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

Good day, and welcome to the JSC Halyk Bank 9 months and third Quarter 2020 Results Conference Call. At this time, I would like to turn the conference over to Mira Kassenova. Please go ahead.

Good evening, ladies and gentlemen. Welcome to Halyk Bank conference call and presentation of financial results for the 9 months and third quarter of 2020. Participants to today's call on Halyk Bank side are Ms. Umut Shayakhmetova, Chief Executive Officer; Ms. Aliya Karpykova, our Deputy CEO, Chief Financial Officer; Mr. Murat Koshenov, Deputy CEO of Corporate Banking and International Activities, Mr. Viktor Skryl, Financial Director of Finance and subsidiaries; and myself, Mira Kassenova, Head of FI and IR. And we would like to start our presentation with an update on current epidemiological situation in Kazakhstan, which is presented on Slide #6. As of 16th of November, there were 121,000 COVID confirmed cases or 642 cases per 100,000 people. 1,899 infected individuals died and almost 110,000 people recovered. In addition, 4,000 cases of pneumonia with COVID-19 like symptoms, but with negative PCR test were registered and over 29,000 people recovered. Unlike other countries are currently experiencing surge in new daily cases, Kazakhstan has been relatively resilient, reporting around 560 average daily cases in November compared to peak levels of circa 1,600 average daily cases in July of 2020. In Kazakhstan, we have already experienced 2 waves of COVID-19 pandemic with respect to lockdown in March, May, and a softer one in July, August, which limited usual economic activity, especially within certain sectors of the economy. Currently, Kazakh government has extended travel restrictions on the back of global growth of COVID-19 cases and applied customary preventive measures, limiting certain activities outside daily working hours in affected regions. Next slide, please. Detailed economy and sector -- detailed economy and sector performance indicators presented on this slide could help to depict Kazakhstan economic performance throughout 2020. The country'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. Also, we see some negative impact in July due to the second lockdown with the recovery followed in August and September. The short-term economic indicator for the 9 months of 2020 decreased by 2.5% year-on-year, with better performance compared to decline by 2.9% in 8 months of 2020. In August, short-term indicators declined by 4% year-on-year, while in September, it recovered to minus 0.4%. The improvement in the overall short-term economic dynamics was facilitated by acceleration of positive dynamics in construction, agriculture and moderate recovery in retail trade. The construction sector provided significant support to short-term economic indicator in September by demonstrating growth at the level of 24.2% year-on-year. There is also a gradual decrease in negative dynamics in industrial production, which reduced from minus 5.6% year-on-year in August to minus 3.5% in September this year. Next slide, please. Halyk Bank has a well-diversified loan book with 27.4% represented by retail segment, 15.9% by SME lending and 56.7%. Our corporate book is further diversified by the industry with the largest one constituting only 13% of the loan book. As of the end of September, sectors most affected by the current down cycle, including hotels, passenger transportation, commercial real estate and oil and gas sector comprised 14.3% of our loan book and remains manageable. The bank's retail loans are either issued to payroll clients or secured by real estate or other properties. Our FX lending exposure continues to decrease and now FX loans comprise less than 25% of the loan book and are primarily issued to the borrowers with FX linked income. In the next section of our presentation, we would like to provide you an update on digital and transactional banking. In 9 months of 2020, we have increasingly focused on developing our online customer proposition and enhancing digital touch points with our customers. Overall, 5.4 million retail clients are using our online banking services as of the end of September, and the number of users has increased by 28% since December of 2019. We have seen an explosive pickup in online client engagement, Halyk Bank monthly active users and transactors increased by circa 1.9 and 1.8x, respectively, over the last 9 months. The online channel penetration continues to grow rapidly with a number of monthly active clients, increasing by 22% in the third quarter versus the second quarter of 2020. Homebank has already become a key customer acquisition channel with launch of fully online client onboarding