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Edited Transcript of HSBK.AL earnings conference call or presentation 13-Mar-20 1:00pm GMT

Q4 & FY 2019 Halyk Bank AO Earnings Call

Republic of Kazakhstan Apr 1, 2020 (Thomson StreetEvents) -- Edited Transcript of Halyk Bank AO earnings conference call or presentation Friday, March 13, 2020 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mira Kasenova

Joint Stock Company Halyk Savings Bank of Kazakhstan - Head of Financial Institutions & and International Relations

* Murat Uzakbaevich Koshenov

Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board

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Conference Call Participants

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* Andrew Keeley

Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst

* Andrey Mikhailov

Sova Capital Limited, Research Division - Research Analyst

* Babatunde Ojo

Harding Loevner LP - Portfolio Manager of Frontier Emerging Markets, Analyst of Frontier Emerging Markets & Partner

* Elena Tsareva

BCS Financial Group, Research Division - Senior Banking Analyst

* Simon Nellis

Citigroup Inc, Research Division - MD

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Presentation

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Operator [1]

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Good day, and welcome to the JSC Halyk Bank 12-month and Fourth Quarter 2019 Results Conference Call. At this time, I would like to turn the conference over to Mira Kasenova. Ma'am, please go ahead.

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Mira Kasenova, Joint Stock Company Halyk Savings Bank of Kazakhstan - Head of Financial Institutions & and International Relations [2]

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Thank you. Good evening, ladies and gentlemen. Welcome to Halyk Bank's conference call and presentation of financial results for 12 months and the fourth quarter of 2019. Participants to today's call on Halyk Bank's side are: Ms. Umut Shayakhmetova, Chief Executive Officer of Halyk Bank; Ms. Aliya Karpykova, Deputy CEO, Chief Financial Officer; Mr. Murat Koshenov, Deputy CEO of Corporate Banking; Mr. Almas Makhanov, Chief Risk Officer; Mr. Viktor Skryl, Head of Strategic Office, International Activities; and myself, Mira Kasenova, Head of Financial Institutions and International Relations.

Firstly, let me highlight key milestones of the past year, which demonstrated outstanding performance of Halyk Group.

In March 2019, Halyk Group made early partial prepayment of the bank's Eurobonds. In May, S&P Global Ratings upgraded the bank's stand-alone credit profile from BB- to BB. Moreover, in May, the Central Bank of Uzbekistan issued a license and new subsidiaries to Tenge Bank, which started to operate in July. Further in June, the bank's dividend policy was revised in terms of dividend payout ratio range.

In October, Holding Group Almex successfully completed secondary public offering, as a result of which the free float level increased from 16.2% to 26.2% and the liquidity of GDRs has been improved significantly.

In December, Fitch Ratings upgraded the rating of the bank from BB to BB+ with positive outlook. Even more, as recently announced, the bank has successfully passed the asset quality review conducted by the National Bank.

Secondly, let me present Halyk Group's consolidated financial results. Our net income increased by 31.6% to KZT 334.5 billion for 12 months 2019 compared to KZT 254.2 billion for 12 months 2018, mainly due to net interest income growth in 12 months 2019.

For 12 months 2018, the bank had higher loss from impairment of nonfinancial assets of KZT 27.3 billion compared to KZT 7.4 billion for 12 months 2019. And in Q2 2018, there was the recognition of tax loss carryforward of KZT 43.3 billion by KKB due to the merger into Halyk Bank.

As the year-end 2019, the total assets increased by 3.1% versus year-end 2018 and reached KZT 9.2 trillion. The structure was improved, thanks to the increased share of high-yielding loans to customers.

Interest income increased by 4.1% to KZT 710.3 billion for 12 months 2019 compared to KZT 682 billion for 12 months 2018. That was mainly driven by increase in average balances of interest-earning assets by 9.8%. Interest expense for 12 months 2019 decreased by 6.4% compared to 12 months 2018, mainly due to continuous repricing of retail term deposits following the decrease of deposit interest rate cap by Kazakhstan Deposit Insurance Fund. As a result of increase in net interest income and due to increase in the share of placement of interest-bearing liabilities into interest-earning assets and improved asset structure, net interest margin increased to 5.3% per annum for 12 months 2019 compared to 5.1% per annum in 12 months 2018.

