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OPERATOR: Good day and welcome to BTA's 2008 [oriented] financial
conference call. This conference call will be one hour and a half
long. After the presentation, we will open the Q&A session, where
you will have the possibility to ask questions to the speakers. At
this time, I would like to turn the conference over to Sadyr
Shaguzhayev. Please go ahead, sir.
SADYR SHAGUZHAYEV, DIRECTOR - LOAN & CAPITAL MARKETS & INVESTOR
RELATIONS, BANK TURANALEM: Good morning, good day and good evening,
ladies and gentlemen. This is BTA Bank's 2007 financial conference
call. I would like to introduce myself. I am Sadyr Shaguzhayev, Head
of Debt Capital Markets and Investor Relations.
I am also glad to introduce Mr. Roman Solodchenko, Chairman of the
Bank, and Mr. Halil Kamalov, CFO of the Bank. With this, I would like
to pass it over to Mr. Roman Solodchenko.
ROMAN SOLODCHENKO, CHAIRMAN, BANK TURANALEM: Good morning, ladies and
gentlemen. Good evening, depending on where you are. Thank you for
joining us on this conference call. It's very important for us to
keep you updated on all the developments on our bank and of course
the audited financials for 2007, the figures, which I believe all of
you have expected a long time, is a very good reason to give you such
an update on the stance of the bank.
I will go quickly through the presentation, which you will be able to
follow, and then we'll leave enough time for questions and answers
and probably touch upon briefly on our plans for 2008 and preliminary
results for the first quarter of 2008.
With that, I would like to start with the presentation. The first
slide shows you the balance sheet of BTA Bank. You can see that
assets in 2007 grew by 56% in U.S. dollar terms. BTA has raised its
share of loans to 78%, which gave us a chance to increase our earning
base.
And in 2007, the bank significantly increased the share of long-term
liabilities and capital to 73% of the assets. As we have capitalized
the bank significantly through the course of 2007 and, as a result,
by the end of the year the capital adequacy ratio was as high as
16.9%, year-round capital adequacy ratio.
With that, I will pass to the next page, our P&L. Net income grew
70% in U.S. dollar terms in 2007 and we have recorded the high
historically net profit of $538 million. The cost-to-income ratio has
increased slightly from 28.8% to 30.2%, but still with this figure we
are among the best.
This is one of the best indicators for Kazakh banks and I believe
it's also very competitive from the international point of view. 83%
of the bank's net operating income reflected the core earnings.
Trading income and FX gains increased and the bank's funding cost was
more than offset by the higher return on the loan book and higher
share of loans on the assets.
I should also say that since the beginning of the credit crunch,
liability crunch, we didn't tap the markets with public deals, and a
significant amount of our obligations we refinanced from internal
sources, both in the third and fourth quarter of 2007, and we keep
doing the same in 2008.
The next slide shows our position with regard to our competitors. You
can see that we have become closer to Kazkommertsbank, our main
competitor at Kazakh market. Kazkommerts has been known for being the
largest Kazakh bank at the reporting date. For the most part of 2007,
we were bigger than Kazkom in terms of assets and we regained our
leading position over the February 2008.
Market share in loan portfolio shows very strong positive dynamics
and the bank maintained its position as one of the most capitalized
Kazakh banks due to the significant new inflow from the shareholders
in 2007.
Next slide, loan portfolio quality. You can see that due to the
trends and due to the fact that the growth of the loan portfolio has
slowed down significantly in the third and the fourth quarter of
2007, the NPLs went up and, as of the end of the year, they were at a
level of 0.8%.
I can say that that increase in NPLs was expected, because we managed
to maintain NPLs at about the same low level of 0.7%, 0.6% through
the three consecutive years prior to 2007. So when the portfolio
growth slowed down, obviously the old loans started showing up.
We have anticipated this scenario and we have built up our provisions
significantly from our 3.5% as of the end of six months of 2007 to
5.4% as of the end of the year. I can only say that we do see the
slight NPL growth in the first quarter of 2008 and we keep building
up sufficient provisions. Please proceed to the next slide, our
exposure to the construction sector.
I assume there will be more questions on this, but just to say that
for the moment we showed here the top 10 borrowers and you can see
that their combined share is only 4.22% of the portfolio and even the
largest of them are no more than 1.6% of the portfolio. All of them
are sufficiently covered, all of the clients sufficiently covered
with the collateral value to loan ratios at healthy levels, 2 times,
1.5 times, and sometimes even more increasing the value of the
collateral increases to the loan, is more than the loan.
In the last month, in December 2007, we received KZT9.8 billion,
which is approximately $81 million, as a first tranche from
[Kazmanats], the government money, which were channeled through the
banks to support the construction sector. And, as of now, we have
utilized KZT6.5 billion of this amount.
I want to add here that of all the top-10 borrowers which are listed
in the table, one of them is currently classified as non-performing
loans and due to the situation in the construction sector and
negative expectations, we have classified them as the first doubtful
category at 5% provisions for the moment.
But, generally, the construction portfolio is doing well and we don't
see any major delays in the repayments of the loans. The next slide
shows the deposit dynamics, also a very important issue for us,
because since the market cut down for not only Kazakh banks, but for
all the emerging markets.
I should say that we realize that we have to rely on our internal
funding basis and this is why we concentrated on the deposit base.
You can see that while the general trend for the last year was quite
volatile, mostly the volatility came from the corporate deposits,
which have never been particularly stable. The corporates, they pay
dividends, they pay taxes. And, generally, in the situation when the
loans from the banks, the extending loans, have shrunk significantly,
the corporates had to rely on their own resources, so they used the
deposits to finance their current activities.