in April this year. In the first quarter of 2020, 223,000 new clients were registered online with total 526,000 clients acquired online since the service launch. Next slide, please. This year, we have also experienced significant growth in our retail clients, payment and transfer volumes driven by rapid shift to cashless transactions. Our service proposal encompasses full scope of modern payment services, including online and QR payments within the partner network and P2P and international transfers. Broad partner network allow us to offer more than 5,400 payment services within our digital platform and we are continuously adding up to new payment options. As a result, total volume of cash and noncash payment processed by Halyk Bank in 9 months of 2020 reached KZT 17.2 trillion. At the same time, customer payments and transfer volumes through our online platform Homebank has expanded by 53% and 1.9x in the third quarter versus the first quarter of 2020. Next slide, please. We also continue to see significant pickup of client activity in our digital channels. It would be fair to say that COVID-19 had a profound impact on customers' behavior and led to accelerated shift to digital services and channels. For instance, as of the third quarter of 2020, over 22% of total deposits were attracted online, representing 1.6x increase versus the first quarter of '20. At the same time, almost 10% of accounts have been opened online versus less than 1% in the first quarter. Loans issued online already accounted for 40% of total issuance volumes in the third quarter of 2020, while this metric was below 12% in the first quarter. Our monthly online loan issuance volumes have increased 11.4x in September versus January of 2020. And we believe that such trends have strong momentum, and they are likely to continue. Therefore, we are devoting a lot of our energy and resources to making sure that Halyk Bank's digital offering and infrastructure remains best-in-class. Next slide, please. Apart from developing core banking and transactional digital services, we have made a substantial progress in our retail ecosystem development. We are building an open ecosystem, providing partners with specialized digital solutions. We have partnered with major Kazakhstan retailers like Technodom, Sulpak and Alser in the first half of 2020 and added a number of others in October 2020. Having integration processes in place and tested, we expect to further expand our partnership network. Open ecosystem allows us to attract new clients and grow loan portfolio. Halyk consistent partners already contribute over 72% of total online loan issuance in the first quarter of 2020. Beside open ecosystem framework, we're introducing proprietary lifestyle and auxiliary services for retail customers. In March, we launched online auto insurance that allow us to acquire -- that allow our customers to acquire an insurance in 5 easy steps in 5 minutes. Halyk Travel launched in September is a search, compare and buy engine for air and railway tickets and hotel booking. And we aim to expand it further, offering loan and installment financing options as well as partner promotions. We are building the largest ticket operator in Kazakhstan called Halyk Kino. It was launched in October, and we aim to gain strong momentum once COVID-19 effect on the entertainment industry would be over. In November, we launched Halyk invest, an online brokerage platform, providing access to a range of investment instruments, including public IPOs. Next slide, please. On Slide #14, we would like to highlight significant developments in corporate and SME digital proposition. Our leading digital platform for businesses called Onlinebank provides full scope of transactional financing and business services online. Number of Onlinebank users reached 197,000 in September this year, increasing by 21% since December 2019. We have been continuously expanding and improving our offering and introduced a number of products and services over the last month. Online client onboarding, which we launched in June, already resulted in over 82% of the individual entrepreneurs accounts being opened online in September of 2020. In August, we launched full online business loan issuance for individual entrepreneurs. In November, we have introduced with GPI, high-speed international payments processing. Volume of payments and transactions number of online bank have expanded by 29% and 31% in the first quarter versus -- in the third quarter versus the first quarter of 2020 supporting strong customer engagement. And now I would like to hand over the call to Viktor Skryl, Financial Director, who will provide you an update on financial performance of the bank. Thank you.

