Home Credit Bank is in Excellent Form and Not Afraid of the Competition: An interview with Karel Horák in Forbes Kazakhstan.

By Viktor Burdin. The original article appeared in Forbes Kazakhstan.

The new Chief Executive Officer of Home Credit Bank in Kazakhstan, Karel Horak, describes how the financial institution works in a situation of market turbulence.

Mr Horák, what was your first impression “from outside”, of the condition of Home Credit Bank in Kazakhstan before you took the helm on its management board?

Home Credit has been operating in Kazakhstan for 13 years. Over that period of time, we have served more than three million clients. The bank is one of the leaders in the field of consumer credit and steadily posts high profitability indicators. For example, based on the 2016 and 2017 results, Home Credit Bank was the most profitable bank in Kazakhstan in terms of return on capital and return on assets. So, we can easily confirm that Home Credit Bank holds a prominent position on the Kazakhstan banking market. For me, it is a great honour to join a strong team of professionals working here in Kazakhstan. I am sure we can achieve even better results together.

In comparison with the Kazakhstan banking market as a whole, Home Credit Bank has a prominent position in the country. How about in the global comparison?

We can take the credit risk indicator (the percentage of non-performing loans – NPL90+), which is the best indicator of the ‘health’ of any bank. For European countries, NPL90+ lower than 5% is considered healthy. For many developing countries, less than 9% is accepted as successful and stable. The mean percentage of toxic credit in Kazakhstan ranges from 8.5% to 8.8%. The performance posted by Home Credit Bank at 3.5% represents an excellent result, a testament to the great form of the financial institution and its readiness to confidently tackle any turbulence.

Kazakhstan’s economy and its banking sector are currently in a state of turbulence. With this in mind, are you satisfied with the bank’s financial indicators for 2018?

Yes, we are. Our yield is stable. As such, our profit for the 9 months of 2018 amounts to 19.4 billion tenge, our operating profit for the same period exceeded the same indicator for the respective period in 2017 by 30% and our assets exceed 300 billion tenge. All these indicators confirm that we hold a steady position and have excellent possibilities in financial terms. As I have said before, our risk indicators are among the best in the industry. Also, quite recently Fitch confirmed Home Credit Bank’s long-term rating in terms of foreign and national currencies at “B+” with a stable outlook.

If not for the turbulence, would these indicators be better?

This is difficult to say. I don’t think so. Within the international Home Credit group, which is present in 10 countries worldwide, we have experience of going through turbulent phases and crisis developments on the markets of Russia, China, India and Europe. This gives us an advantage over other banks in Kazakhstan and helps us to always be ready to tackle them.

What is going on in our country is not new or anything we have not seen in other countries in the past; we perfectly understand the potential pitfalls and we constantly enhance credit risk control and tighten monitoring procedures and currency and liquidity risk management.

It is also important to note that we answer to three regulatory authorities at once: the National Bank of the Republic of Kazakhstan, the Central Bank of the Russian Federation, and the European regulatory authority. We strictly comply with the requirements for liquidity, capital adequacy and risk management indicators and other requirements of each regulatory authority and we regularly submit reports in various structures to each of them. What else can ensure reliability for our bank’s depositors if not the watchful eyes of three supervision authorities?

A side effect of the current market situation is that the local regulatory authorities take a more conservative approach towards implementing new technological solutions that are already commonplace on the world markets. To be specific, this applies to the use of simple electronic signatures (for example in the form of one-time passwords) for the execution of borrowing operations. The onset of similar technological solutions could have positive effects in terms of both the customer experience and the new possibilities for banks.

What is the positioning of Kazakhstan’s Home Credit Bank within the Home Credit Group?

We are convinced about the great economic potential of Kazakhstan, which is also confirmed by the many years of our presence in the country. Our shareholders are interested in investing in our products and services for their further development, with the goal of achieving both extensive and intensive growth. In comparison with Western Europe or Russia, the rate of penetration and coverage of banking products in Kazakhstan also has a growth potential. In addition, our business model is prepared for this.

Kazakhstan has always been and remains the focal point of our group, as there is great promise of growth in terms of the country’s development. I cannot omit mentioning our rapid growth. And our further strategy is one of growing the business.

For the time being, the rate of bank service coverage in Kazakhstan is lower than in Western Europe and even Russia. We can still see some segments where the share of banking services is lower than in other countries. In this respect, Home Credit Bank sees opportunities for both intensive and extensive growth. Our business model bears fruit – the rapid development rate. We believe in a favourable future.

Ever since its launch in Kazakhstan, the bank has focused on retail services. After some time, it is obvious that this was the right strategy. Several other Kazakhstani banks have decided to switch to retail. Do you see this as a threat in the sense that your business could diminish?

We have focused on retail banking ever since the launch of our bank because this market segment has the biggest growth potential. It is there that the bank has good quality and extensive expertise.

Competition does not surprise us – in fact it helps in developing the entire market. The growth of competition should lead to an overall improvement of consumers’ financial culture. Overall, together with the competitors, we need to watch the development of the quality of financial instruments and the rise of new regulatory rules for more digitised and client-orientated solutions.

Our competitive solutions are further improvements in product and service quality and trust in the bank. Then again, we will also focus on increasing a share in new segments. Of course, we feel pricing competition in B2C and B2B, but we increase volumes due to lower prices without losing profits.

Some experts believe that “medium-sized” banks that attract money in the form of deposits at maximum interest rates are experiencing problems and are in severe need of liquidity. How would you comment on these experts’ opinions? Home Credit Bank has traditionally attracted citizens’ funds at maximum possible interest rates.

We can see that interest rates on deposits do not depend on the bank’s size. Some major banks attract deposits at maximum rates; there are medium-sized banks that offer a lower yield on deposits. The actual rate offered by banks is not relevant (since it may in no event exceed the rate set by the Kazakhstan Deposit Guarantee Fund) – it is the degree of the bank’s stability and the indicators of its credit portfolio quality that matters.

Voicing opinions such as this, they confuse the notions of “large bank” and “stable bank”. Unfortunately, this is not the same thing. If a bank’s stability was determined by its size, many financial analysts across the globe would have no work to do. When considering a bank you want to entrust your money to, it is important to pay attention to the quality of its credit portfolio, profit and liquidity indicators, and the level of trust in the bank. The interest rate is just one of the indicators that clients pay attention to, but the level of stability and reliability remain among the most important factors.

Two years ago, your bank offered a unique product on the market – a deposit certificate that provides the possibility for the depositors to earn a yield at 15% p.a. Has this product been successful? How much money did you manage to attract with the product? What other interesting propositions can you offer to the market?

The new product needed some time to start making money. For example, we sold more deposit certificates over the last three months than we have over the prior period of the product’s existence. Considering the updates of legislation, our product is becoming more competitive. At this point, the deposit certificates have attracted more than 2 billion tenge and we expect this indicator to grow next year, since we believe this product will benefit from certain excellent competitive advantages.

In addition, we constantly study the market and develop new ideas. I want Home Credit Bank to become the best choice for our clients, partners, co-workers and the entire banking sector of the Republic of Kazakhstan with the right solutions and innovative products and services, aiming to improve our clients’ lives every day.