Sergey Gussarov, “Preferences always follow caprices.”

VTB (Kazakhstan) Subsidiary Bank is interesting by its powerful financial and technological support on the part of the parent bank. Moreover, it is interesting by the fact that it may tell about not simple experience of VTB in “People IPO” Russian program and investigations of minority shareholder Alexey Navalniy. Kazakhstan has something to learn by looking round this experience. Generally, there were a lot of points to talk with Sergey Gussarov, chairman of the management board of VTB Bank (Kazakhstan) JSC SO.

- Sergey Nikolayevich, almost all banks are speaking about their universality. How should a customer choose?

- The point is that the banks render the financial services and they are interested in creation of a network which will be expanded to all social groups, all types of business and all branches of economy. This is profitable from the point of view of doing business. Therefore, there are only few specialized banks operating in one niche. All banks want to be universal. But even in this universality each bank has its focus on supporting group of the customers. This understanding comes with experience. Russian and Kazakhstan bank systems faced many shocks. I am here for three years only, but in Russia I faced the interbank crisis in 1994, stock crisis in 2004-2005 and systemic financial crisis in 2007. Based on such experience I started understanding what kind of customers are the basis for your bank’s stability.

- Does it mean that understanding “who your customer is” comes during crises?

- Certainly.

- You start understanding what customers actually bring more money.

- This is not the most important. The VIP-customers have reach assets but loss of the customers or sharp decrease of their turnovers during the crisis may negatively influence the bank’s incomes. Therefore, we always reckon upon the middle class. It is important for us to support portfolio diversification. If the middle class, retail small and medium business are the basis, it always means diversification of both risks and incomes. During 2004 crisis the pensioners and middle class appeared to be credit worthy. The pensioners didn’t take the deposits just because they didn’t manage to come from their country houses – the crisis combusted in summer. Moreover, the average amount of the pensioners’ deposits was approximately equal to the sum of compensation promised by the deposits insurance agency. The middle class is well educated and it doesn’t keep money in one basket. The middle class and medium business is a basis for all bases in any country; this is a big share in GDP of a country and stable working places. Any bank traces the risk of loss of earning capacity and income of a customer. The stronger are the positions taken by a person in the social ladder the lower is the risk of work loss. And even if staff reduction happens in the companies, as a rule, such people quickly find another job and restore their paying capacity. If we are speaking about the middle class in Kazakhstan, the last 20 years are characterized by growth of welfare and GDP growth. GDP per capita is a significant indicator. This indicator in Kazakhstan is three times more than in Ukraine. Accordingly, if welfare of population grows, the middle class always grows.

- If we are speaking about the middle class as about your customers, do you feel the changes in it? Let us say we are the witnesses of the state capitalism in Kazakhstan; state’s share in economy increases. More and more people work in the state sector, accordingly, salaries become higher there and comparable with the incomes in private sector. Do you note that instead of free entrepreneurs the public sector workers come as the bank customers?

- Any statistical sampling is difficult to do. This is because there are several dozens of customers in our bank.

- It’s good. Do you feel such changes instinctively?

- Certainly, I understand that such changes are taking place. If you remember some time ago work in the state companies didn’t guarantee a life of ease and life itself. I am telling this as former officer who left the armed forces since I didn’t have money to live. Essentially, I liked everything except for the amount of salary. Currently the salaries in the state sector become almost the same as in the private one both in Russia and in Kazakhstan. And if we are speaking about the national companies, the salaries there are often higher than in the private ones.

- And the risks are lower.

- Yes, entrepreneurship risks are lower and this is also important for the banks. As to replacement, I think that these are equivalent things – significance of both national and private companies will grow. I don’t want to assign the status – state capitalism or oligarchic or another one. Honestly speaking I got into a mess with the terms. It is necessary to read Marx and Lenin.

- Do you see that such replacement generates other preferences of the customers that the bank business should be rebuilt?

- A customer becomes more spoiled. People become well-educated in the financial issues, they know the types of bank products, competitive field of the banks, they insist on high standards of service. This is good for the customers and for the banks as well. Preferences always follow caprices. Herewith, people become calmer. Under the conditions of turbulence at the financial market, they don’t hurry to withdraw deposits.

- It means that people get accustomed to crisis.

- Yes, and plus financial literacy. Many people know about guarantees of the state on deposits. The bank system is stable. Both the Government and National Bank showed during bed time that they support the commercial banks and production sector and smooth negative tendencies. Therefore, people became calmer.

- And demanding. Probably, the richer is a customer, the higher are his demands. As judged by VTB strategy which is oriented towards increase of share in highly marginal segments of bank business. Do you orient yourself towards such customer? Is it correct?

- Yes, and this is connected with the product prime cost. If I issue cheap small loans, then the level of IT-support will not make it possible to decrease the prime cost of the transactions and to keep the acceptable level of margin. Unfortunately, the technological processes can never be perfect and they need constant updating.

- Next year you will open the VIP-customers service.

- Yes. But when you speak about the strategy I think that the concept of the strategy may be different. If we read Dao Tayota book, the company has the strategy for 500 years. This is the strategy. As a rule, currently the events in economy are stormy and ambiguous; therefore, I don’t know it is possible to call the strategy the bank development plans for 3-5 years or not. As former military man I say that this is more similar to a sequence of tactic steps.

- Well, if we are speaking about the strategy or tactics – to what extent is it correct to place stake on highly-paid customers during the crisis if we see that the incomes of people decrease during such periods? The global news is the number of millionaires in the world decreases.

