Halyk Bank of Kazakhstan Joint Stock Company (HSBK) Earnings Call Transcript & Summary

Good day and welcome to the JSC Halyk Bank First Half and Q2 2020 Results Conference Call. At this time, I would like to turn the conference over to Mira Kassenova. Please go ahead.

Thank you. Good evening, ladies and gentlemen. Welcome to Halyk Bank conference call and presentation of financial results for the 6 months and second quarter of 2020. Participants in today's call on Halyk Bank side are Ms. Aliya Karpykova, Deputy CEO, Chief Financial Officer; Mr. Murat Koshenov, Deputy CEO, Corporate Banking and International Activities; Mr. Almas Makhanov, Chief Risk Officer; Mr. Viktor Skryl, Financial Director, Finance and Subsidiaries; and myself, Mira Kassenova, Head of FI and IR. And now I would like to hand over the call to Mr. Murat Koshenov, Deputy CEO.

We welcome everyone to our investor call. I would like to start our presentation with an update on the current situation we fight with coronavirus in Kazakhstan. As of 16th of August, there were 103,000 confirmed cases or 546 cases per 100,000 people, 1,269 infected individuals died. We noticed that reported statistics include both COVID-19 confirmed cases, and starting from August 1, also includes the cases of pneumonia with COVID-19-like symptoms, but with negative PCR test. It is important to note that country substantially expanded testing capacity over the last 4 months. Since early April, the number of conducted tests per day increased from 2,000 to more than 28,000. By 16th of August, almost 2.3 million tests for coronavirus were conducted in Kazakhstan. The state of emergency declared by the government of Kazakhstan on the March 16 and lasted through May 11 has efficiently limited the initial virus spread. However, with the gradual lifting of lockdown measures and expanded testing, we have seen the increased number of daily reported cases and secondary lockdown measures were introduced starting from the June -- July 5 and until 17th of August, basically until today. The situation has notably stabilized with reproduction levels falling to 0.5. Almost 80% of infected individuals have recovered, thus substantially eased the pressure on the health care system. Next slide, please. We'd like to highlight how anti-epidemiological measures have evolved and impacted the sectors of economy throughout the year. Following initial COVID cases registered in the beginning of March, on March 16, the Government of Kazakhstan declared the state of emergency. It included full closure of borders and establishing state of national emergency, imposing lockdowns in major cities and social distancing regime. All enterprises and organizations, including nonfood stores and malls, service entertainment organizations suspended their activities. These were harsh but necessary measures, crucial for minimizing the virus impact. Already by the end of April, the situation has stabilized and the virus spread was contained. On the May 11, the state of emergency was removed and the economy started to open up, starting with industrial construction and transportation sectors gradually moving towards services sector. On May 25, nonfood retail and restaurants were opened. In June, passenger rail transportation, air traffic with selected countries resumed. The second lockdown was introduced in Kazakhstan from 5th July till 17th of August. The new measures aimed to limit certain social activities and large people gatherings, including the closure of large shopping malls, food courts, fitness and spa centers, beauty and recreational centers, public beaches and aqua parks, interstate bus and commuter train transportation has been ceased. Social distancing and facemask order has been established in all public and workplaces as well as regular disinfection of public areas. However, these lockdown measures imply less severe economy closure as it was during the state of emergency during March to May. Large part of service businesses were allowed to operate, including business centers, auto clean and repair companies, hotels running at 50% capacity and so on. Restaurants could serve outdoors, air transportation has not been stopped. Construction, industrial and other large businesses remain operational. The government has developed a plan for gradually lifting the lockdown measures while limiting the spread of virus. Starting from today, trade centers, beauty salons, spas, fitness centers, educational centers and outdoor entertainment parks reopened, but only on weekdays with strict compliance to social distancing, masks and other sanitary requirements. Companies are still recommended to keep at least 80% of employees working from home. In addition, starting from today, Kazakhstan resumed flights to 7 countries: Belarus, Egypt, Germany, Russia, The Netherlands, The United Arab Emirates and Ukraine. Now let me speak more specifically about the impact on Kazakh economy. Kazakhstan's short-term economic indicator showed strong growth in the first quarter of 2020 with mild signs of deceleration in March. The economy was severely hit in April and May as the state of emergency measures slowed economic activity. Retail trade on passenger transportation have been mostly impacted. At the same time, other sectors, including mining, construction, communication services and agriculture remains largely resilient over this period. Already in June, we have seen a positive performance across most of the sectors, except on transportation, which will take more time to revert to normal levels. And industrial production declined in June by 5.6%, mostly due to contraction in extraction sector following oil output decrease in accordance with OPEC+ agreements. SMEs and individuals have been the most affected in current economic turmoil. The government and the national banks have adopted a number of measures to support them. Banks were requested to provide debt holidays to individual entrepreneurs and the semi-borrowers affected by the current situation, a grace period on principal amount and interest for up to 90 days. The interest, however, continues to accrue. Within the first support package effective since 16th of March until mid of June, more than 1.9 million individuals and 12,500 SMEs got an approval for debt holidays. From mid of June, SMEs affected by the new wave of lockdown got additional grace period on principal amount and interest at least for 90 days. Besides the virus in the first half of 2020, we also witnessed dramatic decline in oil prices. However, oil cut agreements under the OPEC+ resulted in balancing of energy markets by pushing the oil prices up to the level above $40 per barrel by the end of June. After certain weakness in March, April, tenge strengthened amid certain -- amidst the foreign currency supply increase as a result of conversion of foreign currency funds into tenge within the framework of transfer from the national oil funds and the sale of foreign currency by quasi sovereign companies. Tenge appreciated from a level of KZT 448 per U.S. dollar in the end of March to KZT 404 per U.S. dollar at the 1st of July. Kazakhstan economy demonstrated relatively strong performance in the first quarter 2020. However, COVID-19 impacts and sharp decline in oil prices resulted in economic contraction of minus 1.8% year-over-year in the first half of this year. At the same time, we would like to note that first half contraction is much lower than one could see from other economies globally. Now I would like to give a turn to Viktor Skryl.