The fee and commission income dynamics continued its positive trend in Q4 2019, increasing by 4.2% versus end of Q3 -- versus Q3 2019. Fee and commission income for 12 months 2019 increased by 8.8% versus 12 months 2018 as a result of growing volumes of transactional banking, mainly in payment card operations as well as letters of credit and guarantees issued. Fee and commission expense increased by 40.1% compared to 12 months 2018, mainly due to increased number of transactions of other bank's cards in the acquiring network of the bank.

Operating expenses for 12 months 2019, including loss from impairment of nonfinancial assets, increased by 3.6% per annum versus 12 months 2018, mainly due to increase in salaries and other employee benefits as a result of increasing the number of employees and indexation of salaries and other employee benefits from the 1st of March 2019. Starting from the introduction of the new loyalty program in Q4 2019, the expenses related to the bonuses payable to the customers are included in operating expenses related to the advertisement. On the back of lower operating expenses and higher operating income for the 12 months 2019 versus 12 months 2018, the bank's cost-to-income ratio decreased to 26% compared to 31.7% for 12 months 2018.

On the balance sheet compared with the year-end, loans to customers increased by 6.9% on a gross basis and 7.8% on a net basis. The increase of gross loan portfolio in 2019 was attributable to increase in corporate loans, 5.9% on a gross basis; increase in SME loans, 9.4% on a gross basis; and increase in retail loans, 7.9% on a gross basis. The Stage 1 gross loans grew by 11.8% from the beginning of the year, while the Stage 2 and Stage 3 gross loans decreased by 9.2%.

Halyk bank's 90-day NPL ratio has significantly decreased to 6.9% from 8.2% at the end of Q3 2019. The provision rate decreased to 9.8% and the 90-day NPL coverage ratio increased to 145.2%.

Cost of risk on loans to customers for 12 months 2019 was at 0.7%, more normalized level compared to 0.5% for 12 months 2018, which was mainly due to repayment of a large ticket impaired corporate loan and transfer of few problem corporate loans to subsidiary SPVs in Q4 2018.

With the infrequent successful problem loans, work-out measures taken by the bank during the past year resulted in significant degrowth of asset quality, decreasing the Stage 3 ratio to 16% from 19.6% at the end of 2018. On this slide, we are additionally showing how well the work-out of problem loans collateral was done by the bank SPVs during 12 months 2019.

On the next slide, we're showing the results of the recently completed AQR by the National Bank. As expected, the AQR results of the bank did not affect its financial condition and stability. According to the National Bank, the adjustment of the value of the bank's assets and capital as of 1st of April 2019 would be equal to KZT 18.9 billion, while this assessment does not take into account changes to the market environment and changes to the bank's portfolio that occurred since the AQR check date. Currently, a plan of corrective measurements regarding the recommendations received following the AQR is being agreed with the National Bank. The bank further does not expect any impact of the AQR results on its financial condition and stability.

Compared to the year-end 2018, the deposits of legal entities increased by 0.8% and the deposits of individuals decreased by 4.3%, mainly due to partial withdrawal of funds by the bank's customers to finance their ongoing needs and transfer of a part of FX retail deposits into USD-denominated bonds placed at Astana International Exchange.

At the end of 2019, the share of corporate KZT deposits in total corporate deposits was 49.4% compared to 49.6% at the end of Q3 2019, whereas the share of retail KZT deposits in total retail deposits was 43.7% compared to 42.2%.

Compared with the year-end 2018, total equity increased by 22.7% as a result of net profit earned by the bank during 12 months 2019. The bank continues to maintain very high capital adequacy ratios.

Based on our 2019 financial results, we have provided the forecast for financial year 2020. Net loan portfolio is expected to grow by more than 10%. Consolidated net income is to be in the area of KZT 350 billion. Cost of risk will be around 0.7%. Cost-to-income ratio is to be below 30%. Net interest margin is expected to be in the area of 5%. Return on average equity is to be more than 25%.

On Slide 18, we are highlighting the main banking regulation developments from January 2020.