At the same time, the very healthy trend in the deposits of the
individuals. It hasn't been affected, or almost hasn't been affected,
apart from September and October, and we are able to regain all the
losses we incurred in September and October by the end of the year.
Right now, as of the end of the first quarter, we see the deposit
base for individuals, it keeps growing, and also we have recorded
some modest growth for the overall deposits, as well.
The table at the upper-right corner of the slide shows the growth
rate of loans to customers, at 23.5% it was for the last year. And
I've already touched upon the reasons for the volatility of the
corporate we reported.
The next slide gives you our repayment schedule for this year. As you
can see, we have repaid most of our external obligations of $531
million in March. The remaining $667 million are more or less evenly
spread through the rest of the year and we have no doubts that we
should be able to repay these obligations from our internal sources,
without refinancing, without rolling them over, as we did with the
first tranche.
I should say here that the trend is common for other Kazakh banks.
The first quarter was the most crucial in terms of the repayments and
chunk of BTA repayments falls on the first quarter, and so far, from
what we know, all of the Kazakh banks managed to close their
obligations successfully without tapping the international markets.
The next slide gives you an idea of what we will be doing and what
will be our priority for the ongoing 2008. First of all, we would
concentrate, keep our concentration on SME and retail sector. We are
very well positioned for this concentration. For the moment, we keep
22 branches, as the number has always been for the last years.
We have increased the number of our retail outlets to 289. There are
over 700 ATMs and 420 [Faster] units, which is the money transfer
units in Kazakhstan and 211 money transfer units in [TIS]. On top of
that, we have 160 cash and pay terminals, which are 24-hour servicing
terminals. So we believe that with such an expansive branch network,
we are very well positioned to build up our positions in collecting
deposits this year. And we look forward to a more modest program in
2007, but still some growth towards the end of 2008.
And it's important for us that the changes of the market didn't make
us upgrade or somehow change our strategy. We keep our strategy for
consolidation of the partner banks in other TIS countries. For this
year, the priority will be given to consolidation of the Russian
banks (inaudible) and our bank in Belarus, for which we already got
the permission from the regulator. But we also keep working on
consolidation of other banks and opening up a bank in China.
We started this year with a new brand, which is BTA Bank, so no
longer TuranAlem. You can see the color scheme has changed
dramatically, which is very good. I had a chance to appreciate this
given the conference held by [FT], the banker in London, where our
logo was among many other logos on the presentation materials and it
was the one which caught the eye from the very first sight.
I hope you will appreciate the new logo the way we do, and, with
this, I would like to close the presentation and to switch to
questions and answers. Thank you so much.
OPERATOR: (OPERATOR INSTRUCTIONS). We will now take our first
question from Jason Hurwitz from Visor Capital. Please go ahead, sir.
JASON HURWITZ, ANALYST, VISOR CAPITAL: Hello, Mr. Solodchenko. I
would like to ask you a question regarding your comments today in the
press, relating to your 2008 growth forecast of 20%. Initially, I'd
just like to understand, should we expect that this 20% -- would
there be a 20% growth rate on the Kazakhstan banking business, or is
this based on adding other businesses, like Slavinvest, et cetera?
ROMAN SOLODCHENKO: 20% growth is based on the consolidated figures,
so that will include Slavinvest and other banks.
JASON HURWITZ: I see. Okay, and so in terms of the Kazakhstan figure,
do you expect growth this year?
ROMAN SOLODCHENKO: Yes, we do expect that the growth will also be in
Kazakhstan, as well. For the bank itself, we expect the growth here
at the Kazakh market at 19%.
JASON HURWITZ: Okay, that's great. I do have perhaps some more
questions, but I'll jump back into the queue later. Thank you very
much.
ROMAN SOLODCHENKO: Thank you, Jason.
OPERATOR: We will now have a question from [Silvio Abicob] from HBK.
SILVIO ABICOB, ANALYST, HBK: Hi, I was just wondering about the
collateral-to-loan ratios that you list in the presentation. And if
those are construction loans, I'm just wondering what your basis is
for determining the values of the land that you're lending against
and who the appraiser is for those properties?
HALIL KAMALOV, CFO, BANK TURANALEM: It will be based on current and
actual market participants, based on real views, real sales, for
properties and we keep analyzing the market in more [significant]
years, and also we do some stress tests and stresses with regards to
our collateral. And it was mentioned also during all of our previous
presentations that even if we will see some additional reduction in
this market, down to five or 10 percentage points, our collateral is
quite enough for this, all such loans.
But the most recent trends and facts here, that we see some increased
activity on the market because potential buyers and also investors, a
lot of investors, now this has become thinking that maybe, probably,
now we see some of the lowest prices on the market.
ROMAN SOLODCHENKO: So the market hit the bottom and this is why the
buyers keep coming back. To the question, yes, we do use the current
prices, not the purchase prices, or the balance prices.
SADYR SHAGUZHAYEV: The previous comment was from Halil Kamalov, the
CFO of the bank. Thank you.
ROMAN SOLODCHENKO: Yes, we'll keep switching between us without a new
introduction, but there are still three of us here.
SILVIO ABICOB: Okay, so the collateral for those top-10 loans is
land, in each case, or are there already completed buildings?
ROMAN SOLODCHENKO: There is for the top 10 borrowers, this is mostly
building under construction.
SILVIO ABICOB: Okay, so the collateral that you're using to calculate
that CLR ratio is basically the market value of the land?
ROMAN SOLODCHENKO: Yes, and construction on this land, unfinished
construction.
