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

Good evening, ladies and gentlemen. Welcome to Halyk Bank conference call on presentation of financial results for the 9 months of 2021. [Operator Instructions] Please note that the call is being recorded. Participants to today's call on Halyk Bank side are Ms. Umut Shayakhmetova, Chief Executive Officer; Mr. Murat Koshenov, Deputy CEO of Corporate Banking and International Activities; Ms. Aliya Karpykova, Deputy CEO, Chief Financial Officer; Mr. Anton Musin, Deputy CEO Digital Banking Transactional Business and IT; Mr. Dauren Sartayev, Deputy CEO SME Banking, PR and Marketing; Mr. Viktor Skryl, Financial Director, Finance and Subsidiaries; Mr. Almas Makhanov, Chief Risk Officer; Mira Kassenova, Head of FI and IR; and myself, Margulan Tanirtayev, from IR Team. Now let me start with overview of Halyk Group consolidated financial results for the 9 months and third quarter of 2021. During the 9 months, the bank generated KZT 333.1 billion of net income. The increased by 36.2% compared to the 9 months of 2020, was due to the overall business growth across all segments. In the 9 months of 2021, we demonstrated 29% return on average equity and 4.1% return on assets. Next slide, please. Total assets of the group increased by 8.6% versus the year-end of 2020 as a result of growth in amounts due to customers, both individuals and legal entities. Customer deposits increased by 12.6% versus the year-end of 2020, due to fund inflow from the bank's clients. Next slide, please. Interest expense for the 9 months of 2021 increased by 6.8% versus the 9 months of 2020, mainly due to increase of average balance and share of KZT deposits in the amounts due to customers, which was partially offset by the decrease in interest expense on debt securities as a result of redemption of bank's high-yielding Eurobonds. Interest income for the 9 months of 2021 increased by 17.9% versus the 9 months of the last year, mainly due to increase in average balances of loans to customers. Net interest margin increased to 5.3% per annum for the 9 months of 2021 and to 5.5% per annum for the third quarter of 2021, compared to 4.8% per annum for the 9 months of 2020 and to 4.2% per annum for the third quarter of 2020, mainly due to improved structure of placement of interest-bearing liabilities into interest-earning assets and due to savings on coupon payments as a result of an early redemption of bank's high-yielding Eurobonds. As you remember, in the first quarter of 2021, the bank made full prepayment of its outstanding Eurobond issue, which resulted in accelerated amortization of discount in the amount of KZT 5 billion, being recognized in interest expenses. Additionally, the bank recognized KZT 14 billion of amortization expenses in the third quarter of 2021. Moreover, due to the nature of the transaction, the management of the bank believes that the accelerated amortization of discount on bank's Eurobonds relates to noninterest expenses. As in such a way, it provides more valuable information to the readers of the financial statements and enables them to identify a more consistent basis for comparing the bank's performance between financial periods. Therefore, in third quarter of 2021, the bank recognized additional KZT 14 billion of amortization expenses in noninterest expenses and reclassified previously recognized KZT 5 billion of amortization expenses from interest expenses to noninterest expenses. In total, this translates into KZT 19 billion of amortization expenses being recognized in noninterest expenses for the 9 months of 2021. Next slide, please. Compared to the third quarter of 2020, our gross fee and commission income increased by 11.3%, as a result of growing volumes of transactional banking, mainly in plastic card operations. The fees derived from bank transfer settlements for the third quarter of 2021 remained almost flat due to a gradual decrease in traditional bank fees, which was offset by the increase in merchant fees as a result of growing volume of online installment loans issued. The increase in fee and commission expense for the third quarter of 2021 by 12.3% versus the third quarter of 2020 was mainly due to the increase in payment card expenses as a result of growing volumes of transactional banking and noncash transactions, partially offset by the decrease in deposit insurance fees [indiscernible] Kazakhstan Deposit Insurance Fund due to lower rates for the bank on the back of increase of capital adequacy ratios. Next slide, please. Operating expenses for the 9 months of 2021 increased by 17.4% versus the 9 months of 2020, mainly due to the indexation of salaries and other employee benefits starting from the 1st March of 2021, increase in IT investments, increase in loyalty program bonuses payable to the customers and increase in charity expenses as a result of one-time contribution to Charity Fund Halyk. The bank's cost-to-income ratio decreased to 24.1% compared to 26% for the 9 months of 2020 due to higher operating income for the 9 months of 2021. Next slide, please. On the balance sheet, compared with the year-end of 2020, loans to customers increased by 21.3% on a gross basis and 23.1% on a net basis, while corporate loans increased by 17.5% on a gross basis and SME and retail loans increased by 16% and 32.2% on a gross basis, respectively. Next slide, please. 90-day plus NPL ratio decreased to 3.4% from 4%, mainly due to repayments of large ticket problem and previously impaired corporate loans. Cost of risk on loans to customers in third quarter of this year was at more normalized level of 0.9%. The provisioning rate decreased to 6.4%. The NPL 90 day plus coverage ratio increased to 202.1%. Next slide, please. As at the endof the third quarter of 2021, Stage 3 ratio decreased to 9.8% from 10.4% as at the end of the second quarter, mainly due to repayments of large ticket problem and previously impaired corporate loans. We are additionally showing here how well the workout of problem loans collateral was done by the bank's SPVs during the 9 months of this year. Next slide, please. On the liability side, the corporate and retail deposits increased by 12.2% and 13% respectively, compared with the year-end of 2020 due to fund inflow from the bank's clients. As at the end of the third quarter of 2021, the share of corporate KZT deposits in total corporate deposits was 55.2% compared to 57.3% as at the end of the second quarter of this year, whereas the share of retail KZT deposits in total retail deposits was 50% compared to 49.2% as at the end of second quarter of this year. Next slide, please. Compared with the year-end of 2020, total equity of the bank increased by 8% as a result of net profit earned by the bank during the 9 months of this year. The bank's capital adequacy ratio increased with CET1 and total capital adequacy ratio is standing at 21.5% and 22.5%. Now I would like to hand over to Ms. Mira Kassenova, Head of FI and IR.

