Marchenko keeps Halyk on the straight and narrow

THROUGHOUT THE MINI-MELTDOWN of Kazakhstan’s banking sector, just one institution has escaped largely unscathed. Almaty-based Halyk Bank has thrived while others, notably local rivals BTA and Kazkommertsbank, have faltered over the past year. Halyk’s shares have slipped recently – thanks in part to underwhelming first-quarter 2008 earnings in a troubled market – but it remains a favourite among analysts, with buy ratings from Kazakhstan’s Visor Capital and Moscow’s Renaissance Capital. Halyk is still the only local lender to have issued a Eurobond this year: its $500 million, five-and-a-half-year issuance in April 2008 was the first such offering in nine months, and the only Kazakh-overseas debt sale this year. In 2007, the bank posted a 49% rise in net income, to $336 million. During the third and fourth quarter of 2007, it was one of the only Kazakh banks still disbursing loans while the market contracted.

Behind Halyk’s rise lies a relatively simple and old-fashioned concept, one that has been largely forgotten in the years of global plenty: avoid excessive risks; lend only to those corporations and interests able or likely to repay their loans; and use the profit to steadily grow other service offerings. And behind this thinking at Halyk sits a single figure, the bank’s chairman of the management board and chief executive, Grigoriy Marchenko.

When Marchenko was employed by Halyk in January 2005, he wasn’t exactly short of competing offers. The first time he "announced a tender" for himself, as he puts it, in 1997, he had already served as a vice-chairman at the Kazakh central bank, and as head of the National Commission on Securities. Thirty-eight bids for his services flooded in, and Marchenko picked Deutsche Bank out of the pile. Eight years later, after a five-year stint serving as chairman of the National Bank, Marchenko again put himself on offer. This time, as he admits, fewer bids rolled in, but he picked out Halyk’s name.

"I could see that the bank was still developing but I could also see that it had so much potential, particularly in cross-selling our services," says Marchenko, speaking at his office on Ablai Khan Avenue in Almaty. "In my opinion, Halyk then had far more potential than the other [Kazakh] banks, and still does."

He has been proved right, although it has taken a market slowdown and the liquidity crunch at rival institutions to justify his strategy of studied caution, which was criticized as the market boomed in 2005 to 2007. Marchenko had decided at the beginning of his tenure to opt for a super-conservative approach to lending, warning that the furious overseas borrowing strategy pursued by rivals BTA and Kazkommertsbank would come back to haunt them. So it has proved: Halyk’s two chief local rivals began 2008 owing a combined $3.5 billion in foreign debt obligations. Investors and customers alike flocked to Halyk bank: the former attracted by its appearance as a haven sheltered from risk; the latter by its determination to continue lending in late 2007 and early 2008, even as other banks were shutting the door on new customers, or buying out loans from existing clients.

"While the markets were good, outside investors couldn’t see the difference between the Kazakh banks – to many, they all looked like the same animal with nine or 10 different heads on," says Marchenko. "After the August [2007] correction, other banks had funding problems, and were closed to new lending. We weren’t, and so the US sub-prime crisis was good for us. And there was a substantial flight to quality, as customers came to join us from other banks." Halyk was also able to raise fresh capital – an avenue closed to others. Aside from the Eurobond, Halyk closed a $200 million syndicated loan structured over one year with an option to extend for a further year on August 19. Another reason Halyk has done better than its peers, adds Marchenko: better management. "There’s a substantial difference between Kazakh banks. We have a good healthy mix, with lots of bankers with experience at foreign companies. Three of our nine officials at executive level were previously at ABN Amro (now RBS Kazakhstan). We’re better off than other banks, most of which are staffed by people who grew up through the ranks."

A reputation for confidence

Born in 1959, Grigoriy Marchenko, a native Russian, is one of the most visible and respected figures on Kazakhstan’s financial scene. His reputation is that of a person with great financial acumen, the ability to perceive problems and opportunities far down the line, and of a certainty bordering on overconfidence. "Marchenko is a very strong character," says a London-based analyst covering Halyk. "You could call it smug, but he has reason to be that way. He was correct over Halyk’s strategy, and he’s reaping the benefit now."

"After the August [2007] correction, other banks had funding problems, and were closed to new lending. We weren’t, and so the US sub-prime crisis was good for us" Grigoriy Marchenko, Halyk

Halyk is in talks to sell a stake of between 5% and 25% to one of two leading foreign lenders, says Marchenko, although he declined to divulge the names. France’s BNP Paribas still crops up high on the list of possible partners. The shortlist has been whittled down from 15 over the past couple of years: and Marchenko says he has held talks with Spanish lenders including Banco Santander and Banco Bilbao Vizcaya Argentaria over the past year. Both, Marchenko says, have designs over the next one to two years on a region traditionally eschewed by Spain’s leading lenders. Another lender that dropped out of talks with Halyk was Vienna-based Raiffeisen Bank, which has substantial assets in central and eastern Europe.