beginning of this year. Typically for the Kazakh banking sector, they are all relatively young. CFO Azamat Erzhanov is in his early forties, while Khaltayev, managing director and vice president Yerzhan Kuangan, and deputy chairman Rakhim Kadyrov are in their early thirties.

Khaltayev denies that the new team has a completely new strategy for Alliance, saying instead that the bank has entered a new phase of its development, and so needs new leadership with a different set of skills. "We believe that the worst is behind us until the next cycle. However, after tremendous growth in prior years, now we are entering the stage of slower, more sustainable growth," Khaltayev says. "At this stage, it's very important to be very balanced so as to pursue strategic innovation development as well as the internal growth rate. You can compare our bank to a human being. Previously, we were teenager rather than a mature person. We hope that the events of last summer have given Kazakh banks the opportunity to overcome the crisis and get their certificate of ripeness."

Way of the car

At the heart of its strategy for further developing the bank is the philosophy Dau Toyota ("Toyota Way"). This 14-point management theory begins with the principle, "Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals." Other principles are centred around the ideas of personnel development, process improvement and problem solving. "We are getting to the next level of quality in our business, which involves talking to the clients and talking internally," says Erzhanov. "In our back office, we invested in new technologies to make our internal processes work more effectively. In terms of our market strategy, we're analysing the market, improving our risk management and the quality of our portfolio. We have also identified areas that are strategically important for us, such as SME lending and our cards business, where we can use the advantage of our huge network."

Some of the changes the new team have introduced are as simple as removing the telephones from the desks of its client-facing managers so they are no longer interrupted by phone calls.

Alliance is also developing new products and services for its clients. "It's already possible to make payments through our ATMs - tax payments, mobile services and so on; by the end of this year it will also include different transfers from card to card, from one account to the other one, paying off the loans and so on," Kuangan explains. "Our innovations will probably not be unique at the end of the road, but we will definitely have competitive advantage at the beginning, by launching them early."

The team is currently studying foreign banks to see what works and what doesn't. In particular, it's looking at Wells Fargo in the US and OTP in Hungary, since both, Khaltayev says, have gone through similar stages and are offering similar products. "All in all, having realized our strategy we have come to the idea that in fact nowadays the banks are not competing with each other in terms of IT platforms. Banks compete in terms of average level of professionalism and IQ," says Khaltayev. "We invest a lot in learning, education, because our key resource is people."

Its large network of branches across Kazakhstan is another advantage. The successor to Pavlodar-based IrtyshBusinessBank, which later merged with Semipalatinsk City Bank, Alliance has a regional network of 21 branches and 177 other outlets, serving a customer base of more than 2m. Although Alliance was not previously as proactive as Halyk Bank in using its presence to attract deposits, it will be a great asset as the bank seeks to rebuild its loan portfolio. "There are some peculiarities of every bank," says Erzhanov. "I would say in my personal view Alliance is next after Halyk. If you compare it to other 'big five', then for some of them there has been more pressure in the first half of this year. For us it's very positive."

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