Hello, now let me switch to Halyk Group consolidated financial results for the 9 months and third quarter of 2020. In the third quarter of 2020, we burned KZT 88.7 billion of net income. They increased by 18.3% compared to Q2 2020, was due to the growth in other noninterest income, positively affected by the repayment of swap agreement in July 2020 decrease in credit loss expenses and increase in net fee and commission income Q-on-Q. In third quarter 2020, we demonstrated 25.9% return on average equity and 3.6% return on assets. Next slide, please. Total assets of the group increased by 2.8% compared to the end of second quarter 2020, mainly as a result of the revaluation of [ its ] balance sheet positions due to KZT depreciation versus U.S. dollar during third quarter 2020. Customer deposits increased by 5% versus the end of 2Q 2020, mainly due to the revaluation [ FX-denominated ] deposits and to a lesser extent, as a result of fund inflows from the bank's clients. Next slide, please. Interest expense for the third quarter of 2020 increased by 15.5% versus 2Q 2020. Mainly due to the increase of average balance and share activity deposits in the amount due to customers and due to recognition of discount on receivables on sale of assets in installments. Increase in interest income on loans to customers by 6.2% was partially offset by a decrease in interest income on securities due to transfers in placements from high-yield National Bank loans into low-yielding FX deposits in National Bank. Following the repayment of swap agreements for the amount of USD 912 million. As a result, interest income Q-on-Q stayed flat, while net interest income declined by 11.3%. Net interest margin decreased by 2 -- 4.2% for third quarter 2020 compared to 5% in 2020. Mainly due to the increase in the volumes of placement into FX deposit with the National Bank following the repayment of swap agreement, and due to one-off effect of recognition of discount on receivables on sale of assets in installments. Excluding this one-off FX-adjusted NIM for the third quarter 2020 would be 4.5%. NIM was also negatively affected by a decrease in the average effective interest rate on retail loans due to increase in issued and unsecured loans with borrower's life insurance bundle, income on which is reflected in insurance income, an increase in online installment loans, which includes fees from merchants recognized in fee and commission income. Next 2 slides demonstrates 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 and depicts earlier mentioned last quarter [ trends ]. Slide 21, please. Compared to 2Q 2020, our gross fee and commission income increased by 16.6% as a result of growing volumes of transactional banking mainly in payment card considerations as well as cash operations and bank transfer settlement. The increase in fees derived from bank transfer settlement in 3Q 2020 by 38.3% compared to second quarter of 2020 was caused by the pickup in issue of online installment loans which are issued to a bigger system partners, the largest appliances retailers in the country. Fee and commission expense increased by 10.7% compared to 2Q 2020 mainly due to increase in payment cash expenses caused by the decrease in the volume of acquiring volumes. Operations expenses for 3Q 2020 increased by 2.2% versus 2Q 2020, mainly due to the increase in salaries and other employees benefits as a result of the increase in sales based payment and retail business in 3Q to and due to lower mutational payment in 2Q 2020. The bank's cost-to-income ratio decreased to 26.8% compared to 28.2% for 2Q 2020 due to higher operating income in 3Q 2020. Next slide. This slide shows from different perspectives, our historically strong liquidity position, where deposits as a percentage of loan equity fundings equal to 82.2%. The share of rented assets in total of assets was 42.1%. In addition, we have relatively low loan leverage with net loans reported equal to 59%. And net stable funding ratio equal to 1.77%, well above the regulatory requirement. Next slide, please. On the balance sheet, compared with the end of 2Q 2020, loans to customers increased by 6.5% on a gross basis and 6.6% on net basis. Increase of gross loan portfolio in 3Q 2020 was attributable to increase in corporate loans of 4.8% on credit basis whereas SMEs and retail loans increased by 6.2 and 9% from gross basis, respectively. Next slide, please. The bank's asset quality is notably improving despite the turbulent economic environment. Gross 90-day NPL ratio decreased to 6.4% from 6.9% as of the end of 2020. The 90-day NPL coverage ratio increased to 154.5%. The provisioning rate slightly decreased to 9.7%. The cost of fee decreased to 0.2% compared to 1% in 2Q 2020 due to repayments of large ticket problem loans of corporate borrowers and due to recovery of retail loans. Cost of risk was also positively affected by changes in macroeconomic assumptions when calculating provision increase for collective loans in accordance with IFRS 9. Next slide, please. Stage 3 ratio decreased from 15.7% as of the end of 2Q 2020 to 14.8%, mainly as a result of repayments of large ticket problem loans of corporate borrowers and due to recovery of rate of retail loans. We are additionally showing here how well the recovery of problem loan collateral was done by the bank SPVs during 9 months of 2020. Next slide, please. On liability side, the corporate and retail deposits increased by 7.9% and 2.3%, respectively, compared to the end of the second quarter 2020, mainly due to positive revaluation of KZT denominated deposits due to KZT depreciation in third quarter of 2020 and to a lesser extent, due to fund inflow from the bank's clients. As of the end of 3Q 2020, the share of corporate KZT deposits in total corporate deposits was 55.5% compared to 56.6% as of the end of second quarter. We have the share of retail KZT deposits in total retail deposits remain almost flat. On Slide 28, we show our capital position. Compared to the end of the second quarter 2020, total equity decreased by 6.9% due to payout of dividends to shareholders in third quarter 2020. The bank continues to have significant capital buffers with CET and total CAR spending in 22.8% and 24.3%, respectively, as at the end of third quarter 2020. And this completes our presentation, and we would like to open the floor for your questions.