SILVIO ABICOB: Okay, thank you.
OPERATOR: We'll now take a question from Milena Ivanova from
Renaissance Capital. Please go ahead.
MILENA IVANOVA, ANALYST, RENAISSANCE CAPITAL: Hi, good afternoon,
everyone. I have a few questions. Let me just start the first one on
net income. You previously reported in February $580 million and
today's number is $538 million. Can you explain where the difference
is coming from? Should I continue with the questions or do you want
to go one by one?
ROMAN SOLODCHENKO: First of all, those were the preliminary data and
we have not to consider them as the final data. Second, we have added
some provisions which are obviously different.
MILENA IVANOVA: Okay, so it's all due to provisions.
ROMAN SOLODCHENKO: Yes.
MILENA IVANOVA: Okay, the next question, based on the growth rates
for your balance sheet that you're expecting, I had run numbers, a
few numbers, and to me it looks like in order to fill the gap between
the repayments that you have coming due, including the one you
already paid down of $530 million, deposits should grow something
like 80% and you're talking more like 40%. So I'm wondering where is
the gap? How is the gap going to be closed?
ROMAN SOLODCHENKO: Sorry, say it again. We should grow 40% where?
MILENA IVANOVA: Deposits, because what you mentioned is that you
planned the balance sheet to grow by 20% and you plan equity to grow
by 17% and the loans by roughly 21%. So on your balance sheet --
ROMAN SOLODCHENKO: Yes, I got your thinking. It won't be just
deposits. It will be a combination of factors. We also believe the
increase in capital this year and some capital gains which we'll gain
from the planned sale of Temir Bank.
MILENA IVANOVA: All right, so going to Temir, can you comment to the
extent that you can on where you are with this transaction? We saw a
new [speed] from Interfax today, but if you can comment at all,
anything additional.
ROMAN SOLODCHENKO: Yes, we -- nothing has changed since this morning
when I gave the first comment. We are on schedule with the process.
We are now collecting the expressions of interest from the potential
investors and, as the schedule goes, we should be able to go for
signing in June/July.
MILENA IVANOVA: Okay, and can you disclose the number of interested
parties, or you haven't come to that stage yet?
ROMAN SOLODCHENKO: No, I cannot disclose it for the moment.
MILENA IVANOVA: All right, all right. And just one last, just to
clarify, on the funding side, you do not plan, other than capital
raising and Temir sales, you do not plan to raise further debt this
year? Or you do.
ROMAN SOLODCHENKO: We have two deals in the pipeline on
securitization, car loans and mortgages. The total amount is 250 of
both, and we are --
MILENA IVANOVA: These are together?
ROMAN SOLODCHENKO: Together.
MILENA IVANOVA: All right.
ROMAN SOLODCHENKO: And we are considering attracting maybe Islamic
financing, not as much for the sake of funding, because it will be a
rather small deal, but for the sake of increasing the instruments. We
haven't yet done sukuk, Islamic bonds, and this is one of the options
under consideration.
MILENA IVANOVA: Yes, just one last thing on the capital increase,
timing of this --
ROMAN SOLODCHENKO: For the moment, we discuss it with the
shareholders and I cannot give you even the approximate date on how
it will happen. We believe that it will be evenly spread through the
year or at least these were the capital increases we had in the
previous years, they were evenly spread.
MILENA IVANOVA: All right. Okay, thank you very much.
ROMAN SOLODCHENKO: Thank you.
OPERATOR: (OPERATOR INSTRUCTIONS). We will now take our next question
from [Dmitri Beliakov] from Barclays Capital. Please go ahead.
DMITRI BELIAKOV, ANALYST, BARCLAYS CAPITAL: Yes, good afternoon. I
also as well have several questions. My first question is regarding
your construction exposure and I noticed that the share of
construction loans is about 23%. At the same time, top 10, which you
disclose, about 4% with something, I don't remember the exact figure.
ROMAN SOLODCHENKO: 4.22%.
DMITRI BELIAKOV: Yes, and this invites the question, how do you
classify these exposures? Do you classify them on the
single-[obligate] principle, or do you classify it at the level of
the legal entity? Because the exposure looks very granular to me.
ROMAN SOLODCHENKO: Could you please repeat the question?
DMITRI BELIAKOV: Do you bundle these exposures on the single-obligate
principle? For example, if there are several legal entities involved
in construction but they belong to the same group, do you essentially
bundle them together or you report them on a separate basis, as
separate exposures?
HALIL KAMALOV: We bundle. We also analyze the relationship, the
connection between borrowers.
DMITRI BELIAKOV: And you also mentioned that the two large NPLs have
been repaid. What were the sources of repayments, and have there been
any loans which were somehow restructured or somehow --
HALIL KAMALOV: Too much NPLs --
ROMAN SOLODCHENKO: No, we didn't.
HALIL KAMALOV: NPL reissue was relatively and actually low during --
throughout the year, and now we, at the end of the last year, it was
just 0.8%. So we didn't see large NPLs to be repaid. But after risk
authorization, of course, it was an [actual] thing and we worked
hard. I mean, credit analysts and our corporate business were all
helping our clients to restructure their debt on the basis of an
individual basis, project by project.
ROMAN SOLODCHENKO: Yes, it's on the case-by-case basis, but we used
the restructuring.
DMITRI BELIAKOV: Okay, thank you. And the last question is who would
be the potential buyers of these unfinished construction projects,
other than the government? Are there any private investors who are
interested in completing these buildings and selling them to the end
buyers?
