Interview with Managing director – the member of Menagement board of DBK A. Kasenov for LS-Lichniy schet magazine

After commercial banks of the Republic have been faced with difficulties of external funding, State Development Bank of Kazakhstan (DBK) became one of few liquidity “suppliers” in Kazakhstan economy. Managing director – the member of DBK’s Menagement board Arman Kasenov is going to tell about present situation in the market and where the Bank is going to invest funds.

- Arman Bakitzhanovich, recently it was announced that DBK purchases the bonds of “KazMunayGas” to the amount of 120 billion tenge from the first tranche’s $1,5 billion of the credit of Eximbank of China. Will chinese monetary funds be used for the financing of projects in Kazakhstan, or nevertheless they will be used to help budget national companies?

- The purposive appointment of funds, which are gotten from Eximbank of China in the terms of the first tranche, – the substitution of funding for formerly granted by Development Bank loans. The Bank will direct released liquidity for financing, which is the main aim of the Bank. However, taking into account expected release of great amounts of money, DBK will temporarily substitute the funds in different financial assets, which have acceptable credit quality and liquidity.
For the purpose of liquidity management DBK considers different variants of substitution of released funds, including investment to red papers of Kazakhstan emitters, which have corresponding credit rating and listing in Kazakhstan stock exchange. According to the approvement of investment projects DBK will sell papers and channel the funds to the financing of projects in the real sector of economy.

- Is there any list of high priority branches or the criteria of company’s size, which DBK supposes to grant credits?

- DBK continues to invest power engineering, transport, communication infrastructure, as well as projects in metallurgy, chemical and oil refining industry. We are going to concentrate resources for the realization of major, strategic projects, which enable to reduce the dependence of the country from raw materials’ export and provide getting of new technologies.
Minimal amount of credit of DBK for investment project is equal to $5 mln, for export operation - $1 mln. DBK doesn’t consider the projects of AIC, the amount of which is less than $20 mln to eliminate the possibility double of “Kazagro’s” functions.
Concerning companies and practicability fo projects’ financing, DBK emphasizes the presense of own participation in the investment of project (not less than 20%), security (pledges, guarantees), efficiency and pay back, possibility of sales, sufficiency of raw materials, technological and technical foundation of projects, ecology discipline and so on.

- What are the results of floatation of bonded loan of DBK, and does it plans new bonds issues in internal and foreign markets?

- In the present year DBK doesn’t need borrowing. However, without ambisious aims for the increase of loan portfolio in the next year we consider different variants of public investment.
Of course, it also depends on market condition. Today it is sufficiently improved. In west markets there is advance, which favourably affects of investors’ intentions for emitters from developing countries, primarily quasi-sovereign, such as our Bank.
If DBK issues five-year Eurobonds today, according to our estimation, borrowing cost would reach approximately 7,5% yearly. Undoubtedly, it would be good possibility for the Bank, however, today we don’t need additional borrowing.
Floating of bonds in domestic market will be more expensive for DBK. Internal institutional investors in the name of pension funds require more profitability (not less tha 10%). If regulator permits funds to estimate bank bonds, calculating the sufficiency of funds’ capital on a par with state bonds, it would reduce required profitability.

- When, in your opinion, external capital markets will be opened for Kazakhstan commercial banks?

- In the nearest future (before 2011) it is difficult to expect the return of that level of net borrowing to the amount of $10-15 billion USD yearly, as it was before crisis. Besides, problem isn’t only in liquidity. Crisis showed that Kazakhstan business hasn’t developed so that it can accept $10-15 billion USD, creating projects, which have good proportion of risks and income.
The stress-test of liquidity showed that many pre-crisis projects and business-groups were faced with serious difficulties. As you know, in world practice many development banks were created in crisis periods for economic redevelopment and overcoming of financial and economical difficulties.
Also we have investments to strategic projects, the support of not primary branches is realized by state institutes and national companies. We can certainly say that DBK executes especial role today, assisting infrastructure development and processing industry of the country.

- Five major banks concerning financing volume of economy as of 1 September, had the level of overdue credits more than 10% of loan portfolio. How the condition of bank assets can be worsened in the nearest year and which preventive measures can be used by banks? Is the restructuring of real estate loans possibie?

- We have special regulating authorities, which estimate the quality of portfolios. Of course, we want to believe that situation with overdue credits have been stabilized, and from 2010 we will see improvement.
There is no free restructurization. Shareholders and bank creditors, who lost sufficient monetary funds, paid for the restructurization of foreign loans. Who will pay for the improvement of conditions for real estate loans? If the improvement of conditions is selective, it isn’t completely honest for loan debtors, who continue to pay, but if the conditions are improved for all loan debtors, it wouldn’t not affect on the creditors and investors of STB. Their further negative profits won’t enable to recover economy financing according to necessary volume in the nearest future.
It is important to understand that properly operating bank system is longterm benefit for invetors, creditors and loan debtors, and it is necessary to save balance of interests.

- How do you estimate the efficiency of projects, which are financed by DBK. Mass media often blame bank that it grants credits without proper control for proper use of money?

- If we say about the efficiency of realized projects, Development Bank of Kazakhstan is the only development institute, which finances the most major longterm investment projects of strategic importance. According to the statistics of National Bank of RK, DBK investments to not primary sector reach up to 60% of all bank investments.
It is necessary to say that realized by DBK projects contribute to the increase of overall production, export of not primary products, development of related sectors of industry, creation of many work places. In the terms of financial support of DBK in different regions of the country new and modernized production with total cost to the amount of $1,8 billion USD and DBK’s participation to the amount of $813 USD. As of today 49 projects are put into operation.
DBK’s access to longterm external borrowings, wide range of instruments, competitive rates of financing enable to realize major investment projects. These are projects, such as, the expansion and upgrading of Aktau sea port, complex development of health resort “Shymbulak”, electrci power stations construction projects, fiber-optic link Almaty-Astana construction, North-South power line building, the creation of logistical centers and so on.
It is important to note that many bank projects are realized in Kazakhstan for the first time. From 49 projects 31 are new and 18 are upgraded. Of course, there are difficulities in the realization of the projects, such as low profitability, longterm pay back and so on. Inspite of that, DBK works for the development of strategic branches of economy.
To prevent no-purpose usage of money, we realize monitoring of loan funds, including visiting the place of projects’ realization. Loan debtor present financial report each quarter, reports about the project realization.
As to critic, it is certainly useful, if it is constructive and objective. It is important not to abuse by social attention and confidence. As I have said before, the role of DBK in the development of the country’s economy is very sufficient. Figures and our projects demonstrate these.
Fact is that Bank’s acitivity contributed to the increase of longterm investment credits. In this segment Bank has significant part among all banks of the country. The result of financing are the creation and upgrading of productions, creation of work places, increase of internal production.

LS inquiry:

DBK was created in 2001 as investment state bank for diversification of Kazakhstan economy. It is the part of state holding “Samruk-Kazyna” structure. According to the data of KASE, bank assets as of 1 July of current year reached 497,8 billion tenge, own capital - 97,2 billion tenge, net profit– 875,2 billion tenge. In the end of September, DBK declared about capitalization increase at the expense of state funds to the amount of 167,7 billion tenge, or according to the current rate $1,1 billion.