Good evening. Now I would like to provide a digital update as well as the bank's business segment update. Customer engagement within our core online platforms, Homebank and Online Bank has continued to grow in 3Q 2021. The number of monthly and daily active users of Homebank app, our key retail digital channel has increased by 68% and 80% year-on-year, respectively. MAU reached 3.7 million in 3Q 2021, and we are well on track to reach our 4 million-mile target by 2021 year-end. We see sound growth in our digital platform for businesses online bank, notably, a number of active users of our online bank app has reached 116,000, increasing by over 4x year-on-year. The app is ranked #1 within the respective category in Kazakhstan, reflecting seamless experience and service we offer to our clients. In 3Q 2020, we launched additional services and functions within our platforms. This includes a number of innovative services such as Halyk QR for retail customers and merchants, government services and online auto loans in Homebank. Next slide, please. Rapid integration of customers to our digital platforms supported strong growth in credit and noncredit products for retail clients and businesses. We see continued shift to cashless transactions. Over 57% of retail payments volume were represented by noncash transactions in 3Q 2021, a notable increase from 36% a year ago. Online sales were the key driver of retail loan growth as we now issue over 67% of loans digitally. We started new relationships with almost 40,000 business clients entirely via online bank in 9 months of 2021. And we see strong growth in online transactions and payment volumes, which have grown by 20% year-on-year in 9 months, and by 2021 year-end we expect to onboard 60,000 of new businesses online, and we are well on track to reach this goal, while we already exceeded full year target for a number of digital loans issued to IE. Next slide, please. We see substantial progress across our retail ecosystem verticals. Premiums written within our online auto insurance platform increased 3x year-on-year, while GMV of Halyk Travel and [indiscernible] have been expanding rapidly by 109% and 45% Q-on-Q respectively. We hit 37,000 mark in the number of customers in Halyk Invest, exceeding our target for 2021 as our investment platform is growing swiftly. Development of our marketplace platform, Halyk Market remains a key priority for us. Our network expanded to 319-plus offering over 126,000 SKUs nationwide as of September 2021, and the focus to expand our footprint further. Our Marketplace GMV has doubled year-on-year, reaching KZT 30.8 billion in 3Q 2021. At the same time, we are expanding our ecosystem, introducing new services in Homebank app, which are convenient for our clients and support high customer engagement. For example, our recently launched Halyk Remote Refueling Service has been well received by customers as number of orders increased by almost 5x during 2 months. Next slide, please. Turning to Retail segment, we would like to highlight solid performance across key dimensions. Our active retail client base has grown to 8.9 million clients as of 9 months 2021, and we see increasing digital footprint with our Homebank app and growing transaction activity. The transaction volumes have increased by 31% year-on-year as we processed over KZT 22.6 trillion of transactions in 9 months. More importantly, products per customer increased to 3.1% versus 2.7% a year ago, reflecting strong customer engagement. Retail loans have shown strong growth of 32.2% year-to-date, while customer deposits increased by 13% year-to-date. Next slide, please. As mentioned, we have shown a very robust growth in retail lending. Our retail portfolio has grown by 60% since the beginning of 2020. While the loan issuance volumes have increased by 87% year-on-year in 9 months 2021, with record KZT 138 billion new issuances in September alone. The growth has been primarily driven by digital sales, which increased [indiscernible] year-on-year and reached 28% of total retail loans issued in 9 months. At the same time, asset quality has continued to improve further with the retail NPL ratio decreasing from 5.5% in 2Q to 4.8% in 3Q, while we increased our already conservative provisioning coverage. Next slide, please. In Corporate Banking, our loan book has expanded by 5.4% Q-on-Q or 20.2% year-on-year as we increased financing volumes for new and existing customers with the recovery of Kazakhstan economy. Corporate portfolio remains well diversified across industries, while local currency loans comprised 68.4% of the loan book. Corporate NPL ratio decreased to 1.9%, while already conservative provision and coverage increased to [indiscernible] 195% as of the third quarter of 2021, reflecting our solid asset quality and prudent risk management. We see strong growth in our active corporate client base as it reached over 1,900 customers in the third quarter. Essentially, customer engagement and transaction activity have been increasing as well. Next slide, please. We continue to develop online bank as our powerful platform for our SME and corporate customers. And over the last months, we added a number of services such as Halyk POS [indiscernible] and Halyk QR for legal entities. Most of our customers are actively using online bank as in Apple via web interface, conducting 99% of payments and transactions online. We are proud of the performance we achieved in SME banking recently supported by the implementation of our digital initiatives we mentioned previously. We currently have over 123,000 actively transacting SME clients, an increase of 61% year-on-year and 37% Q-on-Q, reflecting our continuous efforts in development of online daily banking and transactional services. SME loan portfolio grew by 25%, while the number of borrowers has increased by 2.3x year-on-year in 9 months. Asset quality has been continuously improving as segment NPL ratio has decreased to 6.6% in 9 months of 2021. Next slide, please. We currently issue over 84% of loans online, which has been the key driver of 2x increase in number of loans issued we achieved in 9 months. Our convenient fully online onboarding supports strong inflows of the new customers. In 9 months of 2021, we onboarded over 78% of new IE clients online.

