Central bank governor of the year 2003: Kazakhstan sets CIS banking standard

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By:
Guy Norton
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National Bank of Kazakhstan's governor, Grigori Marchenko, won't say it, but he has been the main influence behind his country's widely acclaimed economic success story.

SUMMER IN ALMATY can be soporific. Power-napping on a bench, enjoying the shade of the silver birches and the warblings of the mynah birds on the quiet street that is home to the National Bank of Kazakhstan, you could be forgiven for thinking you are about to enter a sleepy organization.

You would be completely wrong. The hushed corridors of the NBK might exude an atmosphere of studious calm, but there's also a sense of the dynamism that has driven a financial services sector that is universally regarded as the best in the Commonwealth of Independent States.

Much of the credit goes to Grigori Marchenko, who has won Euromoney's 2003 central bank governor of the year award. As captain of the NBK ship since 1999 he has received widespread recognition for steering Kazakhstan and its banks clear of the dangers that have wrecked the economies and financial systems of many of the central Asian state's near neighbours.

He is keen to see the award bring wider recognition for the economic successes of Kazakhstan, which he hopes will encourage further investment. "While there is regional recognition of Kazakhstan's economic achievements, the country is still terra incognito for many," he says. What he doesn't mention is his role as NBK governor in helping to shape the Kazakh economic success story, both as overseer of a stable, fast-growing, highly competitive banking sector and as special economic adviser to president Nursultan Nazarbayev, a position that has given him a unique influence on his country's development.

Typical of the man is his claim that it is the NBK as an institution that deserves the recognition and not him personally. "For an emerging-market country like ours that has been switching from one economic system to another, having a strong institution like the National Bank of Kazakhstan is very important," he says. "Pre-independence in 1991 there was no tradition of there being a financial sector in Kazakhstan, with all the major financial institutions and the associated personnel based in Moscow. Twelve years later and we have overtaken our neighbours, including Russia, in terms of financial sector development and that is the major achievement of the National Bank of Kazakhstan."

Certainly recent economic data for Kazakhstan makes for impressive reading - GDP has risen by over 10% a year since 1999, with real incomes increasing at the same level. Inflation has been trimmed, as has the government's budget deficit, while the Kazakh tenge has been one of the most stable currencies in the region.

The formula for success has been relatively simple, says Marchenko. "Hard work, honesty and no corruption - you can only influence by your own example." On policy the formula has been equally simple, involving "the relentless implementation of best international practice, which is the product in many cases of more than 30 or 40 years of collective experience on a global basis that we couldn't possibly hope to improve on".

Marchenko eschews intellectual musings in favour of focusing on the practical day-to-day challenges of the dynamic - for which read volatile - economic environment in Kazakhstan. "In the rest of the CIS there are brighter, better economists and bankers than me," he says, "but what counts in central banking is the institution and its ability to implement and influence change. The important thing is to implement plans quickly and to stick to them."

At the heart of his vision of the role of a central bank is that it should relentlessly promote new developments in the financial sector. "We pushed hard for the introduction of payment cards and mortgage lending," he says. As a result there are now more than 1.75 million payment cards in circulation - covering more than 12% of the population. Meanwhile the fast-developing mortgage market is making homeownership a reality for a growing number of Kazakhstan's citizens. "Three years ago you could only get a five-year mortgage at 25%, now you can get a 15-year loan at 14%," says Marchenko.

He has never shied away from urging the country's commercial banks onwards. He is keen to see the banks export their expertise. In October last year he urged them to use their excess liquidity to establish operations in neighbouring states. Kazkommertsbank and Temirbank are now leading players in neighbouring Kyrgyzstan.

Marchenko also believes that Kazakh banks can help develop the vast economic potential of the natural resource-rich Russian far east. He is also keen to see Almaty develop into a financial services hub for central Asia and eastern Russia. "You've always had regional hubs around the world and we have a programme for developing Almaty as a financial services centre," he says. He maintains that the transfer of the capital from Almaty to Astana in December 1997 is no impediment to those ambitions: "There's less government influence now. Many of the world's leading financial centres are not based in capital cities - New York and Frankfurt for example - and so Almaty fits that pattern."

