- What was the 2020 year for DBK? How did DBK manage to cope with the challenges of the pandemic?
The 2020th for DBK, as well as for the whole country as a whole, became a serious test of resilience. Due to the rapid spread of coronavirus infection, and subsequently quarantine restrictions and lower oil prices, our borrowing partners began to experience certain financial difficulties. However, as part of DBK's anti-crisis plan, that was developed at the beginning of 2020, we analyzed the loan portfolio, conducted stress tests for each of our projects and carried out systematic work to minimize the impact of changes in the national currency exchange rate and the coronavirus pandemic on the Bank's loan portfolio.
The metallurgical sector and projects in the telecommunications industry, where the borrowers are Transtelecom, SilkNetCom, Kazakhtelecom, felt relatively comfortable. The oil and gas and tourism sectors turned out to be quite vulnerable, the situation is similar with projects in the logistics industry, for example, airports, which, due to restrictions, did not function for a long time. The greatest negative impact of the pandemic was affected by projects that are under construction and equipment supply. Due to the fact that the borders of many countries were closed, some of the equipment was not delivered on time. Understanding the whole situation, we took prompt action and recognized cases of interruptions and delays in the supply of equipment as force majeure. We immediately provided the opportunity to defer payments on principal and interest, and canceled penalties for late fulfillment of financial and non-financial obligations. For projects financed in tenge, the Bank has restructured loans, and for projects financed in foreign currency - provided the opportunity to convert the loan, subject to the availability of funding.
The Bank's team is now assessing the impact of COVID-19 on the activities of DBK and its clients on an ongoing basis.
Despite the difficulties of this year, the Bank managed to maintain the volume of annual project financing. DBK annually invests more than 400 billion tenge in the economy of Kazakhstan. The size of DBK's loan portfolio as of October 31, 2020 amounted to 1,926 billion tenge, increased in comparison with the data at the beginning of the year by 11.5% (from 1,728 billion tenge). There are now 75 projects in the structure of DBK's loan portfolio, 55% are projects in the manufacturing industry.
- How many projects have been launched this year?
At the end of the current year, seven projects financed by DBK were put into operation. These are such projects as a hotel and tourist complex in Mangistau region Rixos Water World Aktau, a power unit of the Eurasian Energy Corporation JSC, a passenger car plant Hyundai Trans Kazakhstan LLP in Almaty, one of the workshops for the production of oil service equipment at the AtyrauNefteMash LLP ", the second stage of the Makinsk poultry farm in Akmola region, the second start-up complex of 50 MW wind farm" Astana EXPO-2017 "CAPEC Green Energy LLP, and the construction of a hardware and software complex for a communication platform along the railway lines of Transtelecom JSC was completed.
All these projects are capital-intensive, with a high socio-economic and multiplier effect. These seven projects have created 1,900 new jobs in various regions. In my opinion, in today's realities, when job cuts are taking place around the world, this social effect is the most significant. As for tax deductions, for 11 months of this year the companies paid 15 billion tenge to the budget.
I would also like to note the ongoing work in the export direction at the Bank. During the pandemic, we did not reduce the volume of support for our exporters. Of course, there were operational difficulties, but exporters felt comfortable enough, none of the companies approached us for a delay or other support measures. Since the beginning of the year, we have mastered the amount of support for 92.5 billion tenge, now the Bank's portfolio includes 15 export operations, thanks to which Kazakhstan exports vegetable oils, dairy products, confectionery, drinks, car batteries, mineral fertilizers, zinc, copper, lead and phosphate products, etc.
- What is the currency structure of DBK's loan portfolio today? How does the bank decide which projects to finance in tenge and which in foreign currency?
Our portfolio is 53,3% formed in tenge and 46,7% in foreign currency. Since 2013, the volume of lending in tenge has grown by 33%. Such changes had a positive impact on the financial stability of our borrowers.
As for the lending currency, we are using a natural hedge. If the borrower has foreign exchange earnings, then we will issue a loan in foreign currency, however, if there is no foreign exchange earnings, then we provide a loan in tenge. This approach provides our borrowers with good financial stability and allows us to mitigate foreign exchange risk.
- Does the bank plan to raise funds in foreign markets this or next year?
DBK offers business favorable conditions for the implementation of projects at various stages - from the investment phase to the export of finished products. To ensure the best conditions for the client, DBK actively attracts borrowed funds both in the domestic and international capital markets, so for each tenge from public funds, Development Bank attracted 1.96 tenge of market borrowing. Just before the pandemic, we carried out the third issue of tenge bonds in the amount of 62.5 billion tenge at a favorable rate. We always focus on the market and demand. Next year we are planning a road show for foreign investors to get them interested in investing in Kazakhstan.
In early December of this year, the Bank signed a loan agreement with the Eurasian Development Bank, according to which we were provided with a credit line in the amount of 5.724 billion Russian rubles for a period of 7 years. We also signed a four-way memorandum of cooperation with VEB.RF, Eurasian Development Bank and Development Bank of the Republic of Belarus. We plan to develop the implementation of transactions in Russian rubles and finance our borrowers in this currency. Thus, we are doing our best to diversify our borrowing portfolio and look at other currencies. Perhaps next year we will again repeat the work on the issue of eurobonds in tenge on foreign markets.