The next slide is showing our developed unique customer-centric ecosystem for retail and corporate clients.

On the following slide, we are highlighting our selective strategic initiatives for 2020 in digital space, such as ecosystem, online lending, payments, internal digitalization and switch to digital. We continue to improve the functionality of online banking and enhance our digital product proposition.

This completes our presentation. Now we would like to open the floor for questions, please. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from Elena Tsareva with BCS Global partners.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [2]

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I would like to ask several questions. First question is about working results of bondholders on the proposal you did in March. So as I remember, today should be or tomorrow, even yesterday, the results should be announced. So if you could give any color on how this proposal was voted? This is my first question.

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [3]

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Elena, yes, indeed, yesterday, we made announcement that on both Eurobond issues, we have quorum and enough votes to declare that the vote was in favor of amendment.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [4]

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So my second question is mostly like your current expectations, given like all the market volatility and oil price shock. And your -- if it's really damaged now your expectations on new payouts of range of 50% to 100%, I mean dividend range -- dividend payout range for 2019. So if new inputs really affect negatively your previous expectations or understanding?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [5]

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Yes. Thank you for your question. Probably, first, I will talk about the current situation of how we assess them. Actually, this is not the first time in our -- in recent years when the constraints the bank was facing with a sharp decrease in oil prices. At least we can remind the year 2009, then we can remind 2015. So this is actually not the first time we are in more or less the same situation in terms of -- if the oil price is concerned. What we have to say that in current situation, actually, the bank is coming with much more stronger position than it was in previous years given our capitalization, given the fact that we already made a lot of cleanup in terms of our -- in terms of bad loans, which we have both on Halyk Bank itself and those which were -- came from KKB. The country itself, I think, didn't -- due to the problems which the country experienced in 2015, 2016, we [started] the relation, actually, we didn't have cases now where we can say that there are bubbles, for example. The prices on real estate are at right level, the currency has been continuously adjusted due to new policy introduced by the National Bank a few years ago. So from that perspective, I think the constraints the bank is facing in much prepared way, if you like, than it was in previous cases.

With regards to your second question, how it is -- can affect the dividend payout ratio? We suggest that to wait until we make a proper announcement because, first, we have to get Board of Directors' recommendation to the shareholders meeting and then shareholders meeting needs to make a decision. So I would recommend to wait until the bank will make necessary announcements in this regard.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [6]

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Thank you very much for detailed explanations and answers. My another question is about 3 to 4 months last year was a bit on mild side. So if you just give some color what you expect for this year on fee and commission?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [7]

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Yes, actually, the soft results on fees and commissions, which you're referring to was kind of the function of few things. One thing we have, I would say development of the card business fee. And there is a second story with regards to situation, which is caused by the fact that Halyk Bank acquired KKB. And that, to a certain extent, affected our fees because, as we mentioned few times before, the external payments of customers between Halyk and KKB became -- they became transaction within the bank. Basically, we have to set 0 fees for this kind of payments. And secondly, we had some overlap in terms of the customers. And when we have customers who were both customers of Halyk and KKB, we needed to unify fee structure. In most cases, we were taking the fees which was the lowest of 2 banks.

Now for that type of fees, actually, we reach probably -- at the basis of -- it's better to see how the 2020 would be compared to 2019, which -- as that would be considered as a base.

On the card business, yes, we -- because of situation when we were in the process of merger with KKB, we actually had, for technological reasons, freezed our IT developments on that side. And that was actually in the situation when there was a big dynamic in terms of increase of noncash payments in the country. And after we completed the merger and we unfreezed our IT development, we started quickly to catch up with our product developments. To name the few, we actually launched Apple Pay. Being the first bank -- this year, we were the first bank, which launched Samsung Pay. After that, we're using our own platform for mobile banking called "Homebank." We launched the Homebank pay -- actually opening the contactless payments by using the smartphone on the Android platform. We introduced new loyalty program in the end of last year. So we expect these initiatives and further work, which we continue to do on the product, development would eventually benefit our fees and commission business. But yes, normally, it might take few time -- some time before we start seeing, let's say, more -- better dynamic on this line.