COVID-19 posed some challenges to businesses and people of Kazakhstan, most of which are our clients. We have efficiently adopted measures to support them in times of economic turmoil. We have participated in all states support programs and provided additional support to SMEs that were most severely impacted by the pandemic, including concessional lending programs and debt payment holidays. We have utilized KZT 109.5 billion out of KZT 180 billion concessional SMEs lending program allocated to the bank and provided a debt repayment holidays for 3,500 SME clients during first support package and 654 clients during second support package. For our retail clients suffering from temporary loss of income due to decreased economic activity, we'll provide debt repayment holidays for up to 3 months. By the mid-June, almost 131,000 applications for debt repayment holidays that were approved by the bank. We have transferred over 1.9 million social payments of minimum monthly salary and 413,000 payments of KZT 50,000 to socially vulnerable people. Our bank remains fully operational, and we efficiently moved 64% of head office employees to remote work place, while 33% of our head office staff stayed in the office while keeping strict social distancing and hygiene requirements. 3% were on paid forced leave to support caring dependents. Our bank has a well-diversified loan book with 26.7% represented by retail segment and 15.8% by SME lending and 57.4% by corporate loans. Our corporate book is further diversified by the industry with the largest one contributing only 14% of the book. Our exposure to the sector is most affected by the current down cycle, including hotels, passenger transportation, commercial real estate and oil and gas sectors comprising 14.5% of our loan book and remains manageable. We are in constructive dialogues with most of our customers that were impacted by COVID-19 to support them through this period. The bank retail loans are either issued to payroll clients or secured by real estate or other property. Our FX lending exposure has substantially decreased over the past few years, and now FX loans comprise only 26% of the loan book and primarily issued to the borrowers with FX-linked income. And now I would like to move to next section where we'll provide digital and transactional banking update. Development of digital platform has been one of the top priorities for the bank over the last years, and it proved to be a major advantage during the COVID-19 outbreak and the economy lockdown as we experienced a dramatic increase in demand for remote and online services. We have seen a strong pickup in online client activity. In 2Q 2020, number of retail clients using Internet banking increased by 17.5% to almost 5.5 million users. In the corporate segment, over 182,000 clients used our internet banks by the end of June 2020. In 2Q 2020, we have also seen P2P transfer steadily grow. Online loans and deposits are gaining significant traction and had increased by 2.5 and 7.6x, respectively, since the beginning of the year. At the same time, we have been continuously advancing our retail and corporate client platforms, expanding their product verticals, functionality and service tools to provide our clients with opportunity to fully manage their financial life online. During the pandemic, we were focused on launching a number of strategic projects with an aim at improving our digital proposition and offering a comprehensive online platform to -- for our clients. Just in the last 6 months, we introduced a number of innovative services for our retail and SME clients. We have launched fully online client onboarding without physical branch visit to attract new customers as well as introduced deposits and loans issuance and Western Union money transfers via mobile application method. Since the end of July, our clients can use self-service machines for card issuance just by clicking it. We actively encourage our clients to use digital channel through implementation of prize bonus programs and promotions. For instance, our clients may benefit from up to 5% bonus on each transaction in Homebank application as well that may get back 2% bonus by paying with QR code. We set up partnerships with leading credit card retailers, such as Technodom, Sulpak, Alser and launched online consumer programs which allows to make purchases without visiting stores and bank branches. Our payment platform now includes over 5,200 services for payments online. Dedicated SME and corporate platform online bank provides full scope of transactional banking, online financial products and variety of supporting business services online. Since June 2020, small enterprises have become a client of the bank remotely. And since August 2020, our bank started to issue online loans for small enterprises without documents delivery. And as I already mentioned, we have seen an explosive pickup in online client engagement amidst lockdown. Slide 16 provides some useful statistics on these trends. Homebank's active clients and transactors increased by around 2.1x and around 9.9x, respectively, over the last 6 months. Online payment and transfers' volumes increased by 30% and 190% since January. Even with the lockdown easing, we expect our customers to continue to rely on digital platform for managing their everyday financial life. We remain fully committed to further investments in the development of our digital capabilities. And now I would like to hand over the presentation to Ms. Mira Kassenova.

