The economic challenges of the past decade have been especially difficult for emerging markets. This has been particularly true of the former Soviet republics, which did not have sufficient time to reach a critical economic mass that would have allowed them to fully capitalise on their huge economic potential.
The challenges these nations have faced have been mirrored in the varying fortunes of the banks that operate in the region. Many of the banks have faced difficulties, while some have been astute and prudent enough to have made the most of the conditions, and worked them to their advantage.
A fine example of this is Tsesnabank, a country-wide universal bank with a 20-year history offering a variety of banking services and products to clients spanning corporate, SME and retail. The bank was registered with the National Bank of Kazakhstan in 1992, and is headquartered in the capital city Astana.
A strong financial position
In 2010 Tsesnabank won more customer deposits than any other bank in the top 15 banks in Kazakhstan. “We became number one by customer deposit growth among the largest banks for last year, and I believe we have the potential to remain one of the most trusted banks in Kazakhstan going forward,” says Dauren Zhaksybek, the bank’s CEO.
Tsesnabank is the eighth largest bank in Kazakhstan by assets, up from fourteenth largest two years ago.
Overall, Tsesnabank is an important example of how mid-size banks in Kazakhstan recovered more rapidly from the banking crisis than larger banks, and were also able to become more potent drivers of growth, due to their greater flexibility and adaptability to new market conditions.
The bank’s growth achievements are all the more remarkable, given that Kazakhstan was one of the first emerging markets to be severely hit by the banking crisis.
So how was the bank able to recover so well? The main reason was that Tsesnabank has historically relied on domestic deposits, and had a comparatively low exposure to industries – such as construction and real estate – that proved to be toxic in financial terms over the past few years.
This focus on domestic deposits was no accident, but rather a deliberate business strategy pursued by the bank’s management board – a strategy which has been fully vindicated.
Tsesnabank was also among the first domestic banks in Kazakhstan to deploy a vigorous and effective technique for coping with a growing volume of non-performing loans.
Back in 2008, the bank established a large loan-loss provision. It is typical of Tsesnabank that it showed great foresight and swift action in dealing with this problem. This typifies the bank’s approach to business: spotting problems as soon as they occur and implementing prompt and vigorous solutions.
Because of its overall strategy, Tsesnabank has – throughout the banking crisis – been able to maintain full and on-time repayment of all its wholesale international borrowings, including its debut Eurobond and two syndicated loans.
The result? Today, only one percent of Tsesnabank’s total liabilities are with foreign financial institutions.
Growing market share
Tsesnabank’s ability to maintain a healthy balance sheet and strong overall financial position during a time of great crisis has helped it to win and retain high-quality customers from other banks. “We were not only able to repay all large wholesale foreign debts, but also to gain a market share by attracting viable corporate customers from our competitors,” Zhaksybek says.
These high-quality customers tend to be financially strong corporate clients that proved able to survive the economic crisis which claimed so many other organisations. Their survival is due to a number of important factors: they have robust business models, relatively low levels of leverage, exciting and readily realisable cross-sell opportunities, a good track record and an excellent credit history in terms of their exposure to top Kazakh banks.
Reflecting its success in attracting new clients, Tsesnabank has recorded growth of net income over recent quarters. As a result, in June 2011 the bank’s credit rating was upgraded by Standard & Poor’s to B on above-average resilience to the crisis.
Another recognition of the bank’s sucessful business efforts is the recent assignment of the Principal Member status by Visa International, the global payments company. This status is assigned exclusively to banks meeting stringent financial and technical conditions, and it entitles Tsesnabank to directly cooperate with Visa, expand its product range and provide new services to cardholders using a flexible tariff policy. With the Visa Principal Membership, Tsesnabank will compete with the largest Kazakh banks on equal terms.
Although the bank has enjoyed several quarters of rapid growth by attracting these new high-quality corporate customers – a trend that is in fact continuing – the bank’s management board understands that this expansion can’t last forever.
Accordingly, Tsesnabank does not intend to focus on lending to major corporates alone. These clients will of course remain an important part of the bank’s clientele, but it plans to base more of its future growth on cross-selling its retail products and services to corporate clients, many of which have been derived from the expansion of its corporate loan portfolio. Tsesnabank has also noticed that this strategy has helped it gain access to good retail clientele through its corporate clients.
The bank’s other plans for the future include being more active in lending to SMEs and retail customers, most of whom are recovering gradually from the crisis.
This new approach will naturally lead to the bank further diversifying its loan portfolio
Tsesnabank is keenly aware of the need to perfect a continuous programme of improvements in the quality of the service it offers. The bank has recently implemented a SAP enterprise resource planning system, and has won an important award for rapid implementation of the project in the CIS and a SAP special award for quality. The bank has also had the distinction of launching what is widely regarded as Kazakhstan’s most modern call centre.
The bank is also implementing advanced rating models and scoring systems in its credit risk management department, with the help of PricewaterhouseCoopers. It is complementing this by applying powerful new solutions for credit risk management, supplied by leading vendor SAS. The bank has several other ongoing prjects that will enhance its competitive profile.
Tsesnabank has historically been strong in central and northern Kazakhstan, and plans to replicate the key contributors to this success across the rest of the country. It is also targeting Almaty – the nation’s largest city – and the other key cities in the west of the country. The bank sees huge potential in these areas.
After two successful years, in which it doubled its market shares in assets, loans and deposits, Tsesnabank believes it can make the most of all the potential it sees for growth.
January 1992 - Registered with the National Bank of Kazakhstan
October 2003 - Recognised by the European Bank for Reconstruction and Development for the high quality of its loan portfolio
May 2004 - Joins Visa International payment system as associate member
May 2007 - Wins Euromoney’s Best Managed Banks in Central and Eastern Europe and Central Asia 2007 award
June 2009 - Establishes own card-processing centre
February 2010 - Repays in full its matured $125m Eurobond
July 2010 - Wins the STP Award 2009 given by Commerzbank and the 2009/2010 Quality Recognition Award by Citigroup Global Transaction Services
June 2011 - Becomes the first non-state-owned Kazakh bank over the past few years to be upgraded by Standard & Poor’s (from B- to B) on above-average resilience to the crisis
October 2011 - Upgraded by Visa International to Principal Member