- The Mazhilis passed a bill on the restoration of economic growth, which for the first time at the legislative level prescribes a mechanism for syndicated financing. A few years ago, DBK offered banks to cooperate according to such a scheme, but they did not show any initiative. Do you think the amendments will change the situation?
Indeed, in 2014, DBK proposed to activate systematic work on syndicated lending. Then we initiated and signed memorandums with second-tier banks on cooperation within syndicates, met with representatives of second-tier banks and exchanged ideas for potential projects, but the deals were never concluded. As for the bill, we directly participated in the revision of the legislative base and again initiated this work in the Bank.
Now there is a high interest in syndicated financing from second-tier banks. We see that this mechanism is in demand. Sberbank, Halyk Bank, Forte Bank took an active part in the discussion. Moreover, clients who are serviced in the listed banks are also ready to work according to this scheme. We have a number of proven projects that we want to implement through a syndicated loan in the near future. If we talk about potential areas, then this is the processing of agricultural products. Now we are working on the possibilities of cooperation with Forte Bank and Sberbank. We are awaiting their decisions, and, perhaps, we will already open funding.
- The analytical portal of foreign trade of the Republic of Kazakhstan is posted on the Bank's website. What is its importance and relevance for business?
The portal is primarily designed to improve the efficiency of economic activity in Kazakhstan, a kind of database to provide a wide range of people with information on Kazakhstan's foreign trade, where interactive mode, you can get information about trade flows in the context of regions, industries, goods. We linked the statistics database of the Ministry of National Economy and the State Revenue Committee of the Ministry of Finance to the portal.
Why is this portal attractive? The analysis allows you to identify niches where you can build capacity. For example, if Kazakhstan has been importing the same product for many years, the volumes are growing, then it makes sense to think about the possibility of its production on the territory of the republic. It is the same with exports: if we export something and export volumes are growing, then it may be necessary to expand or modernize the production of this product to expand the export potential.
The development of the portal has not yet been fully completed, in the future we plan to connect other databases to it, which will help foreign investors to take into account such indicators as tariffs for electricity, gas and other utilities, which is necessary for the implementation of investment projects.
- How did the pandemic affect the workflow of the bank itself?
This year can be seen as a stress test for the maturity of corporate culture. I am happy to summarize that DBK survived the pandemic with the least losses, as the process of updating HR practices was successful. We were one of the first to transfer employees to a remote form of work. Only 5-7 people worked for us offline every day, this is less than 3% of the total number of employees, in compliance with all the necessary sanitary and epidemiological safety measures. These are specialists who support the Bank's IT infrastructure, as well as employees of the office. This “emergency” transition to the online mode did not affect the Bank's activities in any way, on the contrary, DBK employees showed their cohesion, efficiency, motivation and self-organization.
In this matter, I cannot fail to note the maturity of the Bank's IT structure. Technological development has always been a priority for DBK. We believe that the introduction of new technologies in the modern world is a basic necessity. That is why we started modernizing the Bank's IT system back in 2019. In May last year, 100% of employees received an EDS. Accordingly, we restructured business processes as much as possible to the paper-free format - paperless document flow. We also turned to all government agencies with a request for the possibility of making changes to legislative acts in order to transfer processes to paperless document flow. All these measures allowed the Bank to painlessly, in the shortest possible time, make the transition to a remote work format. Moreover, the Bank has developed a CRM system by automating the client service and the process of reviewing projects, now the Bank's clients can remotely submit an application and track the status through the borrower's personal account on the Bank's website https://my.kdb.kz/login.
- What are DBK's plans for 2021? What will be in the spotlight next year?
First of all, it is necessary to restore the economy and actively lend to projects. As part of the updating development strategy of the Bank until 2023, we expect that, taking into account legislative amendments, we will be able to expand our tools, for example, syndicated financing and, possibly, other forms of credit instruments.
DBK team is now creating a critical mass of investment projects in the manufacturing industry, infrastructure, and finding promising industry and product niches. I think there will be many interesting projects next year. I would like to note the tourism industry, which has been negatively affected by the pandemic. Nevertheless, Kazakhstan has great potential in this area, due to its small population and vast territory, which allows a foreign tourist to feel protected. For example, ecotourism is in great demand now in the entire world community. We have a pool of projects in the tourism industry, we are considering their viability, and we will share information later.
Summing up our conversation, I want to say that now it is difficult to answer unequivocally whether we have managed to get out of the coronavirus crisis today, since the consequences of the pandemic on the economy are still difficult to assess. Forecasts by international analysts about the onset of a new era of chaos, and declining prices on stock markets add uncertainty. One thing is clear for us - the course of development of DBK during a pandemic and taking into account current global trends is taken correctly: internal transformation, updating the development strategy until 2023, we are actively paying great attention to sustainable development projects, ESG principles. Moreover, we are stimulating the transition to a green economy and are planning to improve the lending model of the Development Bank, with an emphasis on increasing private sector participation in financing projects with the participation of foreign investors.