Thank you, Viktor. Now let me switch to Halyk Group consolidated financial results for the 6 months and the second quarter of 2020. In the 2Q 2020, we earned KZT 74.9 billion of net income despite the tightening operating environment. The decrease by 7.6% compared to 1Q 2020 was caused by a decrease in other noninterest income, mainly related to loss from evaluation of swap with the National Bank of Kazakhstan and lower income from the sale of property by subsidiary SPVs. We demonstrated 21.2% return on average equity and 3.1% return on average assets. Reduction of net income in the first half of 2020 compared to the first half of 2019 was mainly driven by substantially higher credit loss expenses, reflecting market changes according to IFRS 9. Total assets of the group decreased by 3% versus the end of 1Q 2020, mainly as a result of revaluation of FX balance sheet positions due to KZT appreciation versus U.S. dollar during 2Q 2020 and decrease in the volume of funds raised under report transactions. Customer deposits decreased by 2.6% versus the end of 1Q 2020, mainly as a result of revaluation of FX deposits. Net of FX changes, the customer deposits would increase by 2.7%. Interest income slightly increased by 0.6% to KZT 180.5 billion for the second quarter of 2020 compared to KZT 179.3 billion for the first quarter of 2020 mainly as a result of increase in average balances of interest-earning assets. Interest expense increased by 1.2% compared to 1Q 2020. As a result, the net interest income slightly increased by 0.3% to KZT 104.3 billion. Net interest margin decreased to 5% per annum for the second quarter of 2020 compared to 5.3% in 1Q 2020, mainly as a result of decrease in the average interest rate on retail loans due to a new unsecured lending program with the borrowers life insurance bundle, the premium on which reflected an insurance income. As an alternative to the existing unsecured lending program with the loan arrangement fee, which is reflected in interest income. Next 2 slides demonstrate changes in monthly average balances of interest-earning assets and interest-bearing liabilities as well as average interest rates on different types of assets and liabilities. Compared to 1Q 2020, our fee and commission income reduced by 4.5% as a result of decrease in fees derived from payment cards and cash operations due to the effect of COVID-19 lockdown. At the same time, the lockdown was a natural trigger for cashless transactions' penetration in clients' habits, which caused pickup in noncash transactional banking and increasing the fees derived from the bank transfer settlement. Fee and commission expense decreased by 12.3% compared to the 1Q 2020 mainly due to 17.3% decline in payment card expenses caused by the decrease in the volume of acquiring business. Operating expenses for 2Q 2020 decreased by 0.9% versus 1Q 2020 mainly due to the decrease in salaries and other employee benefits as a result of a decrease in the variable part of the motivational payment and partially offset by the increase in royalty program bonuses payable to the customers. The bank cost-to-income ratio increased to 28.2% compared to 23.8% for 1Q 2020 due to lower operating income in the second quarter of 2020. Next slide shows, from a different perspective, our strong liquidity position, where deposits as a percentage of non-equity funding equaled to 81.8%, the share of liquid assets in total assets was 44.8%. In addition, we have relatively low loan leverage with net loans to deposits equal to 58%. And net stable funding ratio was at 2, well above the regulatory requirement. On the balance sheet, compared with the end of 1Q 2020, loans to customers slightly decreased by 0.9% on a gross basis and 0.7% on a net basis. Decrease of gross loans portfolio in the second quarter of 2020 was attributable to decrease in corporate loans, 5.1% on a gross basis, and mainly due to revaluation of FX loans, whereas SME and retail loans increased by 8.3% and 3.9% on a gross basis, respectively. Halyk Bank 90-day plus NPL ratio returned to 6.9% from 7.1% as of the end of 1Q 2020. The provision rate slightly decreased to 10.1% from 10.3% as at the end of 1Q 2020 and the 90-day plus NPL coverage ratio increased to 148.4%. Cost of risk increased to 1.3% in the first half of 2020 compared to 0.5% in the first half 2019 due to additional allowances for expected credit losses, reflecting the increased risk and uncertainty from COVID-19 outbreak and lockdown restrictions. Stage 3 ratio slightly increased from 15.5% as at the end of 1Q 2020 to 15.7%, mainly due to impairment of corporate borrow, previously considered as the borrow with increased credit risk. We're additionally showing here how well the workout of problem loans collateral was done by the bank SPVs during the second quarter of 2020. On liabilities side, the deposits of legal entities and individuals decreased by 2% and 3.1%, respectively, compared to the end of the first quarter of 2020 mainly due to revaluation of FX denominated deposits due to KZT appreciation in the second quarter of 2020, and as at the end of 2Q 2020, the share of corporate KZT deposits in total corporate deposits was 56.6% compared to 50.8% as at the end of 1Q 2020, whereas the share of retail KZT deposits in total retail deposits was 43.6% compared to 37.6%. Compared with the end of 1Q 2020, total equity increased by 8% as a result of net profit earned by the bank during the second quarter of 2020, and the bank continues to maintain very high capital adequacy ratios. Despite the challenging macro situation, the bank managed to pay dividends in the amount of 60% of net income for 2019, thanks to strong financial performance and capital position, delivering very strong dividend yield and 13% per annum. On unconsolidated basis, the capital adequacy ratios as of the 1st of August 2020 were as follows: Q1 ratio was at 22.2% and Q2 ratio was at 24.2%. Based on our 6 months financial results, we have updated the outlook for financial year 2020. Net loan portfolio growth outlook remains unchanged, above 10%. Consolidated net income is to be around KZT 300 billion. Cost of risk is expected to be in the area of 1.5%. Cost-to-income ratio outlook remains unchanged, below 30%. Net interest margin also remains unchanged and is expected to be in the area of 5%. Return on average equity is to be above 20%. And this completes our presentation. Now we would like to start Q&A session. Thank you for your attention.

