Jusan Bank: A Kazakh success story
Rating agency Moody’s Investors Service recently assigned a B1 credit rating to Jusan Bank, one of Kazakhstan’s leading banks. The award is in recognition of the successful work and strategy of the bank's new management team. In an interview, Aibek Kayip, Jusan’s chairman of the management board, explains what has been achieved by the bank, and highlights some of the new challenges it is facing.
Q: What is the secret of your success and how did it all start?
Kayip: Our predecessor Tsesnabank was a troubled financial institution on the verge of bankruptcy. Over 90% of the bank's assets were non-performing loans and the bank desperately needed capital. The new shareholder, First Heartland Securities, injected additional capital of some 70 billion tenge (US$184 million).
The value of Tsesnabank’s troubled portfolio was colossal – over 850 billion tenge (US$2.2bn). There were lots of questions regarding many loans, the way they were granted and monitored, as well as the whole management practice. Importantly, most of this capital was made up of loans to large businesses owned by influential and wealthy individuals, who decided to put the burden on the bank.
At that time, and as part of a new management team, I was in charge of recovering the troubled assets, which we did by creating a "bad bank". We worked with enterprises that did not fulfill their obligations, each having their own reasons, problems and claims. It was a period full of challenges.
From the very beginning of our operations, we chose to operate under clearly defined anti-bribery rules, making it clear to anyone how serious and uncompromising we are about this issue. Our corporate governance is clear and transparent, and we are here to support our customers and clients.
So for example, when it is economically feasible for a business owner to capitalize on the company using their own resources, the bank is ready to accommodate and help them in any way they need.
Together with this, we also had to carry out debt collection. To date, about 40 lawsuits have been filed to recover large corporate loans totaling 252.4 billion tenge. Of this, there has already been court decisions on collection for 28 of these cases, accounting for about 189.8 billion tenge. In addition, 19 large non-working projects, worth about 116.8 billion tenge, have been declared bankrupt. For all projects where there were signs of fraud, law enforcement agencies were notified.
As a result, these consistent and systematic efforts have borne fruit. In fact, during 2019-2020, the bank managed to restore a large amount of assets that were once viewed as toxic. Not only this, business owners have understood our main message – that the bank’s new management team have zero tolerance for any form of corruption, and that we are only open to proper and decent businesses.
Q: How successful can a banker be in Kazakhstan, if he or she does business with integrity?
Kayip: This is one of the keys to our success. With clear transparent rules of business conduct that are equally applicable to everyone, you create something valuable in banking – a reputation as a reliable financial institution. This helps attract the best clients as well as support steady growth in the bank’s lending and development.
For example, within two years, from February 2019 to May 1, 2021, we issued loans to small and medium-sized businesses valued at about 191.5 billion tenge. In addition, our corporate business and SME deposit portfolio grew by 17 times to total 400.3 billion tenge. And the portfolio of current account balances increased by 251%, from 29.2 billion tenge to 102.5 billion tenge. Furthermore, our NPL ratio for all newly issued loans is only 0.03%, which indicates the high quality of new issues.
With clear, transparent rules of business conduct that are equally applicable to everyone, you create something valuable in banking – a reputation as a reliable financial institution.
Q: What about the retail banking front, where competition with other market players is tough. What has been the strategy in that area?
Kayip: Initially, when we came into the bank two years ago and started creating the new development strategy, we were closely watching some of the key global trends, including the deep transformation underway in global financial markets and in the banking industry.
We wanted to take a different approach to traditional banking. Our new development strategy is, therefore, based on solutions that go beyond traditional banking, and puts human needs at the forefront of the service we provide.
As an example, we have invested in our digital offering, creating a new, digital ecosystem based on three business platforms: Jusan Retail; Jusan Business; and Jusan Private Banking. A client of either business could satisfy all their financial needs simply by installing the new Jusan mobile application.
This app has many benefits. You can, for instance, go through the remote identification process and receive a card without visiting a bank branch. It also offers the same common services as many other banking apps, such as paying utility bills and fines, topping up your phone, and buying auto insurance.
However, what makes the Jusan app unique is the JMart marketplace. Here you can not only buy electronics and other everyday essentials at affordable prices, but also purchase foodstuffs, select home delivery, and use educational, health and other services. There are over 200,000 goods available via JMart, all of which can be purchased by installments over 24 months. The app also allows the user to switch over to the services of the new virtual mobile operator, Jusan Mobile.