Ladies and gentlemen, this completes our presentation. Now we would like to open the floor for your questions, [Operator Instructions] And we have our first question from Elena Karaseva.

I have several questions. First question is on fee dynamics. So looks like, in third quarter, fee dynamics just a bit subdued compared to what was in previous quarter as well as compared to guidance for the whole year. So could you please maybe more elaborate of the reason why it's really -- just more smooth dynamics currently? And what maybe you can expect any pickup of activity in fourth quarter and beyond? This will be my first question.

This is Murat Koshenov. Thank you for your question. Yes, indeed, if we compare third quarter to second quarter with regards to fees and commission income, there was not a big growth percentage-wise. There are a few reasons for that. The reason #1 is that we believe that second quarter was particularly strong due to some more activities on the credit side, on retail credit side, including refinancing, which partially affected strong dynamics in fees and commission in the second quarter and which was not affected in the third quarter. That's why, quarter-over-quarter basis, that effect was less pronounced. Secondly, a number of fees and commissions income, particularly regarding cash operations, regarding fees attached to salaried projects and pensions, they continue on decrease. That's why they also impacted net fees and commissions. With regards to full year, indeed, we previously showed that fees and commission growth on net basis would be in the area of 29%. Given the dynamics in the third quarter, that figure is probably now seems quite ambitious to reach that quite likely that the full year figure for net fees and commissions would be lower than was guided previously.