[Operator Instructions] We'll take our first question today from Elena Tsareva of BCS Global Market.

I have several questions. First, my question is on guidance. So actually, I don't have -- seen the presentation, any slide on guidance. But according to the previous guidance you provided, it looks like with cost of risk and margin now behaving a bit different. So we see the cost of risk very low in just for 9 months, it's already at the level of [ 0.9 ] and margin is a bit weaker than maybe -- probably in the first half of the year. Do you amend -- do you confirm the previous guidance you provided or do you amend any lines of guidance for this year? That would be my first question.

Elena, hello, thank you for your question. Yes, while we formally do not change outlook in this time of the year. Yes, indeed, we might say that the 1.5, which was our initial outlook is probably too much given the dynamics in the asset quality, which we witnessed in the quarter 3. And we don't think that cost of risk would be higher than we have for the 9 months of this year so far. And for 9 months so far, we have 90 basis points.

Okay. So I assume that 1.5 cost of risk the full year is valid guidance and it means that it should pickup quite heavily in the fourth quarter. Did I get it right?

Yes, we do not expect that cost of risk would be more than 1%, probably somewhat lower.

Yes, understood. And just on repayment of corporate, large corporate account, if you just may provide any -- just details on such kind like [ exposure of ] sector? Or maybe just give the color, if it's just one-off or maybe there is some positive triggers for some repayments to expect from problem loans, in corporates, [ not on the books ].

Elena, unfortunately, the line is not good today. Do understand correctly that you're also asking the details on the revision of provisions on the corporate loans. And on retail, in the third quarter, is it correct?

Yes, sir.

Yes, we have certain repayments of problem loans. And as you saw that from time to time, we were recording revision of provisions because we managed to recover some problem loans. So that also happens in the third quarter of this year. As well as we made some revision so -- if you remember, in the third quarter, we -- due to change in the macro assumptions, we created some provisions related to COVID estimations. And that mostly happens in our retail portfolio. And because by now, we already see the crystallization of situation in our retail portfolio and some of provisions for loans, which became past due, we actually recorded the actual provisions for them in the second and third quarter. So that also gives us the possibility to adjust the -- I would say, the expected loss portion of provisions. And that also led to lower cost of risk in the third quarter.

Okay. And just another question on your margins saw quite a strong decline in third quarter because of this swap repayment. So going forward, do you expect the same low-margin to stay like around [ 12% ] the next quarters, or there is a chance you can somehow offset this negative effect for second and third quarter?

