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

Good afternoon, dear investors and stakeholders. We are happy to welcome you today to our Second Deep Dive Session. Thanks, everyone, for joining us. My name is Nurgul Mukhadi, I'm Chief Manager of IR team. Immediately after the presentation, we'll host a Q&A session. Please note that the webcast is being recorded, and its video recording will be posted on our website, halykbank.com. Firstly, Mr. Dauren Sartayev, Deputy CEO for SME, Transactional Banking, PR and Marketing will provide a snapshot of our SME business. Secondly, Mrs. Gulsum Dushatova, Head of Transactional Business Department, will present you our online banking platform for legal entities. Thirdly, Mrs. Alfiya Zheksenbay, Head of Small Business Department will share details about digital loans for individual entrepreneurs. After, Mr. Vadim Kablov, Head of Medium Business Department will tell you about digital loans for limited liability partnerships. Finally, Mr. Andrey Zavarzin, Chief Information and Innovation Officer, will present you our IT. And now I will give the floor to Mr. Dauren Sartayev. Please go ahead.

Thank you, Nurgul. Good afternoon, everyone, and welcome to Halyk's Deep Dive Session. My name is Dauren Sartayev, I'm Deputy CEO for SME, Transactional Banking, PR and Marketing. I'm glad to join the team to discuss Halyk's products for SME customers. Today, we are going to present you a brief overview of SME business, history of our online banking platform for legal entities, new web online bank, features of web and app versions of Onlinebank, digital unsecured bid bonds, digital loans for individual entrepreneurs and limited liability partnerships. Let's start with our online banking for legal entities, which is called Onlinebank. The key factor of our success in developing products for SMEs is a deep understanding of the industries in which our SME customers operate. As you see from our quarterly reports, Onlinebank is a total business financial platform in Kazakhstan. And during the last 3 years, Onlinebank demonstrated substantial growth of customer engagement. A critical factor of our top position is a deep understanding of customer needs. As you may recall, on November 20, we published the group's result for the 9 months and third quarter. I'm glad to remind that now our Onlinebank reached almost 260,000. Halyk is a key provider of services to legal entities in Kazakhstan. When creating the SME products, we follow the next logic that there are 3 types of SME companies. First group, serving retail customers which is B2C segment. Second one, working with our corporate, which is B2B segment. And last one of working with [Technical Difficulty] that there are 3 types of SME companies [Technical Difficulty] which is B2G segment. Each of these segments types has its own features in terms of payment and loans. Halyk's leadership in the SME segment is provided by a strong presence in each of these 3 SME business areas. Next, I would like to present briefly on each of these SME segments. As you remember, Zhumabek and Nariman discussed B2C during the first deep dive session. Let me quickly remind a list of the basic product offering for these type of clients: acquiring tools, bonus club, Halyk Market, eCom, payroll projects, different types of transactions, digital loans, ecosystem services. We have the basic following proposition for B2B: tariff packages, bank as a service, cash pooling, verifying the business partners, 24/7 availability of transaction services, free of charge payments, fast account-to-account payments. For B2G, our basic proposition is tax payments, special tariff packages, digital bid bonds, government services, tax declaration, fast account-to-account payments. In the B2B segment, our leadership is based on our strong position in corporate banking. Important to mention that Halyk holds 83% of the country's largest taxpayers, and our corporate loan portfolio amounted to KZT 6.1 trillion as of the end of September. Our strong position in corporate banking is proved not only by the bank's financial capacity to lend to the largest businesses in Kazakhstan, strong financial analytics and prudent risk management system, but also by our Onlinebank payment system, which meets all the transactional banking needs of our largest customers and has high up rating of 4.2 for IOS and 4.8 for Android. Let me briefly present our transactional business. As a leading bank in Kazakhstan, our goal was to customize corporate solution for SMEs. There is a convenient payment instrument for transaction between legal entities through our Onlinebank service, where instant payments can be made 24/7 and free of charge. There are simple tools for digital learning for SMEs and the decision is made in less than 1 minute. And we provide excellent payment and lending services for their employees. We discussed, by Zhumabek, during the first deep dive session. I would like to note that we were the first in the market to launch digital loans. As a result of the corporate and SME segment synergy, 58.6% of B2B transactions were proceeded within the bank, and we will discuss this topic in detail later today. Let me now switch to the payroll project. Today, 99% of our corporate and medium-sized clients use our payroll product. For us, it is essential that our system offers favorable terms of transaction between our [ cut ] holders and our SME customers from the B2C segment. We have created a lot of specialized digital solutions based on our online banking payment service, acquiring products, convenient corporate card, e-commerce service, ability to issue invoice remotely, easy tax payments, digital loans. Today, the number of our retailers and service providers is growing from year-to-year. Halyk Market has also become a strong alternative retail platform. We have been developing special digital services for B2G companies since 2022, and the first special solution was the digital unsecured bid bond, which allows our customers to provide bid bonds for participation in a tender quickly and without [ freezing ] their phones. In a short period of time, we've seen a huge increase in the use of these type of bid bonds. I provided the overview of the core business areas, and my team will present them in details. And now I will pass the floor to Mrs. Gulsum Dushatova. She will present you our online banking platform for legal entities. Thank you.