Understood. And a bit of downbeat assumptions for fee and commission for this year. So like on a rough assumptions given like current trends, is there any risk of net profit guidance as well not to be reached for 2021?

Yes, since we moved to probably other items in terms of guidance, well, typically, we are not revising guidance at the call following the third quarter results. But probably I can say that, except for fees and commission -- net fees and commission income guidance, we see that other items in terms of guidance can stay intact. So we probably can highlight the risk to fees and commissions net growth only.

And another question is more about outlook maybe for 2022, given like recent hikes of key rate, any like ideas of how it may affect further growth in lending and as well as margin dynamics? If you can share as well as your understanding for the monetary policy?

First of all, if you can see from our net interest margin, actually, the recent hikes in the base rate by the National Bank didn't affect [indiscernible]. Actually, it's it increased partially because of the mix in the credit portfolio. So more growth on the retail and SME basis compared to growth in the corporate, generally more stronger growth in the credit portfolio altogether. And the prepayments -- full prepayment of Eurobond, which actually positively impacted the NIM. So altogether, the recent hikes in the National Bank basically didn't affect negatively NIM. Also, we can say that the rate in Kazakhstan already -- were already relatively high. That's why a 75-basis-point increase, in relative terms, didn't affect materially the margins on the credit portfolio. Going forward, there are still risks that National Bank might raise base rate probably until year-end or beginning of next year, depending on the dynamics of inflation. However, we note that recently IMF concluded the Article 4 statements, in which they actually expressed their view that National Bank's activity on the inflation -- on the anti-inflationary side might be leading to lowering inflation by end of next year. So from that perspective, we think that any potential further increase in base rates might be temporary in nature. From that perspective, we do not think that NIM might be materially impacted by the actions by the National Bank. It is more likely that it would be continued be driven by the shift in the composition of our assets and credit portfolio.

The next question comes from Simon Nellis.

Can you hear me?

Yes.

Excellent. I guess my question, some of them have been answered. The other 1 I would have other than fees was on the expense, the OpEx. So it was growing quite rapidly, I think up 12% quarter-on-quarter. What's the outlook for the fourth quarter and going forward? It seems like there's quite a heavy cost pressures coming through. That would be my first question.

Let me answer your question. As Murat mentioned, we expect that our like key items of the guidance remain meaning that cost to income forecast should also be in line with our expectations. But I would say that the main driver there increase in salaries starting from a salary increase in the first quarter and also increase in loyalty program expenses that were key main drivers for OpEx growth.

Okay. And my other question would be on the other income, which I think was a loss in the third quarter. Can you tell us what's behind that? KZT 11 billion loss in other expense income.

Simon, are you're referring to additional recognition of discount, is that your question?

I could be. I didn't quite catch what you're talking. So in the actual P&L, there's an KZT 11.93 million -- [ kz 11.193 million loss ]. I'm just under the.

That relates actually to early amortization of Eurobond, which we concluded in the first quarter of this year. Actually, during the first quarter of this year, we recognized acceleration of amortization of discounts in the amount of KZT 5 billion. apparently, that was not the full amount of amortization and full recognition was recognized in the third quarter of additional KZT 14 billion. That was the main reason, which impacted other noninterest income. So at this point of time, the full amortization of that discount has been recognized. And I also wanted to mention that this is a noncash expense.

Right. Okay. That's clear. And so that's now done? That won't affect -- have an impact going forward? And the underlying other income was KZT 3 billion. And is that continues to be driven by recoveries of -- or work out of [indiscernible]?

Yes, indeed. And I also want to reiterate that the full prepayment of Eurobond is actually positively impacting our interest expenses, which actually translated in better net interest margin, which is evidenced by the results which we showed in the third quarter this year.