Thank you for your question. Let me first explain what was dynamics, what explained the dynamics of net interest margin in the third quarter. First of all, if you know, we had our swap with -- we had outstanding swap, which actually matured in the beginning of July. So actually, the impact was for the whole third quarter. And after we closed the swap, actually, we saw that on the asset side, the roughly KZT 300 billion plus of was replaced by the matching -- the dollar amount. That's why on the asset side, the high-yielding tenge asset was replaced by lower-yielding dollar assets. So that was the first impact. The second one was due to a discount of receivables because we, due to current situation, had to extend certain payment due for the assets, which the bank sold that actually translated in recognizing additional discount at the time we made that expansion. Actually, that discount would be reversed due to time difference in the upcoming quarters. So we don't think that it will be repetitive. So it's -- we have a more kind of one-off impact, and we showed that in our presentation. And another impact is coming from the fact that we saw some repayment of dollar loans and some customers were preferring to shift from dollar loans into tenge loans. And while the tenge was weakening in the third quarter, you see that the portion of dollar loans actually used in our portfolio. That actually added so some portion of this dollar loans were shifted into lower-yielding other low-yielding dollar assets. And the reason #4, and I'm giving in the seconds of reducing impact, and the reason #4 was that we actually introduced loans, which we launched together with our ecosystem partners, where the customers can buy the goods from them and make the payments in installments. And the interest is compensated by our ecosystem partners. So from that perspective, the interest on these loans are recognized in the fees and commission line. So that is not recorded in the interest income but rather in the fees income. So these 4 categories is largely impacted the dynamics in NIM. Now let's talk about how we think the NIM will be evolving going forward. So the impact of swap is gone. So because we have fully repaid, fully closed that transaction. And we think that the dynamics would be now more aligned with our activity in placing our assets, and we working on building our credit portfolio. We're working on the instruments to place our excess of dollar liquidity into more higher-yielding instruments. And recent number -- and another impact might be coming from upcoming repayment of Eurobonds. If you know, we have $500 million bonds, which due to mature in January next. So all these factors, we believe, would drive net interest margin to a higher level. And while we do not set our full guidance for the next year yet. We think that we have good chance that our NIM will be approaching the area of 5 next year. But again, this is not the official guidance yet. This is kind of the, let's say, the scale of reversal, which I'm more talking about.

We will take our next question from Egor Fedorov of ING.

Actually, you just answered my questions and I need to think about new one. Well, just a follow-up for NIM, and the impact of this -- well, 4 reasons you told us. If we can -- can we break down this will [ big disappearance ] in terms of our, this change, negative change in net interest margin for the third quarter. What takes more, this looks -- how much is [ changed ] for NIM? This would be my first question. And the second question, given the situation of the Eurobond market, do you have any plans to look for to -- to go to the market with the new issue or you just said that you had excessive -- I think liquidity and you are thinking how to manage it? Well, the first question is actually concerned this What is the balance in terms of your FX liquidity right now?

Egor, yes, thank you for your question. If I understood correctly, your first question was regarding what was the particular impact from closing our swap transaction and some other items on NIM. The impact from closing of swap transaction and some secondly rotating of assets from high-yielding tenge assets into low-yielding dollars was in the area of 40 basis points. And the impact from additional discount on receivables is close to 30 basis points. And the other portion was having a smaller impact. And regarding your second question on our prospects and our plans on the debt capital markets. At this point of time, as you see, we have excess dollar liquidity. And from that perspective, we do not have current plans to go to debt capital markets.

[Operator Instructions] Our next question will come from [indiscernible] Invest Capital.

Hello, thank you for your presentation. I have a couple of questions. First, first question. Do you ever think of possibility of interim dividend because the dividends for the next year will be quite a good one. And I think for many investors, it will be very good to get some interim payments, and it will be very good for capitalization of the bank. Do you think of this possibility?

Lenny, thank you for your question. So far, we have a dividend policy to make payments once a year after we concluded the annual OJSC results, which is -- it needs to be approved by the General Shareholders' Meeting. So far, we are not changing the frequency of these payments. So next decision on dividend payments will be done -- first of all, proposal will be done by the Board of Directors. Usually, it happens in the month of March. And then usually we take -- usually then it follows by the General Shareholders' Meeting late April or beginning of May.