As such, the Jusan app does create opportunities to spend. However, it also creates opportunities to earn by investing in shares and bonds of global and Kazakhstani companies, as well as leading investment funds. We have already developed the widest investment product line for almost everyone.
It does not matter if you are a new investor or have been investing professionally for years, the app will provide you with a set of convenient and user-friendly tools to invest. We offer investment products that would suit the most conservative investor client and those with greater appetite and tolerance for risk, Ultimately, investing in the securities market has now become accessible to many more people. It is possible to start investing only a small amount, or more substantial sums.
All our services, from opening an account to managing and using investment products, can be accessed online. But the mobile platform will always be at our customers’ fingertips, enabling them to manage their portfolio, train them in the basics of investing, access investing ideas, and conduct transactions on local or international markets.
Importantly, we are the only bank in Kazakhstan that has integrated investment services into its banking application and created a wide range of modern-day investment funds.
Q: What is the financial performance of the new product line?
Kayip: In just one year since its launch, the Jusan mobile app has been downloaded more than one million times. In the same period, the number of active users on all ecosystem services rose to half a million. At the end of 2020, the number of clients using the Jusan Investments service alone tripled on the year before. What’s more, the turnover of clients' transactions on the Jusan Investments service platform quintupled, with total value exceeding 1.2 trillion tenge.
More generally, the assets of the Jusan Bank grew 24.2% in 2020 compared to the year before, equivalent to a rise of 322.4 billion tenge, according to the bank’s 2020 audited financial statements.
Total assets at the end of last year exceeded 1.65 trillion tenge. In addition, Jusan Bank's loan portfolio totaled 855.5 billion tenge at the beginning of 2020. Today, with a 5% share of the Kazakh banking sector's loan portfolio, Jusan Bank is already one of the largest second-tier banks in the country.
Lastly, Jusan Bank’s capital position is very strong. In particular, as of May 1 2021, the bank’s capital adequacy ratio (k1) was 31.5%, which is four times higher than the regulatory requirement. The liquidity ratio (k4) is 399.8%, which exceeds the standard value by more than 13 times. These prove that Jusan Bank possesses resources required to develop all the services within its ecosystem.
Q: With this in mind, how will your positions change given your acquisition of ATF Bank, which was approved by the regulator in May this year?
Kayip: The merger with ATF Bank will allow Jusan Bank to become one of the top three banks in Kazakhstan by the end of this year. As a result of the integration, the aggregate value of assets will amount to three trillion tenge. The regional network of branches and ATMs is also expected to become one of the largest networks in the country. In March, we combined the two banks' ATM networks to create a single system. Now we can boast the total of 1,150 ATMs throughout Kazakhstan, including 182 cash-in machines.
The customer base will grow as well. We are seeking to ensure that the clients' migration from one bank to the other will be seamless. Ultimately, the total number of cardholders and internet banking users will number about one million, while the number of SME clients should rise to about 140,000.
It is important to emphasize that the merger of the two banks is a challenging task on several fronts, not least integrating IT systems and processes, and in maintaining the loyalty of ATF Bank customers. However, we are confident that we will achieve every goal in a timely manner thanks to our team's professionalism. The merger with ATF Bank will also allow us to scale up the actions aimed at the implementation of the ecosystem development strategy.
Q: What differentiates you from other banks in Kazakhstan?
Kayip: The key distinctive feature of Jusan Bank is that we have a great institutional shareholder – the Nazarbayev University and Nazarbayev Intellectual Schools. Therefore, the beneficiaries of the successful implementation of the bank's development strategy include the best educational institutions of Kazakhstan and the CIS.
The education sector is of strategic importance for the prosperity of any nation where high teaching standards, depth of knowledge and subjects affect the future quality of human life. This is an investment in human capital. This issue means a lot for me personally. In 2010, I graduated from Durham University in the UK , and under the Bolashak programme, initiated by Yelbasy the First President of Kazakhstan, Nursultan Nazarbayev. I graduated with a bachelor's degree in economics and today I am using my academic knowledge to manage a banking institution on a daily basis.
In addition, our structure adheres to the world's best practices of endowment funds. Currently, some of the world's leading universities, such as Harvard, Yale, Duke and others, are a part of an extended financial system of academic institutions that, through their investment arms, make up some of the most powerful institutional investors. Such organisations enable these universities to finance their activities, and invest in cutting-edge research and academic activities at the highest level.
As a result, we have adopted this practice and our mission is to invest in human capital. As mentioned earlier, modern education is the foundation of Kazakhstan's future prosperity. I am happy that Jusan Bank is a part of this development.