Thank you, Dauren. Hello, everyone. My name is Gulsum Dushatova. I am Head of Transactional Business Department. Let me present you a transactional banking, which is a core part of our business. Onlinebank is the main digital service channel for small, medium and corporate businesses. Each product solution is designed with a focus of customer behavior to ensure the best user experience. Halyk Bank is the biggest provider of banking services to legal entities and individual entrepreneurs in the country with the largest branch network. We have 196 branches for business through Kazakhstan, providing full coverage of the entire country. Since 2020, we have introduced many new technologies and moved to a more progressive and proactive approach in digital product development. During the last 3 years, we have launched a move to a more progressive and proactive approach in digital product development. During the last 3 years, we have launched online onboarding and digital loans. Let's talk a little about history of our Onlinebank. In 2006, KKB registered the Onlinebank KZ domain. It was the first online banking offering in Kazakhstan. Halyk Bank has launched this solution after integration with KKB in 2018. Since then, our team has been actively developing digital solutions to align the workloads of our branches and to continue to provide the best class service. As we actually developed our banking offering in 2019, we established our own [ simplification ] center to issue electronic digital signatures. In 2020, we launched a mobile application for legal entities, which are active in business and always on the move. Last year, we launched a new version of Onlinebank using an updated technology stack and micro server architecture. Onlinebank is now used daily by thousands of companies in various business segments. Large companies and holdings usually use web solutions as they have large accounting or treasury department. So the development of web solutions is also important. Medium-sized companies use Onlinebank through both web and app versions, while small and micro business clients tend to use on the mobile app and fast transaction services. In 2020, we launched online onboarding for individual entrepreneurs, which has caused the number of new customers to increase substantially. Customers can open accounts with us without visiting a branch. In 2022, we launched digital bank account opened for limited liability partnership. The full process take about 10 minutes and the customer does not need to submit any documents to the bank at all. Meanwhile, at the branches open, an account takes about 40 minutes. Importantly, at the stage of onboarding, in additional to opening account and connection, Onlinebank customers are also given the option to immediately connect to acquiring via Halyk QR to accept payments and issue a digital corporate card. Users can also choose a package of tariff subscriptions suitable for their business. We have also introduced long-term subscription for 3, 6 and 12 months, which allows us to increase customer lifetime value. Now we will present to you our web platform. Let me present you our web version of Onlinebank, which provides all essential functions for daily needs as account management, process optimization, transaction, security, financial management and currency control. One key feature for large clients, which significantly optimize this work with the system is the direct integration of accounting system with Onlinebank. As Dauren mentioned, on November 20, we released the group's results for the 9 months and the third quarter, providing a detailed overview of the number and volume of payments made through Onlinebank. Since 2020, the number and the volume of KZT payments through Onlinebank has increased by almost 2x by number and volume. Regarding international FX transactions, the bank volumes and number of such transactions has grown from year-to-year, as demonstrated here. This has been driven by important digital solutions in the Onlinebank system and the efforts of our sales channels. For example, Halyk [indiscernible] is the first platform on the Kazakh corporate banking market for conversions directly integrated with the stock exchange. The platform provides favorable rates, irrespective of transaction volume. Tariff groups and spreads can be adjusted to find an individual approach for customers. Platform includes a chat function, an exchange rate regulator and historical exchange rates. Together, these solutions help to offer very favorable conversions. In 2021, Halyk was the first bank in Kazakhstan to fully connected to the [ CUGPI ] system for incoming and outgoing payments and provide global transactions starts tracking in its digital channels. Our in-house development team has also ensured that the bank has the necessary speed and agility to implement new international requirement in terms of a fixed transaction feelings and controls. And the introduction of a newer version using more advanced technologies has enabled the bank to move to the next stage of development and build service based on customer behavior and needs. This allows for a more segment approach for sales and implementation of personal products offers. Now I will switch to the app. App provides full range of the following products: account management, transactions, currency control, cash management, financial management, merchant services. The mobile app is used by the individual entrepreneurs who are accustomed to the simple payment forms and ease to use their personal