Okay. And second question, do you have any plans on maybe a discussion about Moscow Exchange listing. So I think it also will be very good for your capitalization. Because mainly Russian investors interested in your shares and so it will be much more convenient for them to invest in Russia.

Lenny, I'm afraid that we didn't get your question. Could you please repeat, today we have a bit bad line.

Okay. Do have any discussion about possibilities of Russian, Moscow Exchange listing. Because many Russian investors interested in our shares, very very good dividend yield, very good bank, and it will be much more convenient for them to invest in Russian market. So it will be very helpful for your capitalization.

At this point of time, we have our shares listed on Kazakh Stock Exchange and now GDR solicit on -- in London Stock Exchange on [indiscernible]. And at this point of time, we do not have plans to list our instruments on other exchanges.

Our next question will come Tunde Ojo, Harding Loevner LP.

Two from me. The first is do you mind giving an update on the value of loans still on the relief? Maybe if you can give it by segment as well, retail, SME, corporate, that would be helpful. And more broadly, what are you seeing from your customers in terms of the payment behavior as things open up? Are they coming for to repay further or at least still [ largely ] on the moratory. Just to get a sense of the movement over there. The second question for me is on the government concessional loan that you talked about in previous quarters. I just wanted to get a sense of how that has progressed and whether you've made any sort of headway on that front? And basically how much have you disposed if that have been launched by the government of Kazakhstan?

Tunde, hello, thank you for the question. One moment, please. Regarding your first question, just to remind, so we had close to 16% of loans -- of retail loans for which we're providing repayment holiday. At this point of time, almost none of these loans remain in this payment holiday. And we had less than 1% of these loans, which went into NPL 90 plus. So it's fully reflected in NPL position, which we providing in our presentation. Regarding SME, as I remember, we had close to 25% of loans, which -- for which we provided the payment holiday. Again, majority of loans already start performing according to the schedule. And we still have, at this point of time, around 6% which are still in the payment holiday. And could you please repeat your second question? Because I'm not sure that I get it correctly.

Yes. Yes, talking about a concessional government loan, about KZT 600 billion concessional government loan that was launched I think in -- during, I think in Q2, during the pandemic, right? I was wondering how far have you gone on that, and has the government disbursed? Have you been able to make any headway on disbursing those loans to your customers, and how much?

Yes. We actually participated in this program and now I get it, yes. We had the highest allocation of this amount, close to 30% in terms of the limit. But in terms of the placement, I think we have placed even higher portion of money, which was allocated. It was more than 30%. And we're also participating in other programs because also the additional initiatives from the government side in order to lower the rates on these loans and also extending the tender backwards. So they would be the concession interest would be applicable starting from months of March when the state of emergence was introduced. And we also are now actively working with our customers and the government institutions in order to make these government programs eligible for not eligible but, which would be applicable for our customers.

Okay. So I'm just going to revert back to the first question a little bit. Do you -- can you give us a sense of the level of corporate loans that have been given some sort of relief or being restructured just due to the pandemic?

Well, on the retail and SME, we were acting on, let's say, massive scale. That's why we were mostly approaching them for -- in terms of providing the restructuring. On the corporate loan, we look from different perspectives. That's why we, on the Slide 8, providing a number of sectors, which we believe is those which, to a certain extent, affected either by the currency measures from the government side or because they're affected by a sharp reduction in oil prices. And we have been providing these statistics for the third quarter already. And if you would see the percentage of that exposure is reducing. We can say that in terms of the oil and gas production and oil and gas services, the -- all repayments from our customers is done as the timing due. So there is no restructuring on that side. And this exposure is being reduced as originally planned. While for real estate, passenger transportation and hotels, this is the areas which, to a large extent, still experiencing certain restrictions in terms of their business. And the restructurings which we have is mostly in these 3 subsectors.

