The process of considering applications at DBK can now be called gratuitous consulting assistance to entrepreneurs, which makes it possible to identify all the “bottlenecks” in their plans, to improve projects before they are launched and, as a result, to avoid financial losses. Anna Yaroshenko, Senior Banker of Customer Service Department of Development Bank of Kazakhstan JSC in an interview for "Kursiv" told about how the work on considering applications have been improved and what are the advantages of the new examination system for business.
–In previous years DBK has repeatedly been criticized for the procedures when considering projects. Has the situation changed and how long is the Bank considering loan applications now?
– First of all, it should be noted that there have been significant changes in the DBK in terms of optimizing the application procedure. Terms of consideration of projects are directly related to their specifics. Given the special mandate of the Bank and the complexity of the projects we are considering, not only in terms of their capital intensity but also in terms of the technical component, which, accordingly, requires a lot of work, we should not expect very short terms of consideration a priori. To date, the processing time of applications has been reduced from 130 to 75 working days. We are transforming our business process with consideration of suggestions and comments from borrowers, set up communications, and based on the dialogue work on problem areas. That's exactly what we're working on: we try to be a Bank with a minimum level of risk and the most efficient use of resources.
Anna Yaroshenko, Senior Banker of Customer Service Department of Development Bank of Kazakhstan JSC - Due to what it has been achieved?
- Before the potential borrower initially had to prepare a significant number of documents and wait for the answer whether his application will be considered within a month and longer; now we have divided consideration of applications into three stages. Now at the initial stage, which takes an average of 7-10 working days, we can tell the entrepreneur whether his project complies with the mandate of the Bank. It is not a secret that the DBK has a special mission to finance large-scale projects aimed at diversifying the country's economy and increasing its efficiency. In this regard, the DBK has a number of restrictions on the financing of some industries, and now, thanks to the optimization, at the initial stage, we can inform the entrepreneurs who submitted the application on this circumstance. Second, we have allocated a front office that works directly with the borrower and coordinates and centralizes the whole work on the project. In other words, now the borrower does not need to work out his project separately with lawyers, technical service and other structural units of the Bank.
- You have mentioned several stages of application consideration. Tell us about their essence...
- The first stage is the initial selection or business proposal. At this stage, the client is required to provide a questionnaire with consolidated information on the project: the history of the company, its participants, assets backing, aggregated project indicators, etc. In addition to the questionnaire, a certificate from the tax authority on the absence of debt, certificates from servicing banks and the client's consent to the access to credit history should be provided. That is, at the first stage, the package of documents is minimal, it does not require material investments from the borrower and it is easy to pass, it takes an average of 7-10 working days. At the end of the first stage, we inform the client about the result of the considered application by an official letter.
The second stage is indicative analysis. The indicative is more complex and takes 30 to 35 working days. More detailed information is required at this stage. In particular, the package of necessary documents consists of the 21 sections, including information about the client, financial statements, business plan of the project, information about contractors. Most of these documents are already available at the client, he just needs to form them, consolidate and provide the Bank. We can say that at this stage the intention of the Bank to participate in the financing of the project is considered and preliminary conditions are negotiated. The indicative analysis allows the borrower to understand whether it is necessary to attract additional lenders and investors.
The third stage is the final one. It involves external experts who confirm the elaboration of the project in terms of marketing and technical parts, and, if necessary, give a legal assessment. Experts confirm, in particular, the volume of the market. After all, it is not enough to build a plant, it is necessary that its products be in demand as well. And this third independent party gives us an assessment of whether there will be demand for the project's products, confirms the availability of raw materials, infrastructure, and energy resources. The third stage takes up to 37 days. At this stage, the client bears certain financial costs associated with the order of external assessments but they allow to conduct a multilateral assessment of the project feasibility. The Bank finances complex projects and scrupulousness when considering them is only for the benefit of the project.
I want to draw special attention to the fact that all the deadlines indicated for three stages of the examination are subject to the timely provision of full packages of documents by clients.
- What are the most common difficulties at the last two stages of applications consideration?
- As a rule, questions arise regarding collateral. For example, when the borrower starts the project without collateral or with lack of it, we ask to strengthen this part, to work on additional types of collateral and guarantees.
Quite often it is necessary to attract experts who will help the client to decide on the marketing component – whether there are sales for the intended product. That is, often the project is finalized with the help of DBK. This is a kind of "win-win situation", where all parties win without exception. The entrepreneur gets a really well thought-out structured project by the final stage, because at each stage there is an upgrade, and the Bank closes the project risks for itself and for the client as much as possible. It also happens that in the process the initiators of the project often receive certain insights and with the help of the Bank discover certain nuances of the market. For example, many customers are sure that their products will be in demand, they have hopes for this at the first and second stage, and then it turns out that a similar plant has already been built on the territory of the neighboring state. As a result, half of the market is lost. It is not only about the scrupulousness of the DBK, the speed of applications consideration also depends on the prompt provision of detailed documents by the client. If this does not happen, the Bank is forced to return the application for revision.