[Operator Instructions] We'll take our first question from Elena Tsareva with BCS Global Markets.

Congratulations with a good result. My first question is about your guidance on cost of risk. So given you have a pretty good cost of risk 1.3% around this area in first half, it means your guidance is expecting of cost of risk to stay worse than second quarter. So does it assume that we don't see -- we haven't seen peak of cost of risk this year yet? And if it is so, what kind of worsened risk you see in any particular like corporate area or retail or SME? This will be my first question.

Thank you, Elena, for your question. Basically, this represents the budgeted figures, which we updated during the midyear review of our performance and make projections. It doesn't mean that we necessarily expect increase in cost of risk in the second half. But given the overall still difficult situation and some additional lockdown measures, which actually took a good time of the third quarter, and we also appreciate that during the previous crisis it actually took time until some credit costs would transfer. So that's why we made a decision to, let's say, to budget cost of risk at the level of which somewhat higher than the one which was realized and also modeled during the first half of this year. But again, this does not necessarily mean that we as a management already see signs that the cost of risk would definitely increase. It's more of a budgeted figure.

Understood. And if you can disclose kind of IFRS 9 market adjustment as in cost of risk in the first half of the year.

Actually, we updated our macro guidance in the first quarter of this year. We didn't adjust them in the second quarter. We might make certain adjustments in the second half, but no decisions are being done yet at this point of time.

Understood. And just another question on guidance as well. So except for cost of risk, it seems that like this year is more or less that was already expected in the second -- fourth quarter last year for your previous guided numbers. So yet, you feel some uncertainty around situation and potentially new risks around COVID. What kind of like -- compared to your previous guidance, it should be some weakness in fee and commission and additional products. But does it mean that you're pretty comfortable that all other areas except for cost of risk would be really the same strong as you expected previously?

No. No. We are only providing the outlook for items which we are pointing in the Slide 33. So we are not specifically providing guidance, for example, on the interest income itself or fees and commission. So we might probably discuss the dynamics of fees and commissions, which already we saw in the first half. But probably, you can see that from a net income perspective, we slightly reduced our guidance from the level of KZT 350 billion to the level of KZT 300 billion. Yes, and at the same time, we're maintaining our guidance on net loan portfolio growth. The fees and commission business -- the fees and commissions income, as you see, has been impacted by the lockdown measures. It might still be affected because, as I said, previously that we had lockdown introduced for 6 weeks which affected certain retail trade businesses. There might be still some limitations in work of some of these retail businesses going forward in the second half of this year. So that might affect but -- the fees and commission business. But we are not providing any explicit guidance on where we expect to see fees and commissions for the whole year.