ROMAN SOLODCHENKO: Interesting enough, but I got this question this
morning and while I was thinking that the question was asked more
from the client's point of view, it turned out that the question was
asked from the investor point of view, so the gentleman asking the
question was interested whether there are opportunities for investors
to come into the sector.
For the moment, the restructurings we are talking about does not
consider selling the unfinished construction. The restructurings
involve bringing new investors to the project and selling them
finished.
DMITRI BELIAKOV: Okay, thank you.
OPERATOR: (OPERATOR INSTRUCTIONS). We will now take our next question
from, excuse me, [Yesheslav Chilin] from UBS.
YESHESLAV CHILIN, ANALYST, UBS: Good afternoon, everyone. I just
wanted to ask a few questions, as well. Apologies if I ask questions
which have been covered in the presentation, but I've joined quite
late. Could you please give us an update on your first quarter '08
performance, especially in the growth of the deposit base?
ROMAN SOLODCHENKO: I said the general deposits grew slightly in the
first quarter. To be precise, it was 3% growth that we recorded.
YESHESLAV CHILIN: And if you can give split in retail and corporate,
please?
ROMAN SOLODCHENKO: Give us some time. I would say that it was evenly
spread between the corporate and retail, but give me some time to go
through the figures. If you have further questions, please go ahead.
YESHESLAV CHILIN: On assets and loans as well, please, the update --
ROMAN SOLODCHENKO: On assets and loans, just a second.
HALIL KAMALOV: We do not have yet consolidated figures, but for
extended loans, assets increased, increased by $600 million, despite
of the fact that we operate particularly the main part of our
external obligation in the middle of March. And so the growth, it's
again by 3%, 2.8% unpaid. So in spite of the repayments, we are able
and were able to grow. On an annualized basis, even the first
not-easy quarter was quite good for us.
YESHESLAV CHILIN: And what growth did your loans record?
HALIL KAMALOV: Loans.
ROMAN SOLODCHENKO: Give us some time to find the figure, but, again,
I wouldn't like to go into details on the first quarter right now to
avoid the questions in the future why there were changes in the
figures.
YESHESLAV CHILIN: Okay, and the last question --
ROMAN SOLODCHENKO: We'll certainly hold a separate conference on the
first quarter results.
YESHESLAV CHILIN: And just generally was there any increase in your
external borrowings from the first quarter? I don't see the exact
number.
ROMAN SOLODCHENKO: There were no borrowings in the first quarter
whatsoever.
YESHESLAV CHILIN: Okay, and when can we expect the audited numbers to
be available for year end?
ROMAN SOLODCHENKO: The auditors have just signed them, so we should
place them tomorrow on our site.
YESHESLAV CHILIN: Okay, and a question which I guess is in connection
with more your related parties' financing, there was an article about
two months ago in Bloomberg that the Mr. [Blasov], he decided to
finance a large entertainment project in Moscow, which is valued at
$1.4 billion, and I just wanted to check whether Bank TuranAlem is
financing any portion of that project.
ROMAN SOLODCHENKO: No, we are not.
YESHESLAV CHILIN: Thank you. I don't have any other questions.
OPERATOR: We have now another question from [Alexander Runivich] from
[OSFB]. Please go ahead.
ALEXANDER RUNIVICH, ANALYST, OSFB: Good afternoon. My question is on
profitability and possibly pricing war between the banks. During the
last quarter of the year, the banks generally raised the interest
rates on retail deposits while also repricing the products line,
which was driving up your net interest income, the number to just
under 6% at the end of 2007, very favorable compared to the previous
reading. And what was the number for the first quarter of the year
and possibly your expectation for the year.
Do you expect any sort of pricing war, given that Halyk, for example,
increased its share in retail deposits at 24.4% into March 1st.
What's your expectation for net interest income?
ROMAN SOLODCHENKO: It will depend on the development on the market
and how dynamically the market will grow and what will happen with
deposits. I can only ability that in the first quarter the trend, the
depositing trend for net interest margin to go persisted. And, as of
the end of the first quarter, we reported close to 6.5%.
ALEXANDER RUNIVICH: 6.5% at the end of quarter.
ROMAN SOLODCHENKO: Right. Again, the preliminary figure.
ALEXANDER RUNIVICH: So it's even increased.
ROMAN SOLODCHENKO: Yes. So it depends, since we are not going to
attract any external loans, and therefore we are not going to pay the
higher rates which are currently available at the market, the net
interest margin trend will completely depend on what will happen on
the deposit side.
At the moment, on the deposit side, we are quite competitive compared
to other banks, but at the same time we have some space to increase
our deposit rates because of the rates we can offer to our clients,
which we consider as one of the options to gain the larger market
share in the deposits. So depending on that, the net interest margin
might remain at the same level or go down a little bit, but not
significantly.
ALEXANDER RUNIVICH: About 6%?
ROMAN SOLODCHENKO: Yes, I would say so.
ALEXANDER RUNIVICH: Thanks, sir.
ROMAN SOLODCHENKO: Thank you.
OPERATOR: We'll now take a follow-up question from Milena Ivanova
from Renaissance Capital. Please go ahead.
MILENA IVANOVA: To continue on deposits, what do you expect the
growth of the market to be for this year in Kazakhstan? And what
market share would you be aiming at, because 40% I would guess the
market would not be growing as fast. That's the first question and I
have four more follow-ups afterwards.
ROMAN SOLODCHENKO: It looks like we might as well have this
conference call in Russian.
MILENA IVANOVA: Sorry, I don't speak --
ROMAN SOLODCHENKO: The growth for the market we expect at a rate of
about 30% for this year. We want to grow a little bit more aggressive
than the market in this case. The fundamentals, I was talking about
the corporate deposits, and I believe that the adjustment which the
corporates had to go through already happened last year, so for this
year we expect that the corporate deposits would be more stable.
