Kyrgyz Investment and Credit Bank (KICB), headquartered in Bishkek, Kyrgyz Republic, is a relatively new bank, established in 2001. Since then, the bank has greatly augmented its share capital, with its shareholders composed primarily of international financial institutions. One of KICB’s principal goals has been to partner with the private sector through the provision of medium- and long-term financing. In a short time, it has come a long way in realizing its mission of making“a substantial contribution into the prosperity of the Kyrgyz Republic. To achieve the goal we want KICB to become the leading commercial bank in the country providing a full range of banking services for individuals and legal entities”. KICB has, indeed, become an indispensable financial partner to the Kyrgyz Republic’s population.
International Banker is pleased to be joined by Mr. Bektur Aliev, Deputy CEO and Chief Retail Officer of KICB, to learn more about the bank’s progress and future plans.
Mr. Aliev, thank you very much for talking with us today….
Can you briefly explain how your ELSOM (mobile wallet) product works? And in particular, how is this product increasing financial inclusion among Kyrgyzstan’s unbanked population?
To answer this question, I should explain the geography of this country. Ninety-six percent of the country is covered by mountains, and part of the land is difficult to access; as well, the road infrastructure still needs to be developed. On the other hand, commercial banks are small, and they do not have enough resources to open branches in remote areas. This is one of the main reasons why Kyrgyzstan has a high unbanked population. I believe mobile wallet is the best solution to provide banking services to the unbanked population without the physical presence of the bank premises. This was the main driving force of the bank to introduce Elsom. Elsom has two meanings: one is El, which in the local language means “people”, which symbolizes population. Second is: El, which also symbolizes electronic, and somis the name of a national currency. So people can easily recognize Elsomas their national currency circulated electronically. In addition to increasing financial penetration, we had another aim while introducing Elsom. Digital-based financing is the top priority for the commercial banks, thus we consider Elsom to be the starting point in entering the digital financial-services market.
KICB is the first in the Kyrgyz Republic and even in Central Asia to launch digital and mobile financial services. This service enables users to undertake a range of financial transactions through mobile and smartphones. Elsom is accessible nationwide and to the population residing in remote terrains. Elsom offers its users payment and money-transfer solutions. Domestic and international remittances, utility payments and merchant payments can be conducted via Elsom.
In relation to the previous question, how much importance does the bank place on microfinance? And what steps are being taken to boost your presence in this sector?
KICB was established mainly to provide financing to the corporate private-sector enterprises. In line with the evolvement of the bank, we decided to enter into small-business loans, mortgage loans and consumer loans. Until today, we were not involved in the microfinance business. Our conclusion was that in order to provide more lending opportunities, not only to corporate consumers but also to micro-lending borrowers, the bank should enter the microfinance market by the help of Elsom. By using Elsom in microcredit, the bank will receive loan applications through the mobile platform. KICB can conduct credit evaluation automatically through Elsom by utilizing a built-in scoring system. Also, it is important to emphasize that microcredit requires big administrative works in disbursements and repayments of the loans. By using Elsom for this process, the bank will substantially reduce distribution costs as well as interest rates for microcredit loans.
If I’m not mistaken, KICB is the only commercial bank in Kyrgyzstan that issues corporate bonds under the international standards. How has this benefited the bank, and has it provided you with much of a competitive edge over the rest of the banking sector?
As you know, de-dollarization of the economy in emerging countries is one of the top priorities to be tackled. In 2011, the G20 adopted the Action Plan to Support the Development of Local Currency Bond Markets (LCBMs) as part of its agenda on Reform of the International Monetary System. I already had an opportunity to introduce the bank’s initiative on the local-currency bond in the market of Kyrgyzstan. During the G20 meeting, in 2017, KICB was considered as a success case. Mobilizing long-term, stable currency from the capital market by issuing local-currency bonds allows the bank to offer local-currency loans by avoiding the maturity risk of the resources. We learnt that other commercial banks in the country are now planning to replicate our practice, and we try to share our experience with an aim to develop the local capital market, which is still under the development stage. It’s important to mention that in order to facilitate local-currency bonds in the market, the relevant hedging mechanism of the foreign-exchange (FX) risks should be provided. We are now under discussion with EBRD (European Bank for Reconstruction and Development) to develop the foreign-exchange market in the Kyrgyz Republic, which will ultimately provide a hedging mechanism of the FX risk to the investors of the local-currency bonds.
KICB took the important decision last year of upgrading its existing core-banking financial system from FlexCube v7 to v12.4. What has this upgrade allowed the bank to do now that it wasn’t able to do previously? And are you already seeing positive results from the upgrade?