apps. Bearing this in mind, the bank is only one in Kazakhstan to have provided solution for B2B, C2B and B2C payment transfers using a phone number. We also understand that the convenience of making tax payment and other transactions to the state budget is highly important for our customers. And we were the first bank in Kazakhstan to integrate filing tax returns for individual entrepreneurs through our mobile app. The user feedback has been highly positive. Next, we will talk about security, an important and integral aspect to the bank's digital solutions. We are always sensitive to the issue of risk information security. We are also actively developing our antifraud system, expanding the range and [ volume ] customer transaction that they use to detect through the issue of risk information security. We are also active with phishing anomalies in customer behavior. We monitor transaction security carefully. Here is an example of one of our solutions on the screen. After transaction is sent to the bank, if we encounter abnormal user behavior, the company directly receive a notification for additional information of the transaction. The merchant onboarding process is quite simple and uses fully paperless solutions to connect to the bank's payment acceptance services. For convenience of payment acceptance and variety of acquiring services is a priority in transactional banking. For small and micro business customers, we provide such payments acceptance method [ as whole ] QR or the Halyk mobile app for Android which works with [ NSC ] technologies. For clients with large volumes, we provide POS terminals that can also be audited via Onlinebank. We are also actively developing our guarantee offering, where we have a market share of more than 50%, and it's rising from year-to-year. Digital bid bonds is a breakthrough product for our guaranteed offering. These products provide one-click tender bids for companies by filling in only the procurement number field. On top of that, Onlinebank uses artificial intelligence to identify potential interest in tenders for our customers and the recommendation system on a daily basis. Since the introduction of the digital bid bonds, the number of the guarantees issued in 2022 has increased drastically by 7.4x compared to 2021. In 9 months, 2023, we saw a growth of 2.9x versus 2022, which is also a fair reflection of the volume from guarantee issue. Our customers rate this product highly as evidenced by our customers' score sets and customer satisfaction index, CSI, which both stand at 90%. And now, I will pass the floor to Mrs. Alfiya Zheksenbay. She will present you digital loans for individual entrepreneurs.

Thank you, Gulsum. Hello, everyone. My name is Alfiya Zheksenbay. I'm Head of Small Business Department. Let me present you digital loans for individual entrepreneurs. In 2020, we came up with an idea for scaling our lending business. We started to implement a digital loan for individual entrepreneurs. So we initiated our first digital loan issuance in August 2020. From there, we build this product out to create digital loans for limited liability partnerships and digital guarantees. As Dauren mentioned, on November 20, we released the group's results for the 9 months and the third quarter, providing a detailed information of digital loans performance. It's important to note that over the past 3 years, the number of digital loans issued to individual entrepreneurs has increased sevenfold. Since the product launch, we have issued 53,000 loans totaling KZT 251 billion. As a result, the share of digital loans issued has reached 85% by account. Currently, we provide the following types of digital loads for individual entrepreneurs: business development loans, investment loans, loans issued under government programs, loans issued based on a POS terminal turnover, loans for supply chain participants. All of these loans can be issued for up to KZT 100 million, with terms up to 5 years. The main advantages of Halyk digital loans are the following: fully online process, no document required, no collateral needed, available for the new-to-bank category, time to years is 5 years, time to money is 10 minutes. Now I will guide you through the digital loan application process. The application and loan disbursement process are similar and convenient consisting of the following stages: the question, the loan amount, client identification, collecting information from external sources and processing them with no customer involvement, presenting the lending decision, signing the loan agreement, transferring the funds to the customer's account. The digital processes and integration with information sources enable us to collect customer information and create aggregated profiles of the types of customers who frequently use our service. For example, the [indiscernible] loan are more commonly obtained by women. On average, the monthly revenue is more than KZT 4 million. For customer convenience, in addition to lower [ commissions ], we offer important online functions such as access to loan information. The client can check the outstanding amount of the loan, payment date and amount repaid. Also, there is an early loan repayment option. Naturally, our Onlinebank app comes with integrated marketing features, allowing us to generate a list of clients with a preapproved credit limits and then targeted new product offers to our customers. And now I will pass the floor to Mr. Vadim Kablov. He will present you the digital loans for limited liability partnerships.