As for the deposits of individuals, we saw the trend, which we've
started already last year and persists in 2008. We see the trend when
people withdrew from the construction sector, from the investments in
the real estate addition bring money back to the deposits. Just
analyzing the market is one of the very popular businesses in
Kazakhstan of buying apartments and then putting it for rent, or
renting them to the clients, is becoming less and less popular,
because it's less profitable now. So people do come back with the
money to the banks, and in our view this is one of the factors to
contribute to the expectations for the deposit base growth in 2008.
MILENA IVANOVA: Okay, and the regulator came up two days ago with
their statistics and they were reporting a jump in NPLs to over 8%.
Do you have your own view on where this is coming from, because they
haven't yet disclosed more detailed numbers?
ROMAN SOLODCHENKO: We can authoritatively speak only for ourselves.
And for us, the preliminary figure for the end of the first quarter
is 1.3% NPLs.
MILENA IVANOVA: And the ratio, which you quote, NPL ratio just for my
clarification, of 0.9%, the basis for calculation, how do you
calculate that?
ROMAN SOLODCHENKO: It's over 90 days overdue either in interest or
principal.
MILENA IVANOVA: Interest plus principal.
HALIL KAMALOV: Full amount.
ROMAN SOLODCHENKO: So the full amount of the loan.
MILENA IVANOVA: All right, thank you. That's all for me.
OPERATOR: We will now take a follow-up question from Yesheslav Chilin
from UBS. Please go ahead.
YESHESLAV CHILIN: Thank you, just two questions to clarify. Your 20%
consolidated growth projection for 2008, is it ex-Temir sale, which
means that --
ROMAN SOLODCHENKO: Yes, it does.
YESHESLAV CHILIN: So you still expect to grow 20%, even though you
will be selling Temir Bank?
ROMAN SOLODCHENKO: That's right. But we do expect that the gain from
Temir will go to the capital.
YESHESLAV CHILIN: Okay, and the other question is on the recent
conference in London on Kazakhstan capital markets, the SSA of
Kazakhstan, they made a statement that there is a new draft of the
law in the parliament, or at least it's been discussed in the
government, that would effectively allow the government to force the
capital injection into the banks should they fail -- sorry, fail
certain ratios that the government is still deciding which ratios
that would be?
That effectively would allow the governments to nationalize the banks
in the case of financial trouble. Can you please comment on that?
What's your impression or what's the progress and what do you expect
to come to the Kazakhstan market out of that?
ROMAN SOLODCHENKO: Sure, I can. First of all, the law is not in the
government. The law, the first draft, was developed by the regulator,
and just yesterday we have the second session with the regulator and
market sector participants discussing the wording of the law.
While initially we all took it very negatively, because of exactly
the concerns you've already mentioned, it gave the government, in our
view, all the rights to enter the bank and to take over the bank at
any -- to take over any bank at any moment. But through the
discussions with the regulator, we found out that the objective was
to protect the clients of the banks, and they were referring more to
smaller banks, given their experience with the calling off the
(inaudible).
We have agreed already at this session that we will work on the
wording of the law so it will be crystal clear that the government
intervention into any bank will be done only after all the other
possibilities to rehabilitate the bank will be exhausted. And we'll
be done from the request of the shareholders, not just by the
decision of the regulator. So the document is still under discussion.
But I do believe that we should be able to find common ground with
the regulator on the law.
YESHESLAV CHILIN: Thank you so much.
OPERATOR: We have now a question [Andrea Bradareo] from Compass Asset
Management. Please go ahead.
ANDREA BRADAREO, ANALYST, COMPASS ASSET MANAGEMENT: Hello, good
afternoon. My question is on Slavinvest. I'd like to know whether you
are still projecting to increase your direct participation in the
bank to above 50% by June this year, or whether you're planning to
postpone these actions.
ROMAN SOLODCHENKO: No, we definitely plan to do it on schedule and,
for the moments, the documents are staying with our regulator. As
soon as we get the documents back, and I expect to get the answer
from the regulator by the end of April, we shall proceed with getting
the permission from the central bank in Russia and we should be just
on time with the consolidation of Slavinvest.
ANDREA BRADAREO: So you're planning to finish in this transaction by,
to complete this transaction, by June this year?
ROMAN SOLODCHENKO: That's right.
ANDREA BRADAREO: Okay, thank you.
OPERATOR: We have now a question from [Litin Gio] from [Schroeders].
Please go ahead.
LITIN GIO, ANALYST, SCHROEDERS: Hi, just to clarify on the stress
tests that you have for your portfolio, I'm not sure if I have heard
correctly, but just wondering how many percent could your portfolio
stand in terms of a fall in property price? How would your NPL
numbers look like, for example, if the property price were to fall
for that 30% from current levels?
ROMAN SOLODCHENKO: We didn't project the decrease of the property
price 30% from the current level, because the current level already
represents the 30% decrease compared to August 2007. But in our
calculations, what we did, I believe we did stress test we did last
year in September were up to 50%.
LITIN GIO: Sorry, I think -- 50% from September?
ROMAN SOLODCHENKO: Yes.
LITIN GIO: Was that -- okay, I see? Okay, the other question is
actually just to clarify on your top 10 exposures. Just wondering,
are these commercial properties or residential properties?
ROMAN SOLODCHENKO: That's a combination. The top two are residential
properties.
LITIN GIO: Okay, and in your opinion, do you see more stress, if any,
on the sector from the commercial sector or probably more from the
residential sector?