Marchenko acknowledges that relations between the central bank and the government and parliament have not always been as good as they could be, but "whenever we've had arguments with the government or parliament we've always had the support of the president".

He adds: "Having shown that we've done a good job on the banking sector reform front we've been given progressively wider responsibilities."

While most central banks' roles are confined to exchange rate and monetary policy matters, the NBK has also been responsible for the design and introduction of a real-time payments system - widely regarded as the best in the region - and financial sector supervision.

Over the past decade while the NBK's responsibilities have expanded, its staff has been trimmed from over 14,000 to fewer than 3,000. Marchenko is also keen to make further improvements at the NBK. "We need to improve the quality of research and supervisory staff," he says.

Both inside and outside Kazakhstan the common view is that Marchenko has been an excellent economic ambassador, a selfless public servant and a brilliant administrator and manager.

A national champion

In Kazakhstan itself there's a sense of pride that the country has produced such a figure. "His minds works very quickly to bring good things to this country," says Askar Yelemessov, head of Deutsche Bank's operations in Kazakhstan, which Marchenko helped to establish in 1999 during a short break from public service. "He's an extraordinary guy who has been a driving force behind all the institutions he's ever worked at," says Janat Akhmetova, director of Astana Finance, one of the many financial firms that have prospered under Marchenko's rule.

Although Marchenko's insistence on the highest international standards for the Kazazkh banking sector has not always proved popular, those banks that have prospered are quick to recognize his positive influence and that of the NBK. "Marchenko has made a very significant contribution to the financial system success of Kazakhstan," says Yerzhan Tatishev, chairman of Bank TuranAlem. "Achieving the stringent standards set by the NBK has helped us to become a successful, competitive bank."

Reza Ghaffari, the veteran head of Citibank Kazakhstan, one of several foreign banks to have set up in the country as a result of the strong financial sector infrastructure, says: "Marchenko's a walking encyclopaedia who's highly respected for what he knows, his honesty, his integrity and willingness to stand up for what he believes."

Indeed, though he may often display affable bonhomie, he does not suffer fools gladly. "He can be equally rude to a prince as a pauper if he thinks they're talking rubbish," says one banker.

In his role as Kazakhstan's de facto economic ambassador, Marchenko has also contributed to the country's success in the international bond markets, which the government first tapped in 1996. "He remains a tremendous asset for the country when he meets investors, and deserves his title of the 'Alan Greenspan of the CIS'," says Richard Luddington, managing director, debt origination at UBS who has worked on many of the country's Eurobond issues. He says the ability of Kazakh banks Kazkommertsbank and Bank TuranAlem to issue $500 million and $225 million bonds internationally this year "is a testimony to investors' perception of a well-regulated banking system under his stewardship".

Arguably the biggest compliment, however, comes from Raymond Webber, head of HSBC Kazakhstan, who says: "From my point of view I can carry out banking here just as I would anywhere else in the world where there's a very stable, highly competitive banking sector."

So banking in Almaty is as safe and predictable as in Zurich? Now that really is high praise indeed.

Career highlights

1979-84: studied at Moscow State University of International Relations

1984: engineer-designer and acting deputy head, department of top managers, ministry of non-ferrous metals, Kazakh Soviet Socialist Republic

1986-88: translator, editor, editor-in-chief and leader, marketing information group, Kazakh Scientific Research Institute of Scientific-Economic and Technical Economic Studies

1991-91: trained in Germany at international training and development company Carl Duisberg

1992: assistant to the vice-president, Republic of Kazakhstan

1994: deputy governor, National Bank of Kazakhstan

1996: chairman, National Securities Commission of Kazakhstan

1998: president, DB Securities Kazakhstan

1999 to date: governor, National Bank of Kazakhstan