[Operator Instructions] Our next question is a follow-up from [indiscernible] Invest Capital.

Could you just give some comments about possible competition with Kaspi group. It since their very successful IPOs, on what is your expectation from this side, I mean what is the situation now? And what is your expectation for the next years?

Lenny, we are not sure that we understood the exact question on Kaspi side, on competition side. Would you please specify?

Since Kaspi had very successful IPO and their business is expanding quite well in financial sector. Do you feel any competition from their side? Is it influence on your business now? And what is the expectation for the next years from their side?

Yes. Because we are playing in -- we actually [ face ] on the same market. Obviously, any competition with any banking or nonbanking institutions is felt. We're active, not only on the bank side, we also have business on insurance side. We have also subsidiaries in the brokerage. So the competition is always present in Kazakhstan. It's having different forms and shapes. Currently, yes, there is a very tight competition on retail side, it's not only about us or Kaspi. We see more and more banks and not only banks, but also other consumer players, for example, they are becoming more active in terms of building different kind of platforms, marketplaces, financing solutions. So we think that competition is tight. It will continue probably to be tight because the consumer here in Kazakhstan, I think, still has potential, and not only on the consumer side, but also, for example, on SME side. And we, as the banks are trying to have our role in all these developments. And we access not only on retail side. As you see, we're also launching certain solutions which are on, for example, making online solutions on insurance side. We, in this month, launched solution, which is targeting retail investors. So we -- as the bank trying to, I would say, make our efforts not only on the consumer retail side, but also along all the business lines, which -- where we, as the group are present.

Our next question from comes from Simon Nellis, Citibank.

I have a question about the workout of problem loans collateral by SPVs. I think you have some details on Slide 26. Sorry if I may have missed this, but what -- did you report some gains in the third quarter from disposing these assets? And how is the outlook for further disposals and the impact that that could have on the earnings? That would be my first question. And then the second question actually from the same slide, would just be, can you walk us through the decline in stage 3 loans? Was that driven by curing or recoveries or by write-offs or NPL sales? And then last, following up on the competition question. Can you give us an update on your acquiring market share and your position in retail card issuance because it does seem that Kaspi is trying to shake up the card market. They're telling us they have almost 70% market share in retail payments in Kazakhstan, and they're looking to roll out a QR based acquiring solution that would basically bypass most other traditional rails. So just wondering how you feel about that and how you can compete against that?

Simon, thank you very much for your questions. Let me answer them one-by-one. I'll let us answer them one-by-one. So regarding the our work both of our SPV subsidiaries. Despite the situation with quarantine, when the work of our subsidiaries as well as customers who are limiting in terms of visiting these assets of which were proposed for sale. I think they did a good job in terms of reducing the assets on their balance sheet, which is indeed witnessed in our bio presentation. In terms of how much gain we recorded. Actually I can refer you to the Note 26 in our financials, where we start providing more details in terms of income on nonbanking activities. And you'll find there that we are showing net gains on sales of commercial property and net gains of sales of assets held for sale. It's actually 2 items, which are largely corresponding to any property which is sold either from bank's balance sheet or from the balance sheet of our subsidiaries, which is related to stress assets or problem loans. And for 3 quarters -- sorry, for the third quarter, the aggregate gain was KZT 4.3 billion and for 9 months, it is above KZT 16 billion. So we try to maximize the gain, which we can get from the assets, which is helped by our SPV or by the banks. Regarding the dynamics on Page 3, just a moment, please.

Actually, if I could just add a follow-up question to the first one, because you have KZT 187 billion of assets less. What is generally the amount that you recover again, cents on the dollar? Or is that not something that you've looked at? Again just wondering how much of that can be recovered in the future.