Super. And then just 1 last 1 for me, the usual question. How much of your fees in this quarter are coming from by now pay later?

Yes. At this point, Simon, we are not separating the NPL from the rest of consumer product -- leasing product.

Next question comes from Andrew Keeley.

I have a few questions. One on your net interest margin. As you've mentioned, you've benefited from the savings on the coupon payments on our Eurobonds as well as the strong growth you're seeing in things like retail unsecured lending. So your NIM now is around kind of 5.5% mark. I'm just wondering whether how we should kind of think about that going forward? I mean do you think that the -- your kind of old guidance of typically seeing the kind of 5% or so NIM as the kind of sustainable level needs to be kind of adjusted up? Do you think that actually this kind of 5.5% is more potentially a kind of new norm? So that would be my first question. And maybe I'll just ask another 1 afterwards.

Yes. Andrew, actually, if you see a bit longer history, you would notice that our NIM will typically fluctuating between 5% to 5.5%. And basically, the period when our NIM dropped below 5% as we previously guided was a temporary, and we put quite a number of activities in order to bring that to the level which is -- which we think better reflects the profitability of our balance sheet. Going forward, we think that NIM might be impacted by the dynamics in the credit portfolio. So if we continue to see a stronger growth in retail and SME, particularly small businesses, that might be positively affecting NIM. Also potential increase in dollar rates might also have a positive NIM effect because particular drop of NIM in 2020 was due to results -- was due to a substantial reduction in dollar rates. So there are a number of items, which potentially might be impacting NIM. But again, there might be quarter-to-quarter fluctuations as previously. So you have to be aware of some quarter-to-quarter variations.

Okay. All right. I guess just a quest follow-up in terms of what you mentioned about the kind of retail lending growth. I mean it's clearly -- well, it's consumer kind of lending growth. And I mean, I think you said before you don't really -- you don't disclose the kind of breakdown of this in terms of maybe cash loans or buy now pay later, et cetera. But it's up, I think, 40% or so year-to-date. I'm just wondering how do you -- the extent to which you feel that you've kind of tapped into your kind of existing retail customer base? Or do you think that there's still a lot of strong kind of growth potential on the consumer lending side over the next couple of years, albeit probably a slowdown from the rates of growth that we've seen this year?

Yes, we indeed think that there is still a good prospect of growth of our retail business. First of all, because we still have a large consumer base, which still can be activated from portfolio -- from product basis, we're still in early period of developing our Halyk marketplace, and that is definitely 1 of potential drivers. And thirdly, as we mentioned before, we realigned our sales force, which became much more active in terms of activating our client base. So we believe that we're able to grow not only with the growth of the market, but also we'll be able to increase our market share.

Okay. And then just a final question on Halyk QR. So I'm right in thinking you launched this in the third quarter. I wonder if you can provide any kind of details on the kind of merchant response or uptake? And can you give us any color in terms of how your kind of fees compared to those the main competitor, which seems to have kind of undercut the market to quite a nice degree?

Yes, Andrew, indeed, we just recently launched the product. So I'm afraid that at this point of time, it's a bit premature to give some specific in terms of number of merchants or the fees. We, as I said, are just in early period of launching that service. But while we will be developing that probably would be able to provide a bit more disclosure going forward.

The next question comes from Evan Stermer.

It's Ilan Stermer from national Capital. A couple of follow-up questions. Perhaps to pick up on what Andrew was asking if I look at the plastic cards income and expense, the proportion of expense income seems to be increasing every quarter, which implies that there's a bit of loss of market share. Could you shed some light on that. I'm looking specifically at Slide 9.

Yes, Ilan. Let me answer this question. We see that our share of payment cards going through our acquiring network is stable and slightly improving, thanks to our projects on improving transactional activity on the cards. But yet share of other cards going through our acquiring network is still relatively high. And on those transactions, we typically carry a lower margin compared to our own cards. But if we take a look on the number of transactions and breakdown of those transactions, share of our own cards and our acquiring network is slightly improving.