ROMAN SOLODCHENKO: Actually, the commercial sector has not been
affected in any serious way by the credit crunch. The explanation is
simple. We still have the lack of the top-notch office facilities
both in Almaty, to a lesser extent in (inaudible), so most of the
commercial properties have been prepaid 100% from the very beginning
and are under construction now and, well, judging by our loan
officers, and we want to move toward the end of the year in the new
premises. The construction goes on schedule and they don't experience
any problems with the funding.
LITIN GIO: But does the residential sector, kind of (inaudible)
before that -- I think the [President] is still keen to actually prop
up that sector, or at least it's more for social reasons? So how does
that lead [to things]? Is the government able to sustain the sector?
ROMAN SOLODCHENKO: Well, the first step was done already in December
last year, when KZT1 billion was channeled into the construction
sector and SME. Another KZT3 billion were promised by the President
and for the moment the government is discussing the terms under which
they will channel this money into the real economy. But I would say
it's a high probability.
LITIN GIO: Because when I look at the construction exposure of the
banks in every case, it seems like even KZT4 billion may not be
sufficient to actually hold up the sector, so what's your opinion on
that?
ROMAN SOLODCHENKO: That, if you take the total exposure to
construction sector of the banks, yes, probably, 4 billion would not
be enough. But we are not talking about the whole construction sector
is in trouble. Just the growth has slowed down. What the government
is doing now, they identified the projects which are 60% to 90%
completed, and the money they channel will go only to these projects.
So, for the moment, the greenfield construction, or construction
which hasn't got out of the ground yet, those construction sites have
been frozen. But given the fact that the land prices deterioration is
much slower than the real estate prices deterioration, we do believe
that those projects will be completed in due course once all the
unfinished construction is sold at the market.
So in our view the 4 billion support which was promised by the
President is quite a sizable support for the sector. Not only that,
it sends the right signal to the market because even after the
announcement was made, we saw the significant improvements or, I
should say, the slowdown of the negative trends in the real estate
price deterioration.
LITIN GIO: Okay, all right. Thank you very much.
ROMAN SOLODCHENKO: Thank you so much.
OPERATOR: We will now have another question from James Hyde from
European Credit Management. Please go ahead.
JAMES HYDE, ANALYST, EUROPEAN CREDIT MANAGEMENT: Oh, hello. I have
two questions, one of them might be irrelevant, but I'm afraid I did
not get a presentation and could not find it on the website, but I
wanted to know about 2009 repayment schedule, what you could say
about that. That's my first question.
And the second question relates to what would make your 20% growth
projection change? And, in particular, regarding non-performing
loans. Now, in the February presentation pack, you still had full
year non-performing at 0.6%. Now you're saying it's 0.9% when you've
had the final figures, and first quarter is 1.3%.
Now, I understand that you are doing better than the bank sector, but
clearly there is a rapid deterioration here. And so I'm just
wondering, what are the triggers for you not to go for 20% growth in
this situation, both from an NPL point of view and from availability
of foreign funding? Hello?
OPERATOR: Mr. Shaguzhayev. Hello?
JAMES HYDE: Hello.
OPERATOR: I'm sorry, I think we can't hear the speaker anymore. Mr.
Shaguzhayev, could you say a word please? We'll just interrupt the
question-and-answer session for a minute and I'll try to reconnect
the speakers to the conference.
ROMAN SOLODCHENKO: Hello, sorry, we got cut off.
OPERATOR: Everybody is now connected. (OPERATOR INSTRUCTIONS).
ROMAN SOLODCHENKO: We didn't take the last question.
JAMES HYDE: Yes, sorry. One of the participants has kindly sent me
the presentation pack, so the first part of the question is
irrelevant. I see you've provided a 2009 repayment schedule. Can you
hear me?
ROMAN SOLODCHENKO: Yes, yes.
JAMES HYDE: Well, the second part, just to repeat, clearly there is a
deterioration and possibly a re-estimation of non-performing loans.
So, as I said, February presentation pack you had end of year at
0.6%. Now it's about 0.9%, and then you're saying it's 1.3% in the
first quarter. Now, you're -- for you, the figures seem clearly much
better than the sector, given you're relatively well positioned
regarding construction. But given this deterioration, it's about a
20% growth target.
I mean, what are the triggers for you to scale back on this, both in
terms of NPL development and in terms of non-deposit funding
availability?
ROMAN SOLODCHENKO: Let me see if I got the question correctly. What
makes us believe that we will reach the 20% target?
JAMES HYDE: Yes, and wouldn't you be cautious on this given this
rapid increase in non-performing loans in the system. And, as you
indicate, in the first quarter.
ROMAN SOLODCHENKO: You see that the trick is that the increase in the
NPLs resulted from the slower growth of the portfolio. So we believe
if we stop the portfolio completely or start shrinking the portfolio,
the negative trend might even increase in NPL numbers.
JAMES HYDE: In percentages, not necessarily numbers, presumably?
ROMAN SOLODCHENKO: In percentages, yes.
JAMES HYDE: But do you not see any concern into taking growth -- into
sort of growing into this situation where asset quality is
deteriorating?
ROMAN SOLODCHENKO: The new loans, you see we have tightened the
requirements already in August last year, so we have brought the LTD
from 70% to 50% for the mortgage loans and we now get the tighter
check on the clients and their ability to pay the loans back.
So the loans that were currently shown in NPLs were the loans done
previously, obviously, so now I believe that with stricter
requirements we -- for the new generation of the loans, we shouldn't
face any problems.