Actually, there is no specific percentage here, which we would say, usually gain from historical because I think when we talk about the large items, then it's really one by one situation. So I'm afraid that there is no kind of the rule of thumb percentage. While you might notice the same note that the scale perspective, we have more or less same amount, which we recorded in the 2019 and 2020. Like in 2019, for 9 months, we had a gain of KZT 14 billion. And to remind, this year, we had KZT 16 billion. So it's pretty much the same scale, but it's -- I don't think that it's kind of -- if you take it as a kind of guidance going forward. It's really -- it depends on particular situation.

But if I compare the KZT 16 billion with the KZT 40 billion of reduction, in disposals is that how to look at it? You may -- you kind of recover 50% [ close to 50% ]

Because on SPVs, we are showing only assets, which is sold by SPVs. But these lines in Note 26, that also includes the workout done by the bank itself, from the balance sheet of the bank. And also, it would include any workout, which is done by our other subsidiaries like we have subsidies, for example, in Russia. And today, because of acquisition of subsidiary of KKB had certain acquired some problem assets and problem loans. So they're also progressing well with reducing their portion. So that -- in that slide, in particular, we're only showing the portion of that. So the total amount of workout provision might be higher, but I don't have the specifics at this point of time, in front me. Regarding your second question, I think it was on Stage 3 dynamics?

Stage 3, migration.

Yes, we indeed had a good quarter in terms of reducing the Stage 3. And that was the combination of working out of few large corporate loans or problem loans. As well as some portion of that reduction was attributed to some sale of consumer credit card portfolio to collector company. And actually, that also helped to reduce the Stage 3. And could you please repeat your third question? I think it was on the fees, on the -- the payments or...

There was on -- [indiscernible] indirect [ loan ] payments, yes. Just how are you going to respond to Kaspi, kind of competitive threat to take over the acquiring [ market share].

Yes. Yes. Yes. One moment, Simon. It's a bit not straightforward question and answer, I think, because, yes, as you know, for example, on acquiring there is a official part, and official part, I mean it can be e-commerce or the post terminals where banks are using the cards of, let's say, Visa, Mastercard, American Express or UPI. So this is one portion. And you can measure the, let's say, market share of banks on that side. But then there is some other portion of payments, which are not necessarily coming through these international -- through the cards issued by international systems. Sometimes they can be within the banks. And so some players actually heavily promoting that and this is not necessarily visible for other players. And from that position, it's probably difficult to exactly estimate the portion of which banks, if you would include this portion of payments, which I don't know how to call unofficial or some expanded, actually [ I'd be cautious ] in terms of the naming. But if we're talking about the, let's say, portion which we talked in the beginning, I mean the acquiring, which is coming through a network of cards, which is issued by international companies, then definitely, our position is quite strong, probably above 30% but again, it depends really what particular payments you are talking about and what you will be including. And as I said, not necessarily all payments might be visible from a statistic perspective.

I guess, what I'm really wondering is, do you see pressure on interchange rates or MDRs from this competitive threat? Because I think they're rolling out disruptive pricing, if you use the Kaspi app with the Kaspi point-of-sale terminal that can acquire a QR code. So do you think that's going to put pressure on your fee business? That's, I guess, the main question was.

The competition is tight a bit in this kind of business. Again, it's not about Kaspi and us only, there are a few other banks which are still competing and competing hard, I would say, in this kind of the business. In terms of the dynamics, yes, we noticed in few quarters. Last year, we see the situation when we had quite pricing dynamics in terms of net fees and commissions. But lately, we see some stabilization on aside, and we're also trying to provide other solutions of the customers. You see that we have increasing percentage of people who are using our home bank system, including the active users there is a competition. It's tight competition, but we are in this competition, and we're trying to have our role in this market.

At this time, we have not received any further telephone questions. I would like to hand the conference back to our speakers for any additional or closing remarks.

Yes, ladies and gentlemen, thank you very much for participating in our financial results call today. And please feel free to contact our IR team in case of any follow-up questions. Take care and stay safe. Thank you. Bye.

This will conclude today's conference call. Thank you all for your participation. You may now disconnect.