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Elena Tsareva, BCS Financial Group, Research Division - Senior Banking Analyst [8]

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And just maybe another question, if I may. So just in the current share price like severe declines, we see some companies announced a buyback to support share price levels. And as I understand, one of the -- a part of their -- so far, their proposal to noteholders was also about conducting buybacks. So if you just can share your views -- even especially given that capital ratios are quite comfortable on Halyk? So if you could share your views on buyback to be supportive and if you may consider such initiative?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [9]

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Elena, we, at this point of time, do not have plans as the bank to make any buybacks of shares.

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Operator [10]

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(Operator Instructions) Our next question comes from Andrey Mikhailov with Sova Capital.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [11]

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I have a wide range of questions. I'll start -- I'll be asking them one by one. I'll start with the one on the local bondholder meeting which you disclosed in the very last paragraph of your FY '19 IFRS report. It's scheduled for March 18, as I understand, and my question is, do you need the consent of the tenge bondholders to finally approve the changes, the recent changes in your dividend policy?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [12]

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Yes, we have local bonds, in which there is a similar covenant introduced. And we -- yes, there is a separate process for that. And yes, basically, the -- let's say, procedure is more or less the same as we went through with dollar Eurobonds. And we'll make announcements on the results once we have them.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [13]

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Thank you very much. That's clear. My second question is on the current market and oil shocks. Basically, I think there are twice -- 2 trends that has got impacted. First of all, your loan book may become riskier and you may have to charge more in provisions. But at the same time, as the economy slows down, maybe your plans for loan growth will also moderate. So what do you think will be the total impact on your capital? Will you need more or less capital because of the current event?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [14]

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Yes. Andrey, thank you for the question. Yes, we actually have different stress test, which we, on a regular basis, run as the bank. Yes, under the stress scenario, we think that cost of risk should definitely increase. We might expect that the growth of our credit portfolio might also slow down, which might affect the profitability, which we would expect in the, let's say, base case scenario, but we do not expect that it will affect the capitalization ratios because under even stress scenario, we expect the positive results for the bank.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [15]

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And on sensitivity, you also disclosed a lot in your report, the sensitivity to the changes in exchange rates and the sensitivity to changes in interest rates. But what I would like to ask you is, in what you disclosed, there is a sensitivity to exercise where interest rates on both tenge and, say, dollars go up and/or simultaneously go down. But what is the bank's sensitivity to the current scenario where the tenge rates have gone up by 3 percentage points, as I understand, and the dollar rates have fallen and may keep falling. So what would be the impact on your capital in the current scenario for the tenge rates, but if the dollar rate falls further, say, by 25 or 50 basis points from the current level?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [16]

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Yes. Thank you, Andrey, for this question. Yes, we are not disclosing other sensitivity except the one which we showed in our report. But probably to give you some -- probably as the guidance, you might see the situation during 2015 and '16 when there was a real shock in terms of the increase in the rates because when National Bank made tenge free float, the rates on the money market in Kazakhstan increased from a level of 6%, 7%, up to above 20%, and that was for the period of 2 to 3 months until the National Bank introduced the base rate, which was initial set at 17%, and then slightly going down within the year to the level of 13%, 14%. So we, at this point of time, while we see this -- while we can see that this increase as a shock, it's not as shock as we had -- as the banking sector experienced a few years ago. And even in that shock scenario, which I'm referring to, the impact on NIM was between 50 to 100 basis points for a couple of quarters and then starts to normalize to the level which we are seeing in more recent period of time.

So to summarize, we might expect some impact on NIM, but we do not consider as, I would say, shock effect on NIM. So probably, we are talking about 0.2, 0.3 percentage points, but not at higher scale.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [17]

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Thank you very much for this analogy. May I just follow-up on this. And there is also an effect on your bond portfolio. We have both tenge bonds in your book and dollar bonds in your book. What do you think the effect on the loan -- sorry, on the bond portfolio revaluation could be?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [18]

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Yes. The -- because on tenge bonds, it will be, I would say, has a negative impact. On dollar, it will be the positive impact. On that basis, it will be slightly more than KZT 10 billion, the negative...