- But such millionaires are not our customers. Our customer is likely to be Tenge millionaire (laughing). As to the VIP-departments opening next year, then in Kazakhstan it is new segment of work for us. The market requires this and we should do everything a customer requires. Let me to say that this segment is not basic, it doesn’t give any super profits; this is important component of servicing the top-managers and major businessmen who are the bank’s customers.

- And what share in the bank’s business will be taken by this segment?

- Not more than 5-7%. By the way, VIP-service means not only deposit taking and loans issue or settlement and cash services. This is trust money management up to rendering aid in making art collection. It means that if we begin upon this segment, then we will do it very professionally. We will be based on our international practice of privileged service. Since such customers are often recognizable, busy people and they need certain premise and level of service. It doesn’t mean that we badly service other customers but the privileged customers need more tactful approach.

- Do highly marginal segment mean VIP-service or something else?

- No. Small and medium business is highly marginal segment for us.

- The marketing specialists say, “Position or die!” The banks struggle for this segment. CenterCredit Bank opened the line of startups financing. Forte Bank is the bank for the corporate customers only. What peculiarities are you going to use in order to be at the market and to grow?

- First of all, serious history and serious brand are with us. As I noted before, people become well-educated in the financial issues. Price or service is not always key factor at their choice. Years 2007-2008, the years of crisis beginning, showed that many banks in Kazakhstan launched some projects quickly and finished them quickly as well as their money ended, or insurance limits closed. Therefore, our message is stability and any market fluctuations independence, cash availability for loaning, possibility to accept money for the deposits with high security. Plus technologies – the products are worked out during many years. The technological component at sale of the bank products is very important. Transparency of risks assessment and decisions making, qualitative distribution of powers – everything reduces transaction costs.

- Does it mean that it is important to understand who stands for the bank and how long is its resource?

- Yes, rating and etc.

- Is this because some Kazakhstan banks stopped financing and required loans return during the crisis?

- Yes. Frankly speaking, I didn’t hear that somebody required returning money on loans. It is just enough to increase the interest rate up to 40% and money will be returned. And no persuasions will be needed. The bank business is very tactic and calm. And if at any time you leave a customer face to face with the financial difficulties, it is unlikely that when everything calms down, he will forgot about difficulties and apply to the same bank. Here it is very important not to permit any case of inadequate behavior with regard to a customer. Money requires silence and, herewith, money should always be available. Many Kazakhstan businessmen appeared to be in very hard situation when the banks couldn’t issue the loans and transferred severity and responsibility for their loss of liquidity to the customers.

- Probably, this is why Kazakhstan banks attract the international shareholders in order to have the long-term money?

- The global tendency goes to banks enlargement and mergers. It’s good for a customer since the conditions for stable bank system are created.

- I would like to hear your opinion about Kazakhstan program “People IPO”. VTB in Russia was a member of similar program. How do you assess the course of Kazakhstan program based on this experience?

- Everything is logic and correct. This is disputable issue to what extent the Russian experience is successful. The quotations were falling within 4 years but then the market environment was another. Anyway, “People IPO” is necessary so that each citizen has the possibility to become the owner of the national companies and banks. Another case is the private investors should understand that the dynamics of the stock market is not always correlated with patriotism. The stock market is subordinated to other laws.

- But the government may interfere with these laws. The Head of the State may offer to re-purchase the shares from population because the quotations fell and people complaint. Mainly this happened with VTB.

- This is delicate theme. It’s difficult for me to comment what will happen with IPO in Kazakhstan.

- But everything that happens in Russia and in Kazakhstan concerns. I can suppose that in Kazakhstan people buying the shares will consciously or subconsciously keep an idea that the state will help in case of extreme difficulties.

- Actually I wouldn’t orient myself so. Bay back option is not assumed initially at holding IPO. The things happened with VTB shares was an exception. Five years ago VTB shares were placed at the price of 11 kopecs then they fell to 1 kopec. Now upon expiry of five years the cost of VTB shares is up to 5,3 kopecs – two times less than the price of their placement. And bay back was made at the price of 11 kopecs per share. The Bank has the strategy called “Road to fifteen” which assumes that by 2015 the shares will cost 15 kopecs. I am sure it will be exactly so. But this will be 10-years term for the members of People IPO. It is worthy of noting that this is investment but not speculation. Within short period of time money is unlikely to be earned with IPO but it will be possible within long-term period.

- VTB in Russia has a cautionary tale with Alexey Navalniy as with minority shareholder of the Bank. How strongly may such programs as People IPO influence the corporate management improvement in the state companies and banks?

- It is certainly necessary to work with minority shareholders. A company should be transparent. It should meet all its shareholders, to report about the strategy and tactics. All interaction with minority shareholders both in Russia and in Kazakhstan is defined by law.

-You are speaking about increase of the financial literacy. Those people in Kazakhstan who for the first time try to be the shareholders tomorrow can actively interfere with the national companies operation.

- Certainly, they have the right to ask questions and get answers. VTB in Russia answered all questions. People were satisfied in general with some exception. A person is entitled to be discontented. But if such person is a shareholder, actually – co-owner, work of top-management is to explain him in order to assuage doubts.

- Shareholders become captious, the customers become more demanding, and the bank regulation becomes more severe… Does the banker’s work become more difficult?

- I wouldn’t say that regulation becomes more severe. Yes, the requirements to capital are increased; it is difficult to do this at once. But it is necessary to do since this strengthens stability of the bank system. And it is necessary to be more attentive to minority shareholders.

- Pressure is put from all sides. Does the bankers’ work become more disciplined?

- Certainly. But we have very few non-disciplined banks.

- As distinct from other economy sectors…

- Circus, for example.

Oleg Khe