Okay. Second question, can you give me a sense of the split of the book -- the loan book into fixed and floating, perhaps by segment or by currency or both, that would be very useful.

Ilan, it's typical in Kazakhstan that loans actually are fixed. That is particularly related to [indiscernible]. I think it's almost 100% of [indiscernible] loans is fixed. Dollar-wise, there is a small proportion, which is floating base. But I do not have the exact figure, but my assumption is that the percentage of that is not more than 5%. So again, the majority of loans would be fixed based.

Corporates as well?

Yes.

Okay. And then last question, given the sort of growth that we've seen in the consumer side and in fact in mortgages as well, is there any sense that the regulator is getting a little bit and feel a little bit worried about -- concerned about the growth rate?

Yes. First of all, our growth in mortgages is not that high compared to some other players. In fact, we saw that our mortgage book reduced in the third quarter this year because of the fact that the government allowed people to extract some of their pension savings in order to prepay their mortgages. So from that perspective, we definitely not, let's say, the biggest bank who is, let's say, actively growing the mortgage book. However, indeed, we see that, altogether, retail loans are increasing. And if that would continue to grow at the same pace, at a certain point of time, we might see regulatory actions. As was the case previously, in previous periods, in previous years when the market was growing at high level for some prolonged period of time, we saw that regulator came with some initiatives in order to cool down that growth if the market was not, let's say, coming to plateau. So we have yet to see how the dynamic sector wise would be developing next year. And we think not the growth of loan portfolio would be looked in isolation and definitely should be looked compared to growth in salaries. Definitely, it should be looked in terms of net disposable income, it should be looked in terms of dynamics on employment. So all these factors might be impacting how the regulator might potentially look into a situation with consumer lending.

Okay. So for now, you're not worried, but obviously it's something is watching?

Yes. I think we're prepared to various situations because we have been in that situation as the market previously. What is important also to know that Halyk Banks definitely are not the most aggressive player in terms of credit terms. Our client base is mostly related to people who have steady salaries, stable employment. That actually was pronounced in 2020 during the pandemic when some -- during -- during lockdown, some purely retail-focused banks actually saw a reduction in loan issuance, while we saw continuous demand because a big portion of our loan portfolio was related to people who might -- who we might consider working in the segments which is considered as essential workers like doctors, civil servants, teaches, the employees of large [indiscernible].

The next question comes from Andrey Mikhailov.

I have a number of questions. I'll start with asset quality, loan quality, which is undisputedly good. But my question is how good is it? Do you think we could expect cost of risk provisioning recoveries, say, once or twice over the next 12 to 18 months? That's the first question.

Well, Andre, thank you for your question. This is Almas Makhanov. As you see for the -- in third quarter, we see -- we had a cost of risk at a more normalized level comparing to previous 2 quarters. In terms of expectations, we can only probably talk about upcoming quarter based on the pipeline of additional recovery that we see in -- as a work in progress. We can expect that the cost of risk should be in line with our previous guidance. As far as more midterm focus, I think it's -- we normally provide guidance on overall bank performance and when we announce our annual results. I think we will do that once we have those results.

My second question is on Halyk market. You had 126,000 SKUs at the end of the third quarter. And as far as I remember, the target for the full year was 100,000. So you are already above the target. And it's tempting to assume that you could have around, say, 150,000 SKUs by the end of the year. Would you agree with this logic?

Andre, we are not providing now the particular guidance on SKUs on a number of merchants at this point of time. But as we previously mentioned during similar calls, during previous quarters, I think we said that the key priorities for Halyk Market is indeed to grow number of partners and number of SKUs. That still remains the case because we see that they are the key drivers for further developing Halyk Market.

And my third and more or less the additional question is on dividends. I would be grateful if you could provide any update on your thinking about the FY '21 dividend, in particular with regard to the dividend payout ratio, and perhaps also the capital adequacy ratios?

Yes, thank you again for this question. Actually, despite the 60% dividend payout this year, the capital -- and strong growth in risk-weighted assets, our capital still remains solid. I think, going forward, again, as we previously mentioned, we'll be looking at our business prospects. We would be looking at situation in the market in order to make decisions on the capital distribution. Nothing changed from, let's say, the way how we think about that. But probably I cannot add more at this point of time during this call.