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [19]

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KZT 10 billion negative, yes, as far as I understand. That would be -- thank you very much. That's very detailed and a very good analogy. And actually, my final question is a bit technical. This other noninterest income line increased again in Q4 2019. Could you please explain what drove it, maybe just go through the constituents of this line?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [20]

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Just a moment, please. Your question is about the other income line?

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [21]

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Yes, exactly.

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [22]

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Actually, the main impact was the profits from assets which were sold by our SPVs which, actually, to remind, they are holding the problem assets, which were closed by the banks, and they were keeping at the balance sheet of these SPVs. And the main task of them is to work out these assets. So a few assets have been -- successfully been worked out and the sales to external parties have been completed with profit to the bank.

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Operator [23]

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Our next question will come from Andrew Keeley with Sberbank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [24]

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I have a few questions. Some have been answered, but some follow-ups. In terms of your expectations of the impact of the asset quality review, you mentioned in your presentation that the roughly 40 basis points impact doesn't take into account any changes in the kind of affected portfolio since April 2019. Given that we're nearly a year down the road from there, can you make any additional comments as to whether you expect that this impact will be around this 40 basis points? Or do you think given the changes made in (inaudible), it would be lower? And I'll ask another question afterwards. Thank you.

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [25]

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Yes. Actually, the result of AQR, which was published by the National Bank, February this year, is actually a reflection of the bank's portfolio as of April last year. Actually, since then -- actually, the bank will continue on to work with its problem in payment assets, and AQR results are not taken into account this fact. And secondly, the bank was -- on a regular basis was assessing the right level of provisions against these assets. Actually, if you take into account the fact that bank was working only repayments, the bank made some adjustment to the provisions. So all these measures have been taken by the bank during the year of 2019. So the results which we are publishing for the full year 2019 already taken into account all these actions. So that's why we are saying that we do not expect that -- we do not believe that the AQR results would have a further effect on the financial results of the bank.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [26]

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Okay. All right. Okay. That's very helpful. The second question is just generally on the operating environment within this kind of current oil price level. I mean in the past when CapEx done, there's been problems when you've had sharp plunges in the oil price and the currency has moved in terms of unhedged kind of FX-lending exposure. And I'm just wondering whether you can just give any comments now as to whether you see that as a risk anymore? You have 30% of your loan book or so in FX. Or that really isn't something we should consider a risk in this environment?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [27]

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The level of dollar portfolio in Kazakhstan in our book is probably the lowest, which we had in history, because you can recall to the dollarization of our portfolio in previous periods. It was, like, for example, before 2015, oil price decreased. It was at the level of roughly 35%. And actually, now it's at the level of 28% despite the fact that tenge actually developed twice since that time. So actually, if you would be taking cost and FX rates, the portion would be even lower. That's why I was saying that from a loan portfolio, while we reasonably should expect deterioration of the asset quality, our portfolio is much more robust than we had in, let's say, previous similar situations when the oil price had experienced such a sharp reduction.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [28]

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Okay. And just you mentioned on the kind of bond -- impact of the rate changes on the kind of bone portfolio. And you mentioned, I think, a kind of negative KZT 10 billion or so revaluation impact. I mean is that number kind of included in your KZT 350 billion earnings forecast?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [29]

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Yes, there are, I would say, 2 things here, Andrew. Thing number one, this impact on the bond portfolio is not going through P&L. It's actually the comprehensive income it should be affecting the capital directly. Number two, the guidance, which are showing to you today, is actually based now primarily on our budgeted results. It is -- it's not, let's say, a reflection of the current situation. We are actually evaluating and following the developments. And at this point of time, it's a bit difficult to assess whether the current shock scenario would have a very, I would say, relatively short-term impact or it will be more kind of a longer term situation and longer term environment.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [30]

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Okay. Yes, sorry. That's -- of course, that makes sense on the bond revaluation. Apologies for that. And I guess the final question is just clarifying the kind of margin impact of the NBK's rate hike. So am I right in thinking you're saying that it basically has a kind of -- kind of over the maybe near term next quarter or 2, you would say, has a kind of 20 to 30 basis points negative impact on your margins, is that right?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [31]