Thank you, Alfiya. Good afternoon, everyone. My name is Vadim Kablov. I'm Head of Medium Business Department. Let me present digital loans for limited liability partnerships. After successfully launching and implementing digital loans for individual entrepreneurs, we have decided to create a similar product for limited liability partnerships, where project took 7 month to complete and become operational in April 2022. Important to note that the process is fully integrated into our app tool businesses Onlinebank. The maximum limit for digital loan is KZT 300 million. Terms are up to 24 months. Time to money is no more than 10 minutes. The customer journey is very simple and consist of 5 steps. Firstly, the customer inputs the required loan amount and term and then submits an application. Secondly, the scoring model makes a decision. Thirdly, the decision is presented to the customer for confirmation. And the fourth and fifth step, and especially the customers sign the loan agreement and the bank credits the loan to clients' current account. Since the product was launched, we have been collecting customer feedback every month and a great product to meet our customer needs. This has led to us achieving a CSI score of 95% in our latest customer satisfaction survey. Our performance is also exceeding expectations. During the initial 1.5 years of operation, the product has been used by more than 2,600 companies to obtain more than 4,300 loans totaling KZT 78.5 billion. As a result, the structure of legal entities loan portfolio is rapidly reshaping from offline to online loans. In just 1.5 years, online borrower makes up 38% of total LLP borrowers. And online disbursement represent 83% of total loans. And I will pass the floor to Mr. Andrey Zavarzin. He will present to you IT. Thank you.

Thank you, Vadim. Hello, everyone, and thank you for joining us today. My name is Andrey Zavarzin, and I'm the Chief Information and Innovation Officer at Halyk Ecosystem. Today, I'm going to tell you a little bit about our IT strategy. As any big company, we have 3 moats. They are run, change and disrupt. The first moat and our first priority is the run moat. It's about resilience and secure of our IT infrastructure. In the second moat, we need to create digital products that our 10 million of customers love. For a long time now, we have been working on a project basis. We have all the key technologies in place, such as core banking, processing, ERP, BPM, data warehouse and others. In addition, since 2019, part of our bank has been working in line with Agile. We continue to scale the usage of Agile primarily for digital solutions for retail and corporate front office systems. We are also working closely with leading universities. We would like to give the students the opportunity to practice with modern banking and technological IT-scaled infrastructure. We do it because these students are our customers and maybe even they will be our colleagues in the nearest future as Halyk teammates. In the third moat, we are building IT solutions that bring together our ecosystem, such as bancassurance, data platform, client ID, cloud technologies and so on. Let's start with our reliability system. To understand how it works, let's take a look at the high-level IT architecture of our ecosystem. We have a number of front-end applications such as Super-App, Onlinebank, Kino.kz, Halyk Market and so on. Our customers use our front-end applications through the layer of IT security. Then they select the function needed, which are handled by back office systems through the BPM platform. Our employees work with the back office systems and IT infrastructure such as network and cloud support or ecosystem operation. We fully understand that IT reliability is due not to luck or chance, but to continuously work on ensuring the right IT architecture, process, quality assurance, cybersecurity and various other factors. As the Chief Information Officer, I'm also the Chief Continuity Officer, and the Chairman of [ Search ] Committee. For example, our business continue to process, covers several types of monitoring of both hardware for IT infrastructure and software for IT systems. We also monitor business operations for anomalies in the usage of our products and services. In addition, the final level of monitoring is customer feedback, for example, through our contact center. Monthly, we are simulating and testing our recovery plans. Classic ideal processes are the ultimate foundation for managing IT incidence problem, changes, configurations and so on. We meet weekly with business and back-office teams to learn from our IT incidents. In addition, we are creating the complex and modern situation [ room ]. Our IT architecture includes full range of process and procedures. We have the architecture committee through which all major changes must go on. All of our technological solutions are designed for linear scaling for both IT infrastructure and IT software plus continuous data housekeeping. Frequently used data is kept in a cache to minimize the load of back-office systems. Most of integration hubs have rate limiters. Let's