JAMES HYDE: Okay, and in terms of funding --
HALIL KAMALOV: Also, in September and October, that it was [market]
uncertainty with regards to loan quality. But also based on all our
types of analysis, we estimated that during six months from the very
beginning of the credit crunch, we will see the bottom line, the
highest level of NPLs. And now we are thinking that 1.3% is kind of
the highest level of such ratio, because all negative information,
all negative trends and developments, we actually received in terms
of NPL growth.
Now we via renovation of loans, via working with our new clients, new
products, we will turn this situation and we'll see less volatility,
less dynamics, in terms of such ratio. And our actual NPL ratios last
year was really low. That is why all we now can say is that there is
dramatic growth, because if you had 0.6%, it's nothing.
JAMES HYDE: Okay. On the funding side, I mean, doesn't -- isn't there
any sort of scenario in terms of continued non-availability of
funding that would stop you growing this much?
ROMAN SOLODCHENKO: Well, this is the only scenario we consider for
the moment for this year, non-availability of the external funding.
JAMES HYDE: So that would make you grow less than 20%? Or you're
saying that is already projected. Which way?
ROMAN SOLODCHENKO: That is already projected. We didn't plan for any
major public deals in 2008.
HALIL KAMALOV: And actual growth rates over the last quarter, last
year, we moved by $1.5 billion and in the first quarter this year by
$600 million. And these two quarters were really difficult in all
terms. That is why we are quite optimistic and realistic for the
second half of this year and for April, may and June.
ROMAN SOLODCHENKO: When the going gets tough, the tough get going.
OPERATOR: We will now take a follow-up question from Dmitri Beliakov
from Barclays Capital. Please go ahead.
DMITRI BELIAKOV: Yes, good afternoon again. My next question relates
to your mortgage portfolio. What is its current size, and also I'm
pretty much interested what are the LTV ratios for the loans of the
vintages which relate to the last few months before the credit
crunch? Because I assume you were, for example, extending loans with
LTV of let's say 85%, 90%, and after the price correction in the real
estate markets we might see more loans with negative equity?
ROMAN SOLODCHENKO: Sorry, Dmitri, the assumption is wrong. We didn't
extend the loans with LTV 85%, 90%. What we had before the credit
crunch was 70%, and, as I said in August, we brought it down to 50%
LTV.
The share in the portfolio as of the end of the year, you can see it
on page five of the presentation, 10.1% of the mortgages and the
positive factor contributing to the LTV ratio, to the value of the
collateral, was that the mortgages we extended let's say two years
ago, the property that was purchased two years ago, it first grew by
more than 100% and only after that there was a price decrease which
started last August.
So, basically, the mortgages we are talking, what we can consider as
problem mortgages or potentially problem mortgages were those
extended through the second quarter of 2007, just prior to the credit
crunch and prior to the price decreases. The mortgages extended in
2006, the collateral gained value through the end of 2006 and the
first half of 2007. So we are quite comfortable with regard to the
collateral value.
DMITRI BELIAKOV: And the clients, they keep on repaying, they're on
schedule? How many loans, percentage-wise, how many mortgages with
arrears, any arrears, even for one month?
ROMAN SOLODCHENKO: You will be surprised, but the individuals are
among the more disciplined clients. They keep repaying on schedule. I
will check and if the figure is not correct, I will give you the
correct figure later, but if I am not mistaken, the percentage is 4%
of the mortgage portfolio has some areas in repayments.
DMITRI BELIAKOV: Okay, thank you.
ROMAN SOLODCHENKO: Thank you.
OPERATOR: We will now have a new question from [Maya Filipova] from
Barclays. Please go ahead.
MAYA FILIPOVA, ANALYST, BARCLAYS CAPITAL: Good afternoon on my side,
from London. I just wanted to ask about your -- again, going back to
the deposits, given that it's played such an important role in your
growth of your assets going forward. Can you give us some color on
the concentration levels of your deposit base so far? On the retail,
as well as on the corporate side, if possible?
ROMAN SOLODCHENKO: On the retail, there hasn't been any major deposit
concentration just for the nature of the retail deposit. On the
corporates, we are now looking for the number. Just a second.
We have a sector-by-sector concentration, so for 2007, 43% of the
deposits were individual deposits and the next big figure on the list
is deposits from oil and gas sector, which account to 13.2%. I would
say that we don't have any depositors which would represent over 5%
of the total deposit portfolio, even among the large corporates. So
from our point of view it's well diversified.
MAYA FILIPOVA: So you don't expect, let's say, I don't know,
unexpected withdrawal of any of these large companies that are oil
and gas company depositors that you have that would probably
significantly reduce your deposit base? I mean, it has to do with, I
guess, average term of those deposits, if you can just have an
approximation?
ROMAN SOLODCHENKO: Well, I don't expect any unexpected withdrawals,
although all of them are expected and are done on schedule. I can
only say that we are not the major bank relying on the corporate
deposits. If you look at the corporate deposit structure, most of the
companies, most of the companies, they keep their deposits in other
banks. So, for us, those clients which keep deposits with us, we've
been working with them for years and we've never had any negative
surprises coming from them. So I wouldn't be concerned about some
unexpected deposit runs from our banks.
MAYA FILIPOVA: Understandable. And, lastly, do you have any number
for what the percentage of your loan portfolio that falls into the
doubtful second, third or lower category, as classified by the
central bank?
ROMAN SOLODCHENKO: Not straight-ahead, I don't have it with me. Let
me see if I can find before the end of the conference call.
MAYA FILIPOVA: That would be great.