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Yes, it's kind of not the hard assessment. It's kind of the -- if we're judging from the previous experiences when we had to a larger scale. So I think it's not as, let's say, the hard guidance, but the more kind of the directional or the scale type of assessment. Because as we previously mentioned that typically our balance sheet is -- tends to adapt to any changes upward or downward in the interest rates. Like, in current environment, we see the increased rates actually might impact the short-term corporate deposits when the customers would be asking for higher rates on deposits. At the same time, we have a substantial part of our portfolio on committed working capital facilities where we already also setting rates higher. So there might be some timing difference, which might reflect in some fluctuation of NIM in the progress scale, which I mentioned. But we -- but our NIM tends to normalize once both sides of balance sheet is adapting to new interest rate environment.

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Andrew Keeley, Sberbank CIB Investment Research - Head of Financial Institutions Research & Senior Analyst [32]

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Okay. And have you made any changes to your retail deposit rates?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [33]

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Very marginal.

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Operator [34]

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(Operator Instructions) We have a final question from Tunde Ojo with Harding.

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Babatunde Ojo, Harding Loevner LP - Portfolio Manager of Frontier Emerging Markets, Analyst of Frontier Emerging Markets & Partner [35]

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Just a follow-up on the bond proposal amendment. I just want to get clarity on that because I was of the view before that it was just a Eurobond approval that we need, but it sounds from your answer to previous caller's question that there's also a local bond they need to get approval for. Just if you don't mind walking me through when you think that process is going to end? And if you have any other bond at all, that you also still need to get approval for before you can actually pay above 50% dividend payout?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [36]

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Yes, Tunde Ojo. Thank you for your question. Actually, the results will be available on March 18, and this is the only decision which we are waiting for. So it's -- I mean in terms of the -- there is no more instruments on which there are similar kind of covenants.

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Babatunde Ojo, Harding Loevner LP - Portfolio Manager of Frontier Emerging Markets, Analyst of Frontier Emerging Markets & Partner [37]

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Got it. And then a follow-up for me is on the banking regulation regarding unsecured consumer loan where there's a restriction on that. I know you've talked in the past that you don't think it's going to be a big issue for you. Is that still the case? And if so, just looking at your guidance where you've given over 10% loan growth, are you looking at more corporate or retailer SMEs to drive that growth? If you can please just maybe talk a little bit about the segments you're thinking about driving that growth? I know you said the guidance was before this whole macro disturbances, but just what's -- how you're thinking about that even before any sort of macro imbalance? It would be helpful.

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [38]

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Yes, we still -- according to our assessment, we still believe that the impact on us would be more neutral in terms of the new regulation on the retail loans. With regards to different segments where we are seeing the growth, we expect -- we budgeted the growth in all segments, in large corporate SMEs and retail. The larger growth was set in SME business, followed by retail and the lowest level of growth we expect in large corporate segment.

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Babatunde Ojo, Harding Loevner LP - Portfolio Manager of Frontier Emerging Markets, Analyst of Frontier Emerging Markets & Partner [39]

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Okay. Great. And then just finally some news on your cost of risk guidance which is at about 70 basis points, which is sort of the same as last year. I mean given past episodes of the crises, would you now expect that to be much higher than that, say, towards the 1% range? Or would you still be confident given the quality of your portfolio today that you could achieve that even in this oil price scenario? Just trying to get your thoughts on that.

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [40]

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Yes, the figure which we are showing today is based on the budget which was drafted in the end of the year -- end of the last year. With regards to whether that guidance would need further corrections or not, in our opinion, it's pretty much depends on how long and how deep the current focus scenario would remain. If we would be in a situation that the oil price would quickly reverse back, then potentially, there will be no need for revision. But if we stay in a longer stress scenario and in a scenario when the oil prices will stay at current level for longer -- for few months, the tenge and Russian ruble would need to further devalue, if you then adhere the current coronavirus situation which might potentially impact certain industries, impact travel and the delivery of goods, then obviously, we would need to sit down and see how it might impact the credit portfolio. But probably it's a bit premature to say what our further guidance would be. So we need to have more assessment of current situation.

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Operator [41]

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We have a next question from Simon Nellis with Citibank.