[Operator Instructions] We'll take our next question from Andrew Keeley with Sberbank.

I have a few questions. First of all, on capital. It was very strong in terms of your -- the kind of capital accretion in the second quarter. I'm just trying to understand a bit more some of the moving parts in there. So it looks like your Tier 1 capital went up by about KZT 116 billion or so, whereas the net income growth was about KZT 75 billion. So it would be great just to understand what difference is in that? And similarly, just from a back of the end of the calculation, it looks like the risk-weighted assets fell around 10%, 11% Q-on-Q. The loan book -- the net loan book dropped about 1%. So it would be good to understand what's happening in there. Is this -- how much of this is FX effect from the tenge move? Or are there other reasons for the big drop in risk-weighted assets? Yes, that's my first question, and I'll take the others after.

Yes. Andrew, do I understand correctly? The question is about why the capital adequacy ratios increased in such a manner in the second quarter. And what was the main driver?

Yes, yes. Basically, the capital seems to go up more than the profits and the risk-weighted assets decline seem to be very high. Yes.

Yes. Yes. Actually, if you see, we had return on equity in the first quarter at a good level. But because the risk-weighted assets increased as a result of revaluation of dollar assets, actually that translated in increase in the capital adequacy ratios. What actually happened in the second quarter, we had a reversal of FX rate. So it was quite significant strengthening of tenge. That's why the dollar assets, the dollar risk-weighted assets actually reduced substantially in the second quarter as a result of this revaluation, which coupled with further profitability, which the bank gained during this period of time. And also, if we add to here that there was no dividend payment happens in the second quarter, and capital continued to accumulate, actually translated in this substantial increase in the capital adequacy ratios. I have to note that due to the dividend payments in the first quarter, we might see the, obviously, a reduction of capital adequacy ratios in the third quarter as a result. And actually, on the Slide 31, we're presenting the capital adequacy ratios as of 1st of August. It's kind of pro forma figures, which is showing the impact of dividend payments on the capital adequacy ratios. So they are given roughly 2.5 percentage point reduction in capital adequacy ratios -- sorry, sorry, 3.5.

Yes. Yes. Okay. Second question is on your margin. You made a comment in the presentation that the drop in the NIM was due to this kind of accounting change on the retail lending kind of borrow and this bundle -- life insurance bundles. And hence, this loan fee is not reflected in interest income. Can you just let us know roughly kind of how material that was? I mean what would the NIM be, if you haven't kind of made that adjustment? That would be helpful.

Yes, we didn't make these pro forma calculations. So for me, it's probably difficult would be to calculate the pro forma NIM should there be no change in the product. It's not only the accounting treatments, actually we introduced one more loan program, consumer lending program, where some upfront fees have been amended by the life insurance. And actually, in our unconsolidated results, which you might see from the National Bank or Kazakhstan Stock Exchange, you would find these fees -- these additional income as fees and commissions because for us, it's kind of the bank insurance product. But because this insurance was actually done by our subsidiary insurance company on consolidated basis, you would see on the insurance income. And there you can figure out what the impact was on these additional insurance income. But simultaneously, as I said, there was a reduction in upfront fee. And because upfront fee was amortized during the life of the loan, you also saw the reduction in net interest margin as a result. But again, we didn't make calculations. So unfortunately, I'm not in a position to provide any figures on this pro forma NIM should these insurance commission be added back to the interest income.

Okay. All right. Anyway, that's helpful. And then another question is just on your tax charge, which is almost 0 in the second quarter. Just any kind of explanation as to why that was the case. And how should we think about the tax charges in the second half of the year?

Yes. In the first quarter of this year, you see a positive revaluation of our swap because of the big devaluation of tenge, which resulted in the additional income under swap, which is taxable. That's why you see the effective tax rate in the first quarter was substantially higher than the average effective tax rate for 2019. And before -- because the FX direction changed in the second quarter, there was a loss recorded on the same line, which was actually a reversal of gain, which was -- happened in the first quarter. That resulted in substantial reduction in effective tax rate. However, if you look for the effective tax rate for the first half, it should be close to the normalized level, which you saw for 2019 for the bank.

Okay. That makes sense. And just very briefly, a final question. In terms of the kind of the impact on your business of this second lockdown, I know -- your Slide 8 is very useful. I'm just wondering if you could give any brief kind of color as to how you see some of these indicators performing in July? Do you expect things to kind of take another kind of dip down after the kind of recovery in June, kind of July, August? Just trying to get a sense of how much of a negative impact this is on the business and the economy relative to that first lockdown, that would be helpful.

