Awards for Excellence 2020
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Banking small and medium-sized enterprises is challenging in any market, particularly at the smaller end of the scale. It is even more so in Turkey, where the market is distorted by the predominance of large state-owned banks focused more on pumping up the economy with cheap credit than on commercial imperatives.
Nevertheless, QNB Finansbank has devised a business model for the segment that has proved both profitable for the bank and attractive to Turkish SMEs.
Ranked fifth among private-sector banks in Turkey by total assets, the Qatari-owned lender is number four in SME banking and has increased its market share in the segment in each of the last three years.
It has proved particularly popular among companies with turnover below TL3 million ($438 million).
Erkin Aydin, head of retail and SME banking, says this success has been built on QNB Finansbank’s combination of a strong retail franchise with corporate expertise. The lender was one of the first in Turkey to serve SMEs with a retail-based model rather than as part of corporate banking.
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Erkin Aydin |
“You can’t expect SMEs to have the same level of sophistication as corporates, especially in a market like Turkey, and you can’t approach their credit risk behaviour in the same way,” he says. “You need to develop credit-decision tools that are tailored to the segment – and they will be more like those for retail clients than those for corporates.”
QNB Finansbank splits SMEs into micro and small businesses – those with an annual turnover of up to TL6 million – and medium-sized enterprises. It also has separate service models for Turkey’s large agriculture and tourism sectors.
“Their cash flows are very cyclical, so you need to have lending mechanisms which are in line with this,” says Aydin. “You also need the right risk management structure to closely monitor and evaluate clients who don’t have recurring monthly payment plans on their loans.”
QNB Finansbank is also well placed to support Turkish SMEs in both domestic and international trade. The bank’s owner, Qatar National Bank, is present in around 30 countries in Europe, the Middle East and Asia, and its high credit rating gives it a valuable edge in forming correspondent banking relationships.
Technology
The other key pillar of QNB Finansbank’s SME success is technology. While many banks in Turkey still serve SMEs primarily through branch networks, QNB Finansbank has developed a cost-efficient model that combines physical and digital channels.
This includes SME Cloud Branch, a remote relationship manager service, as well as a new service called Digital Bridge. Launched last autumn, this is designed to help small firms digitalize by providing ancillary products such as accounting, billing and HR solutions via an online platform.
“These services didn’t exist in the past as accessible solutions that are also cheap to implement for SMEs,” says Aydin. “Now there are a lot of startups that can provide these solutions at a very reasonable cost.
“But many SMEs are not at a level to understand exactly what they need and how they can implement it in their daily business. That’s where we come in. We want to be the bridge that helps SME clients become digitally enabled.”
The platform – which is offered free until 2022 for clients with annual turnover of up to TL300 million – has already proved popular with SMEs, attracting 25,000 new clients to QNB Finansbank in the final quarter of 2019.
Digitalizing
The coronavirus crisis has prompted even stronger uptake of the service this year, according to Aydin, as Turkish firms have rushed to digitalize.
It has also, inevitably, put pressure on QNB Finansbank’s SME loan book; however, the experience of Turkey’s August 2018 currency crisis suggests that it should prove relatively resilient. In the wake of the crisis, the bank’s rate of generation of new non-performing loans was half the level of the overall Turkish market.
QNB Finansbank has also been proactive in supporting its clients through the current crisis, offering to delay credit payments unconditionally for three months, with the option to extend for a further three months. To date, nearly a quarter of the bank’s SME customers have taken up the option.
“We hope that this will give clients enough space to plan their cash flows and, as the economy recovers, they will be able to resume loan repayments,” says Aydin.
This combination of prudent risk management with proactive support for clients through physical and digital channels makes QNB Finansbank a worthy winner of this year’s award for CEE’s best bank for SMEs.