And the next question comes from Ronak Gadhia.

This is Ronak Gadhia from EFG Hermes. Maybe just as a follow-up to Andre's questions on long-term cost of risk. We are seeing the exposure to the retail segment increase given the structural shift in the loan book, could that have any implications for the sort of the normalized cost of risk NPL ratio for the bank?

This is Almas Makhanov. Yes, we see that our portion of retail loans is increasing. That segment naturally have a bit higher cost of risk comparing to other segments. Everything will depend on several factors, the way how the situation with COVID will develop, also the way how economy will develop in the next coming months. But in terms of impact on cost of risk, we believe there should be some impact due to change in loan structure -- loan portfolio structure. However, we are normally working within the disk risk appetite that we set based on our overall performance. So we should not see a significant impact from increasing retail financing.

And could you just also talk about the insurance business. I see, on a year-on-year basis, the big contribution in terms of revenue and profit has continued to increase. So maybe just talk a bit about the growth outlook and the contribution from that going forward?

Ronak. Yes, the main drivers for this year of bancassurance and also some pickup in life insurance product, which we sold during this year. We expect that the contribution of life and general insurance would be at least the same level as we currently see and as we saw historically. But sometimes these line items may be volatile, so changes in the legislation or some big contracts, which we may have from time to time.

Okay. Understood. And finally, just on your non-Kazakh operations, specifically Uzbekistan. I know it's a relatively new subsidiary. But could you maybe just talk about the early performance of the subsidiary?

Uzbekistan subsidiary is developing quite well. They are increasing the footprint in the country. So it's already present, I think, in 8 locations. They also developing certain products. And I think the recognition of the brand is increasing. Like, as a matter of fact, in terms of auto loans, they're already #3 bank. So everything is developed according to the schedule. So we think that it's progressing quite well.

Okay. Could you maybe share some sort of mid-level targets for this subsidiary in terms of what it could contribute to revenues and bottom line?

I think we, in some period of time in the future, would be showing the data separately. At this point of time, it's probably a bit premature, but we see that in terms of the growth dynamics, they might be start being reasonable probably starting from 2022, 2023. So we still have a very good vision of that subsidiary, but most of the activities last year, for example, and this year, was aimed at building the proper platform in terms of automation, digitalization processes, building the footprint, developing the product and services and all these activities, I think they are done also with the help of our headquarters. So we believe that they're building quite a strong basis on which they would be leveraging in terms of the business starting from the next year.

And the next question comes from Luke Mill Melnik.

, Good day, actually, this is Mikhail Butkov from Goldman Sachs. So I have 2 questions. The first 1 is on the ecosystem assets. So what was the contribution from these assets to your operating profit in the 9 months? And also, can you maybe provide some outlook what percentage effect what you do plan to invest into these assets? Or maybe when will you provide such a target?

Let me start answering your first question, first part. We see currently that digital products, including [indiscernible] products now contribute around up to 3% to operating income. And at this stage, we are not able to provide you with guidance on how much we plan to invest further into ecosystem.

Okay. And another question is on SME lending. So I wonder, can you maybe disclose what's the approval rate for the loans in this segment? And how do you -- where from do you capture the new clients into this segment, how do you measure the quality in the beginning? Just also what's the cost of risk, if you could disclose for this segment, do we observe currently?

Yes, Mikhail, unfortunately, we do not disclose specific metrics such as approval rates for -- on product levels. But overall, we can say that for SME segment, we use different underwriting processes, including individual analysis based on financial statement, credit analysis based on collateral valuation and so forth. So that -- given that we have those procedures in place already worked out very well. Approval are at the late stage of decision is relatively high, including based on the fact that it goes through all this underwriting processes. Plus, we have a newly developed product based on -- it's based on model risk engines. So for those clients, it's quite new product, quite new portfolio, which is performing well by now. And the model is based on thorough statistical analysis, and I think we should probably see more -- this product more growing in our portfolio. But overall, approval rates, we don't disclose on segment levels.

And the next question comes from John Demir.