Yes. Actually, we're trying to carefully review the high-frequency data in Kazakhstan, the best one probably is the short-term economic indicator. And the statistical agency recently provided figures for the month of July, actually, the first month of the second lockdown. I can give you some figures, actually. The sectors like agriculture and telecommunication, they continue to grow. There was a reduction in construction by around 10.8%, but I think it's simply the volatility because, for example, in the month of June, the growth of construction area was more than 22%. So we don't think that it is the direct impact of lockdown measures. It's simply some timing difference in terms of, let's say, delivery of construction works done. So it's specifics of the sector. In terms of the transportation, for example, on the -- I don't have figures for passenger transportation. But in terms of the cargo transportation, there was more or less same figures as we saw during the month of June and May and April, actually. So there was no substantial change. We saw, obviously, because of the lockdown measures, drop in retail trade, but the overall drop in retail trade was relatively mild. It was minus 7.5%, which given the lockdown measures, I think, I would take a positive from this figure. Again, to remind you, in the month of June, the retail trade grew by 1.6%. This was actually the month when there was no limitations. And for comparison, for example, in the month of April and May, the reduction on year-over-year basis was 45% and 30%. So 7.5% year-over-year basis reduction in July, I think, it should be considered as a positive sign, like retail trade being adapted to lockdown measures and try to make sales on a delivery basis. In terms of industrial production, there was a 9.6% reduction, mostly in oil production. The drop was 10% month-over-month basis. And this is the direct result of OpEx plus (sic) [ OPEC+ ] because the country tried to overcomply because it was lagging compliance in the month of May. There was somewhat reduction in some metals production. I don't know exactly the reasons, but I don't -- also don't think that they were result of lockdown measures. So all in all, some sectors were dropping in July. Again, as I said, the direct impact from lockdown is probably on retail trade but was relatively mild and on the cargo transportation. But otherwise, in production, I think it's no direct, and on construction, no direct impact from lockdown. At least, this is how we see the figures and interpret them.

And we have no more questions. We do have one more question in the queue. We have Tunde Ojo with Harding.

Sorry, I joined the call pretty late. So apologies if you've probably answered this question before. The first question I have is the gap between your cash and your accrued interest on loans kind of widened again this quarter from last quarter. I was wondering if you could help us provide an explanation for that, please?

Well, Tunde, thank you for your question. The biggest impact is probably the decision which the bank made on providing the debt holiday for the customers who were impacted by the initial strict quarantine measures during the state of emergency. And to remind, we provided the debt holiday for retail customers for SMEs as well as large corporates, which worked in the segments, which businesses were either fully prohibited to operate by the government degree or whose business was severely impacted. So that was probably the main reason. Next to that, obviously, we have the natural interest income gap related to the fact that we have some good portion of National Bank notes on our balance sheet. And these notes, they are discounted instruments. So they do not have a coupon and all the interest income is through amortization of discount. And also, there is some timing difference. But again, the largest impact was the debt holiday, which was provided in -- starting from the month of March.

Okay. Yes, that's very helpful. And just a follow-up on the debt repayment holiday that you gave. Has that changed from the numbers you gave as at the -- at your last earnings call, and if you want me to just push out those numbers, too, I can. But you gave numbers for the SME and the retail portfolio, you didn't really give it for the corporate because you said that's on the case-by-case basis. So the number you gave for retail was about KZT 21 billion. SME was KZT 46 billion. Has that number changed materially from that level?

We have not updated the figures because I can say that the regulator is asking the banks, again, to look into the SME businesses, which operates in the -- businesses, which were affected by the second lockdown measures like, for example, small business working in the services area. Basically, this is the segment which we paint in red on Slide 7. Actually, it remains up to the bank to consider these applications. We also started receiving, and we're still processing applications from retail customers whose, let's say, initial debt holiday is expiring or has expired because we still not processed all the applications. So that's why, at this point of time, we cannot provide the updated figures. For example, how many customers came for the secondary request. But we hope to provide these updated figures when we're reporting the third quarter results. But not all customers are coming back to us because we see that there is also a good number of customers which start servicing after the debt holiday being expired. But obviously, there is a number of customers who are requesting the second -- the extension of debt holidays. Again, I cannot give you, unfortunately, the exact split percentage wise and vice versa.

Yes. Yes. Actually that was going to be my next question, because I was just trying to gain any sort of indication on what the performance of the portfolio have been after the expiry of this debt repayment holiday. As we know, it was 90 days initially. We've past that 90 days for a lot of those initial applications now. Are you more comfortable just broadly now? Are you more comfortable around how the portfolio is behaving? Are they coming back to pay? Or have you seen more of a situation where you have to then sort of extend those holidays to them? I know you said you can't provide a number, but just an indication of whether you -- just maybe your comfort level, let's put it that way would be helpful.