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Simon Nellis, Citigroup Inc, Research Division - MD [42]

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Actually, most of my questions have been answered. But just on the macro prudential regulation for consumer loans. And you said it's neutral, I guess that's neutral to earnings. But how much of your portfolio if the rules applied to it today would have a risk weight above 150%? And what would be the rough impact on the capital ratio? That will be my first question. And then just maybe a follow-up question on asset quality. I'm actually looking at Page 59 of your financials and you have a breakdown of the portfolio. I guess, which sectors do you think are most at risk from both the oil price reduction and the general coronavirus slowdown issues? That would be helpful. I realize it's early days, but if you can elaborate, that would be useful.

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [43]

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Yes, probably, I'll start from your second question. When -- if we talk about the purely impact of lower oil prices, then obviously, you would look at the oil and gas segments. There are certain services sectors which are servicing, in particular oil and gas segment. It's not all under services, but some fraction of that. If you talk about the, let's say, situation when the coronavirus pandemic might further restrict transportation and move of people, then probably you have to look at the hotel industry, the transportation segments. But I think this is -- would be all the same for other countries in the similar size, not -- let's say, which would -- having the similar type of situations.

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Simon Nellis, Citigroup Inc, Research Division - MD [44]

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And just on the services sector, because it's 14% of your portfolio, I mean what -- roughly what fraction is serving the oil and gas sector, would you say roughly?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [45]

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I cannot tell you by heart, but this is something one sees probably at all -- potential one, one quarter. As on your -- could you please repeat your question on the prudential regulation?

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Simon Nellis, Citigroup Inc, Research Division - MD [46]

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Yes. If the macro prudential regulation would apply to existing consumer loans, what would be impact of them on your capital ratio? I mean how much of your existing consumer loans would have a risk weight well above or above 150% now if it applied retrospectively?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [47]

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I cannot probably give you the exact figures on risk-weighted assets. But as for our risk management team was calculating, we didn't see any material change to the risk weighting of our consumer portfolio.

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Simon Nellis, Citigroup Inc, Research Division - MD [48]

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So basically, you won't have to change much your underwriting approach?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [49]

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Yes, yes. Yes, we haven't seen that change as having material impact on our risk-weighted assets and capitalization ratios as a result.

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Simon Nellis, Citigroup Inc, Research Division - MD [50]

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And just last, maybe you can just briefly comment on how business is going right today? I mean have you seen any initial impacts from the global events or the business kind of carrying on as usual?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [51]

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What we have seen, probably -- we started seeing some impact on coronavirus, not too much on the, let's say, oil price decrease or on tenge correction because I think it's just a situation of recent days or weeks. But with regards to coronavirus, we see some, let's say, at this point of time, sporadic impact when there were some SMEs customers back in February saying that they were facing with delay of equipment, which we were purchasing from China. Most recently, we saw that transportation has been restricted, airline transportation has been restricted. We saw that certain restriction was imposed on people gathering, like, for example, cinemas, and yes, we keep looking at the situations. At this point of time, we do not see as, let's say, systemic thing or having, let's say, a material impact, but we have some individual cases of the customers which are asking the bank at this point of time to, let's say, change the schedule of payments, I would say, for 1 month because of current situation.

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Operator [52]

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Our next question comes from Andrey Mikhailov with Sova Capital.

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Andrey Mikhailov, Sova Capital Limited, Research Division - Research Analyst [53]

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I have a follow-up question on the meeting of the local -- of the tenge bondholders. Is there any consent fee offered to the tenge bondholders?

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Murat Uzakbaevich Koshenov, Joint Stock Company Halyk Savings Bank of Kazakhstan - Deputy Chairman of the Management Board [54]

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We are not disclosing that to -- outside the, let's say, bondholders which are concerned.

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Operator [55]

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At this time, I am showing no further questions in the queue. I will now turn it back over to management for closing remarks.

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Mira Kasenova, Joint Stock Company Halyk Savings Bank of Kazakhstan - Head of Financial Institutions & and International Relations [56]

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Ladies and gentlemen, thank you very much for participating in our call today. As usual, our IR team is open for any further questions. Thank you very much. Bye.

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Operator [57]

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Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.