Hello, can you hear me?

Yes, we can.

So I'm trying to understand your strategy in the payment space a bit more. And I was wondering if you could talk a bit more about your merchant take rates how it compares to competition and also on loyalty points. Can you talk a bit about the nature of these and how do the customers earn loyalty points? Are they cash backs and so on and so on? If you could shed some more light on those, that would be great.

Yes. Let me answer your question, Haijun. From position of take rate from merchant, if you talk about by now pay later, it's in the area of somewhat 8%. And with respect to loyalty program, we have program which stimulates usage of our cards in our acquiring network, which currently -- and we have now a stimulation program until the year-end. Our clients earn up to 5% in loyalty programs. And 1 loyalty point means KZT 1. And we have a maximum amount client per month, which is KZT 30,000 or slightly somewhat around USD 60, which you may earn when you will be using card of the bank. Of course, we also accrue points when a customer transacts in acquiring network of other banks. But in that case, a customer gets a lower amount of points.

Okay. And is this -- I mean, how should we see this? do you have any corporations with the merchants in the sense that do you tell your customers -- or if you go to this XYZ merchant and if you make a purchase, you get 5% cash back? Or is it more general? I mean, as long as the merchant has your POS, does the customer get loyalty points? How does it really work? Is it -- I'm just trying to understand is it a comprehensive program, or is it more in the beginning stages?

Yes. It's a very comprehensive program. We have different layers of loyalty programs. the one which I just described is like a base level and we also have operation with merchants. Each merchant may provide their own like loyalty program together with us, like they can provide additional points on each [indiscernible], which is done like through POS terminal of the bank. And also, we have a number of co-brand projects with our merchants, like, for example, one network of gas station. We have co-brand card with them, and the holder of this card can get extra points when they're using this card to pay for gas or other products, which were purchased on that gas station. And this program is very wide. So we have different programs in different cities based on the landscape and a strong network of merchants in that cities [indiscernible]. And also we have our -- we are developing further our data factory, which means that we have analytics on customer behaviors of our clients, and we can provide special offer to each individual customer based on their behavior. We have also some programs, which are aiming to stimulate transactional activity of clients. And we see that -- and we see that number of noncash payments is increasing, and we see that less customers are now withdrawing cash and they are more using ATM cards, sorry, using their payment cards to make noncash transactions, and this is thanks to our further development of our loyalty program.

And just 1 more question on the take rate. You mentioned that if it's a BNPL transaction, you mentioned it's 8%. What it's not a BNPL transaction, how much is the tack rate if this is just a normal transaction? Of course, it depends on if it's a credit card or debit card, but just on average?

If it's our transaction in our POS terminal, it's about 2%. And if this like other cards in our acquired network, then it's a bit less. It's somewhat below 1%.

I think it's pretty much also depends on whether it's what the MCC court of the separation because it's partially linked to the fees, which the international payment companies are [indiscernible]. Also it depends on whether it's a big merchant or small merchants. So it's not like 1 fee rate, which is applied.

And the next question comes from Lei Dispute.

I have 1 question. You already mentioned that there is some slowdown in growth rate of net fees and commission. What is the difference between -- I'm already embedded fees and commission in your previous whole year guidance and the numbers that you expect now for the fee and commissions, just about something for the whole year?

Lenny, if I can say 2 things here. Thing #1, if we look year-over-year basis, we think that net fees and commissions is still relatively strong. It's above 10% growth. And gross fees and commission increase was above 11%. What was slowed down is quarter-to-quarter. And as I mentioned before is also partially explained by a relatively strong second quarter results. However, we see the risk for full year guidance on net fees and commissions, which was previously stated at 29%. We normally are not providing updated guidance at the call following the third quarter results. So we are not ready to disclose the particular figure which we expect at this point of time. But we're highlighting that, that particular item is at risk of achieving the previous guidance.

But how much is that?

Again, we are not ready to provide the particular data at this point in time.

Dear ladies and gentlemen, this completes our presentation. It seems that there is no questions remaining. Thank you very much for participation. As usual, our IR team remains open for any of your further questions. Thank you, and bye.