KICB is one of the few banks that has a robust banking system under the Oracle base, which was implemented in 2007. Oracle FlexCube v12.4 owns high-performance, service-oriented architecture and enables the bank to perform centralized product configuration, treasury operations for foreign exchange, money market and securities. Moreover, it supports various types of corporate- and retail-lending products; it enables the bank to initiate cross-sale processes, which were not possible with the old system, FlexCube v7.3. The update of the system allows us to have comprehensive reporting to manage regulatory requirements with effective, timely reporting. We experienced tangible performance improvements in IT and back-office operations as EOD (end of day) processing, bulk batch-authorization processing and report management. However, some more time is required to observe the effects of all the new business features available in FC v12.4.
How robust are the bank’s defences against cybercrime? Is this something the bank seeks to monitor and/or upgrade on an ongoing basis?
I agree with you that the defense of cyber-security is one of the top agenda items in the banking sector, and we are facing continuous attacks to our system. In 2017, the bank totally reconsidered its IT system and established an independent IT security department that deals with cyber-threats. Also, we introduced a multilayer defense-and-filtering system against cybercrime in 2017. Thanks to this effort, we could detect and defend against many attacks trying to enter our system during 2017 and 2018. In my opinion, IT security has become one of the main areas where the bank should allocate sufficient resources on an ongoing basis. We are considering spending around 15 percent of the annual IT budget for cyber-security only.
In terms of your own personal leadership style, how do you motivate your workforce? Do you have any specific philosophies regarding leadership that you like to implement?
KICB is a bank established by shareholders with multinational backgrounds. Staff and customers also have more than 10 ethnic backgrounds. This means, KICB is one entity consisting of heterogeneous and diverse shareholders, employees and customers. My first policy is to treat and accommodate heterogeneous factors by respecting and accepting each employee. In order to do this, the bank should be open, transparent and fair in the course of its operations. Personally, as Deputy CEO, my principal goal is to respect each employee. I try to be a doer rather than a talker, and respect my employees before requesting them to respect me. I try to empower them to align their personal goals with the goals of the bank.
What is the KICB Training Center? Can you briefly explain some of the main services it provides to the bank’s employees?
It is my belief that to be successful and to run the organization effectively, the bank should have well-committed and well-trained human resources. I think commitment comes from the personal characteristics and with the benefits, which each employee can get from his institution. Training allows employees not only to gain the necessary knowledge but also to learn the philosophy of the bank. KICB is the only bank that has a full-scale training center, and it provides year-round training sessions to its employees. Recently, the bank expanded its Training Center by moving to a central area of the city, with an aim to train not only business-related curriculum to its employees but also to provide training which will be necessary for the self-development of the staff, such as the English language, IT, digital banking courses. We are going to open this Training Center to the people of the country with an aim to increase and improve financial literacy. This course will have three levels: intermediary, advanced and professional levels related to finance and banking.
How serious a threat do you consider money-laundering to be within Kyrgyzstan’s banking sector? And what specific measures does KICB have in place to combat it?
I consider the effort against AML/CFTE (anti-money legalization/laundering and counter-financing of terrorism or extremism) as one of the top priorities in the banking sector, and we are investing huge resources to comply with all of the requirements. Starting from 2017, major US commercial banks disconnected correspondent relationships with some countries in Central Asia, Africa and Caribbean regions with an aim to lower the risks. In order to prove that KICB fully complies with AML/CFTE requirements, American law firm Baker McKenzie was retained by the bank to conduct full due diligence. This was both field due diligence and evaluation of our regulations. This also improved the environment of compliance regulations in the country. In April 2018, we received a report that no issues were identified from due diligence. The KICB report was submitted to US authorities and US commercial banks.
Part of the bank’s stated mission is aiming “to become the leading commercial bank in the country providing a full range of banking services for individuals and legal entities”. How much longer do you think it will take before you become the country’s leading commercial bank?
Normally, people understand “leading commercial bank” as the bank with big market share in its operation. I think the real meaning of leading bank is not only about the market share but also what kind of innovative financial products are introduced by the bank and if the bank has good corporate governance. My understanding is that people consider KICB as a leading bank not only because our market share is one of the top three in the country but also because the bank has introduced new, innovative products such as Elsom and corporate bonds. Moreover, we are planning to introduce bancassurance. All of these were among the first initiatives of the bank and were successfully accepted by our customers. We are the only bank that has an insurance company and processing center. As per the results of 2017, Jubilee Kyrgyzstan Insurance Company is the number two insurance company, with 8.6 percent of market share. JKIC’s total assets are US$5.4 million and net profit is $436,000.
The bank is processing Visa, Elcard and UnionPay cards in the Interbank Processing Center. KICB will continue promoting international and local cards services. Launching (issuing and acquiring) of the Mastercard International payment-system card is planned for 2018. The bank is planning to strengthen the Interbank Processing Center’s capabilities and promote non-cash payments in the country with new services and products.
It’s apparent that you and KICB are doing an excellent job of improving your customer service to your varied clientele. Thank you very much for your time today.