I think we do not see the situation as, I would say, a very bad one, actually. But to be frank, we probably need more time in order to get the more clearer picture. Because typically, you see that the situation becomes transparent, more transpierce with the 3 to 6 months, even probably a bit later. So I think the autumn would show the -- provide some more clear picture. What is happening. So I think it's fair that we should probably wait for a quarter in order to give, let's say, a more clear view how the overall quarantine, the second lockdown and the overall situation has impacted the SME business. But again, we see a lot of support from the government on -- also on general population. Because there was a question whether during the second lockdown, people would receive the social payments in the same manner, what have been taking place in the first quarantine. And actually, the government made payments for all 6 weeks for people who's making applications. And actually for employed people who was kind of was sent for on paid leave, the employees themselves was eligible for making these applications.

Got it. Got it. And then I'll just probably round up. So -- and I just wanted to get a sense of the impact of this second lockdown that you had in July to August, on asset quality? Has it been damaging like the first? Or is it more a nonissue, if I would like to call it that. What's your view on that? I know it's still kind of very recent, but just wondering what would you expect from that?

Again, the second lockdown is just, let's say, it's only lifted today. And again, the lifting is not done as a onetime. I think the government will be gradually removing these limitations. But as I said during our presentation, the impact on the businesses during the second lockdown is more mild than during the quarantine. So more businesses were able to operate unlike the situation during the month of April, for example. But some businesses, they were not able to operate. And of course, these businesses, they continue to face stress. And at this point of time, again, it's difficult to see how they will be coming out of the second lockdown. But we have seen, for example, from some of our customers, which were operating, for example, in the trade centers. We see that during the month of June, actually, the full month, which they were able to operate almost on full basis, except probably for some weekends. We see some good rebounds in their businesses. But again, we probably have to see a bit longer period of time because we don't know whether we might see some new waves coming in Kazakhstan. And if they will be coming, what the government reaction would be in terms of limiting the business. So I think these kind of things would dictate a lot. If there will be no same situation with infection as we faced in the month of July, for example, the good chance that the businesses would be rebounding to probably not to 100% level, but at least to 90% level in a very quick manner. But again, how long it will stay. I think it's difficult to judge at this point of time.

Yes. And just last follow-up for me from the last question asked on the cash interest gap on loan, is that given the explanation that is largely due to the debt repayment holidays. Does that mean that, that gap widening is not a good measure of sort of asset quality issues now, given that we don't even know who can pay or who cannot pay given you just gave a bunch of -- a lot of people debt payment holiday. Is that a fair assumption that I have, but now that is not a good measure of asset quality problem?

Overall, it's a good indicator. Probably 2 things, I have to say, nevertheless. Number one is that you might still see the fluctuations quarter-on-quarter because some instruments and some loans, for example, the coupon on them is based on quarterly or semiannually basis. So that's why they're affecting these fluctuations. Number two, there was not the -- let's say, the structural situation with interest payments in the second quarter. This is because the government imposed certain limitations. It's not like some businesses, they lost the clients because there was less of demand. But this is because the government didn't allow certain businesses to operate. Just to give you an example, for example, today, the hairdressers start operating. And the anecdotal evidence is that today, they are opening from 8:00 till, I don't know, 10:00 probably and they were fully booked. Because they -- today is the first day, they were able to operate in the last 6 weeks. And there are many evidences, like probably demand is not fully gone. It's because there was some limitations imposed on demand side. Again, how demand would rebound? Starting from today, it's -- I think this is something which we have yet to see. And that would directly get translated into the cash interest gap in the third and fourth quarter.

We'll take our next question from Andrey Mikhailov with Sova Capital.

I have a question on dividends. I would be grateful if you could share your thoughts on the dividend payout ratio increasing further for the FY '20 based results dividend to say around 70%. And also, if you consider a possibility to introduce interim dividend payments.

Yes, Andrey. Thank you for your question. I think it's too premature to discuss what the dividend payout would be for the full year results of 2020. I think there is still many sensitivities laying ahead from an economy perspective. In terms of the interim dividend payments, I think, at this point of time, the answer would be no. We have a -- as you probably know, the dividend payment cycle set as the 1 year. Typically, the decision is done on the Annual General Shareholders Meeting, typically taking place in the month of April. And dividends payment is following shortly. This is only this year because of the extraordinary situation we made some postponement on dividend payments. But this is no indication that we would be making payments a few times a year. So far, we're sticking for 1-year payment.

We'll take our next question from Svetlana Aslanova with VTB Capital.