- What are the other reasons for the refusal to finance the project?
- The reasons are different, there are refusals due to non-compliance with the requirements, as well as cases when the client withdraws the application by himself. We also regard such cases as refusals, because in the process of analyzing by the Bank, the borrower carefully considers his financial model and concludes that it would be more reasonable to finalize the project.
After a certain period of time, the same borrower can apply with a new package of documentation. The incompleteness of the project by client is the most common cause of refusal. Availability of raw materials, infrastructure, energy resources, sales market – all this should be figured out in advance before the application is submitted to the Bank. Unfortunately, it often happens that the borrower comes only with an idea. In this case, we ask to work out the project in detail, there should be no gaps in the project. The interest of borrowers in the rapid consideration of projects is very important, because all standard forms of contracts, a list of required documents for each stage of consideration are available on the website of the Bank kdb.kz. In this respect, we aimed at increasing transparency and informational value. With 18 years of experience and a broad base of projects, our employees already know what to pay special attention to in order to prevent problems on the project. The main reason for the refusal is the failure to provide the required documents.
- What increases the chances of a potential borrower to get a loan?
High-quality elaboration of the project by the client significantly increases the chances of getting a loan. That is, when the client is ready to answer any question of the Bank regarding the project, it radically changes the matter. We receive a large number of applications for consideration, but the finalized well-thought-out projects are few. An important factor is the presence of a strategic partner with experience in the implementation of similar projects. A strategic partner is a guarantee of launching the project and the sales market, being an export component, which is a huge advantage for the project.
- DBK is interesting for business because you have a better rate?
- Not only the rate, we have more favorable financing conditions for large businesses. This is a relatively low interest rate, and long credit terms. DBK is also more flexible about collateral. Given the fact that DBK often finances projects from scratch, we understand that it is quite difficult to collect the necessary amount of solid collateral, movable and fixed property for a large project. We are ready to consider the pledge of assets and funds coming in the future. That is, the client provides us with an EPC contract, which provides for the turnkey construction of a plant, we evaluate the elaboration of risks, and then take it as a pledge along with other types of collateral. The same is with long term income. If the client has a guaranteed sale of their products, then we can accept future incomes as collateral. DBK does not strive to compete with commercial banks, but lending conditions for large businesses are very attractive both in terms of lending terms and rates. The interest rate in DBK, as well as in other banks, is formed from the cost of funding attracted by the Bank and from the margin depending on the client's risk profile. Credit ratings of DBK allow attracting cheaper money in domestic and foreign markets. Moreover, the Development Bank of Kazakhstan is the operator of state development programs; budget funds significantly reduce the cost and make conditions for end customers very attractive.
- What additional tools does DBK have in order to ensure that the project that lacks solid collateral be involved in financing?
- More recently, the Bank introduced new tools that can help with the lack of collateral: bonded loan, project financing, and shared financing through a subsidiary of the Bank - DBK Private Equity Fund., established in conjunction with our fellow subsidiary Kazyna Capital Management JSC.
The bond loan assumes that the DBK buys bonds of the client company. Funds received from the placement of bonds should be used to finance the project. The target audience of the bond issue is companies rated by international agencies with the need for funding. They issue bonds, DBK buys these bonds, provides financing, after a specified time they buy these bonds, paying for the loan, but this is for large companies. A bond loan is fast money for a reliable client.
Project financing refers to future stable cash flow financing. Project financing allows for all pledges to be received in the future. The Bank already has experience in project financing and has successfully launched a project in the energy sector.
The main goal of DBK Private Equity Fund is to participare the authorized capital of projects implemented by DBK and DBK-Leasing. If the project does not have enough credit, our potential clients can apply to the fund. DBK finances by means of a loan, and the fund - through the authorized capital.
- Nowadays, can we say the Bank is client-oriented?
- Undoubtedly, the Bank has been and remains client-oriented. We change our business processes, optimize procedures, making them convenient for customers, as well as adjust our activities based on our experience and listening to the wishes of the client. For us, the provision of quality services is essential. The Bank is open and transparent to the client. All the necessary information for all services package, requirements documents, and standard forms are available on our web site, as well as contacts of managers by the supervised industries. Our staff is ready to provide advice on all issues. The site also contains information on projects for funding and consideration. There is a phone hotline, where customers can call in cases of non-compliance with the same terms of consideration by Bank employees.
The bank does not stop at the achieved results, we continue to strive to simplify our procedures for the client. The plans for the future include the introduction of remote service so that the client interacts with the Bank through the personal account. This will allow DBK to be transparent in all its procedures, and borrowers to use its services without physical presence.