ROMAN SOLODCHENKO: But we are more -- I can only say that we are more
or less in trend with other banks. That means the standard loans
should be somewhere, 45% of the portfolio. The rest are classified
due to the categories, but I don't have the exact number for the
categories. Give me some time.
MAYA FILIPOVA: Sure. Of course.
ROMAN SOLODCHENKO: I don't have the exact figures with me.
MAYA FILIPOVA: Would these be available disclosed in your IFRS, when
you release them on the Web tomorrow?
ROMAN SOLODCHENKO: Some of them, not the exact classification, the
first, second, third, et cetera, categories. We have neither past due
nor impaired, which means standard, and past due or individually
impaired numbers, which is split between corporate lending, small and
medium business and individual lending.
HALIL KAMALOV: You can find the breakdown after the [FMSA]
classification in our IFRS statement. For three years.
ROMAN SOLODCHENKO: For the last three years, yes.
MAYA FILIPOVA: Okay, thank you.
HALIL KAMALOV: But if you can't -- if you could send us your request
by e-mail, we would find and return and give it right to you.
MAYA FILIPOVA: Okay, I'll get in touch with your investor relations
people then.
HALIL KAMALOV: Sure, sure.
MAYA FILIPOVA: Wonderful. Thanks a lot, again.
HALIL KAMALOV: Thank you.
OPERATOR: We will now move to a question from [Ryan Ganulin] from
Alpha Bank. Please go ahead.
RYAN GANULIN, ANALYST, ALPHA BANK: Thank you. My question is
regarding cost side. We've noted your cost to income ratio is
increasing slightly to 30% last year. Can you give us details or your
view about this ratio going forward? Inflation is remaining high in
Kazakhstan, and do you think it's a threat to your costs and
expenses, generally?
ROMAN SOLODCHENKO: Well, we don't see it as a threat. First of all,
we don't expect this ratio to deteriorate much further. We've been
comfortably operating at the cost-to-income ratio fluctuating in the
spread between 30% and 40% in the previous years, so 30% for us is at
a lower end of the scale.
At the same time, we do believe that under the current circumstances
we have to look for every possible way to increase our earnings and
for that reason we'll be looking closely at cost reduction in line
with what other banks are doing in Kazakhstan this year.
RYAN GANULIN: Thank you.
ROMAN SOLODCHENKO: Thank you.
OPERATOR: We'll take now our last question from [Abac Isamov] from
HSBC. Please go ahead.
ABAC ISAMOV, ANALYST, HSBC: Hi, good afternoon. I have a couple of
questions here. One is regarding capital increase. You just announced
on the call, if I understand correctly, it's equity capital you are
talking about. I was just wondering what's the reason for it, given
that capitalization is already high, but you already had one capital
increase in 2007. That's one question. Second question is the sale of
Temir Bank, how do you intend to use the proceeds? Just want to check
whether you want to increase your participation in Sekerbank in
Turkey?
And third question, I was wondering if you'd give like a range of
your expected inflow of deposits in 2008 in Kazakh tenge terms, for
example, like a rough range, what your expectation is.
ROMAN SOLODCHENKO: You mean absolute figures?
ABAC ISAMOV: Yes, like a range, like a ballpark. What's your
expectation, what's your feeling, given that we are in the first
quarter already, three quarters to go? If possible.
ROMAN SOLODCHENKO: Let me start with the second question, the
proceeds from Temir sale will go through the capital. For the moment,
we might need additional capital, so we do not plan any changes in
our stands with regard to Shaker Bank. While we need additional
capital, the answer is very easy.
While we have it -- according with DIS principles we have a 16.7%,
but if you take the local standards, the Kazakh standards of the
regulator, it will bring us down to slightly over 12%, which is the
minimum required by the regulator. Why is that so? Because the
regulator has introduced -- over the last year they introduce the
risk-weighted ratios. And according to these ratios, we have to
risk-weight all of our exposure outside of Kazakhstan in countries
even like Russia at 150% and starting this April we will have to
weight our exposures for [offshore] companies at 200%.
That doesn't matter whether the money goes through the offshore
companies to the company rooted in Kazakhstan or in Russia. Just the
fact that the offshore is there in the scheme will make us to
classify the exposure with 200% risk.
ABAC ISAMOV: Can I just -- one follow-up question here. If a direct
asset is being outside of Kazakhstan --
ROMAN SOLODCHENKO: It's (inaudible) at 150%.
ABAC ISAMOV: Yes, but if it is owned by, say, Kazakh National, is it
still the same risk weight which applies, the higher risk weight, or
is it the similar one?
ROMAN SOLODCHENKO: It is the same.
ABAC ISAMOV: Same, okay, okay. Thank you. Sorry.
ROMAN SOLODCHENKO: With regard to deposits in Kazakhstan, we expect
that they will grow about 40% for the corporate lines and 50% to 60%
for SME and individuals.
ABAC ISAMOV: That's just for you, right?
ROMAN SOLODCHENKO: That's correct, yes, just for Kazakhstan. That's
not consolidated.
ABAC ISAMOV: Okay, okay, thank you very much. That's it.
ROMAN SOLODCHENKO: Thank you.
ABAC ISAMOV: Thank you.
OPERATOR: At the moment, we don't have any more questions.
SADYR SHAGUZHAYEV: Thank you very much, ladies and gentlemen. On
behalf of BTA Bank, we'd like to thank you once again for joining
this conference call, and the investor relations website to answer
all your questions in the future. Thank you very much, and goodbye.
HALIL KAMALOV: Thank you.
OPERATOR: That will conclude today's conference call. Thank you for
your participation, ladies and gentlemen. You may now disconnect.
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