I'm sorry if you already answered this, but what are actually the retail loan growth you see going forward because we saw quite significant growth in the second quarter, both in mortgages and unsecured loans. Do you see this as a sustainable level? And do you see any risks building there on the second lockdown? Or you consider that the actual state support will basically limit those risks? And also my second question is on your staff costs. Do you expect that the development of the digital platform will add to your staff count by the end of the year? Or do you expect any staff counts decline going forward?

Svetlana, thank you for your questions. Regarding the retail loan, consumer loans. Actually, there is a combination of a few factors. Factor number one, I think there was some accumulated demand because people were not able to visit the banks during months of, for example, March, and so obviously, in the month of April. And once the banks start operating, we see some less demand -- the natural demand coming in. We didn't actually made changes to our program. Definitely, we were not relaxing our terms of the consumer loans. So that is not the factor, for example. We also, starting from the end of last year, made certain changes in terms of how we sell the loans, I mean, in terms of the sales force. So one might say that we became more proactive in terms of that without changing our target customer basis. Without changing the risk profiles and risk requirements, we were still able to get more customers on board. And so we made some additional products, the one which we mentioned during the call, the one you would find in the presentation, like we teamed up with certain big consumer retail shops in Kazakhstan. And we also introduced some additional products. And they also, while not material, but they also started providing some contribution. Whether we might see some deterioration on the consumer credit side, well, it's difficult to judge at this point of time. But as I said, we're sticking to our credit policies, and we were mentioning during our previous calls that we have a strong consumer basis, people who are employed by large companies, by governmental agencies, people who get salaries from the budget, including doctors, for example, and teachers. So some good portion of our customers, they can be called as essential in the context of current situation. So we see comfort in our credit portfolio, but obviously, we're screening the situation. And if there will be deteriorations happening, we would be definitely back into that. But so far, we do not see some situation of -- in this part of the portfolio.

And on the staff count?

On the staff count, actually, already starting from January, actually, from beginning of this year, we kept staff hiring freeze, actually, where we see probably slower staff turnaround because of current situation. We will still -- we still saw some people resigning for their personal reasons. And in most cases, these vacancies have not been filled. At the same time, we continue to hire in some other areas like areas related to digitalization and automation of processes. At this point of time, we do not have specific plans, let's say, for additional layover, except probably from the natural trends which we have seen so far. At the same time, we, as the bank obviously, see the more structural changes which might come from overall change of a more longer-term change in terms of how many people would need to work from office, how many people would work from home even if the situation with infection would be changed. So we are studying that, obviously, no decisions are done at this point of time. We have a certain split in terms of how many staff is working from home and from staff. And those people who work from home, they have full access and they're full operational. So we do not have staff who, I would say, sitting idle as a result, at least that proportion is very immaterial at this point of time.

I will take our next question from Andrew Keeley with Sberbank.

Just a couple of quick follow-up questions. On your provisioning, was there any changes in the macro inputs in the second quarter? They obviously had a pretty big impact on the cost of risk in the first quarter. And if not, then are your kind of GDP kind of growth expected, your kind of core macro expectations for the kind of full year and more or less the same following the second quarter as they were following the first quarter? And then just, I believe, second question on this swap with the National Bank. So that was closed in early July, so is it right to assume that there basically won't be any further P&L impact there in the third quarter?

Well, Andrew, this is Almas Makhanov. Yes, we've reviewed the impact of macro changes in the second quarter, same as we did in the first quarter. And some of the macro assumptions have changed. You probably could notice from the -- from our report that GDP assumptions have reduced a bit. So basically, we review GDP numbers for the second quarter. And however, based on the review of all the macro scenarios, we have not made any adjustments to IFRS models in the second quarter, because overall, the impact from this -- the changes was not significant. As Murat mentioned, we are in the process of reviewing on a constant basis. We're reviewing the quality of the portfolio, also looking at the impact of the macro changes and the lockdown. And also this debt payment holidays also will be -- based the situation around those will be more clear in the third quarter. So basically, in the third quarter, we will do the job once again and see if any changes are needed, any adjustments -- any additional adjustments are needed to IFRS models based on macro and lockdown situation.

And in terms of your question on swap impact in the third quarter. Yes, the swap has been fully repaid in the beginning of July. So there might be some -- still some impact, but it should be much mild comparing to previous quarters because of the timing of the swap entering in the third quarter was very limited.

And we have no more questions in the queue at this time.

Dear, ladies and gentlemen, thank you very much for participating in our call today. And our IR team, as usual, is open for any further questions. Thank you very much. Bye.

This concludes today's call. Thank you for your participation. You may now disconnect.