continue with the example of one of our linear scaling project. It involves our processing system. The reach and popularity of our financial products have caused a significant increase in accounts opening. To deal with the greater load on front-end and back-office systems, we are dividing our IT infrastructure into 2 parts. One part will work with the front-end process and the other with the back-office ones. We are beginning this project now and aiming to complete it in 1.5 year. This will ensure the right IT capacity for business development, including our online banking site, Kino.kz and other users of our bank as a service. Now I would like to discuss our digital product creation process. As mentioned, we have been managing complex IT changes on a project basis for a long time already. I'm also the Chairman of a Committee of Projects and Innovations, and all members of Halyk Management Board are also members of this committee. The committee manages a portfolio of projects and reviews them weekly. In addition, the IT function includes a strategic transformation office. At the same time, at 2019, we began implementing Agile and are progressively moving moats from our IT development work to this approach. We believe that corporate culture and digital product development process are living organisms. In the same way that we release new versions of our Halyk apps for retail and corporate customers, we also released new versions of our Agile process. We train Agile coaches, conduct training and share best practices. We also replicate Agile across new business units. Let's move to the digital business culture. We have an open corporate culture focused on both teaching and learning new things. So cooperation with universities is a major priority for us. I'm [ PG ] Professor, so I have been teaching all my adult life. I have good understanding of the needs of university as well as the possible synergies. We meet with rectors mostly every month to learn our work together. We are in a great need of fresh ideas and fresh blood. Most universities cannot offer comprehensive training for young specialists without cooperation with the big business operations infrastructure. Our work on Halyk Academy is open to everyone rather than being limited to cooperation with specific universities. Historically, we have worked most closely with 4 universities. Personally, I also give lectures and of course, I regularly meet with our employees who teach practical courses at these universities. Halyk Academy opened [ for boarders ] at various universities. This is how they look like. They have the very modern equipment and offer opportunity to both learn and create. Let's hear about it from some students. [Presentation]

Working with young talents is an integral part of our culture. When I joined Halyk, I was amazed at how many former interns become reliable and loyal employees. Hackathons are the excellent approach to work with top talents. We hold them for our employees as well as anyone else who wants to become involved. They compete for good prizes while we gain lots of new ideas and the independent outside points of view. They essentially hack the ideas in our product lines, channels and technologies, and we have been pleased with the results. The management primary goal is to build the strongest ecosystem in the region. An ecosystem consists of more than just industry verticals like bank, market, entertainment, travel and so on. It also needs common elements, most of which are technological. Bank as a service is the part of IT architecture that makes it possible to use our bank products lines in different front-end applications such as our Kino.kz offering as well as our partners' apps. Data is another critical common technological element of our ecosystem. Our [ 2 types ], both retail and corporate customers, should fuel our continued support. Every channel in our ecosystem should know customer status and life situation so that we can help them as much as possible. We're continuing to refine our data technology platform, which comprise 3 process loops: real-time, near real-time and day minus 1. Obviously, with our business scale, it would still be a daunting task to have access to all our data in a real time. Finding the right combination of these 3 process loops makes it easier and more economically feasible. I don't know any ecosystem in the world which works without customer [ passport ]. It helps to provide similar success to all ecosystem services as well as to offer personalized service to our customer and for instant payments. This applies to both retail and corporate customers. Our open ecosystem means that we are developing this technology for our partners as well. I have said quite a bit today, so I should wrap things up. But a few words about our cloud platform. Our group has a subsidiary called [indiscernible] and I'm the Chairman of this company. This company is critically important to our corporate ecosystem. We offer the same services that we use ourselves to our corporate customers, such as cloud, security and so on. We are organizing all our IT systems around cloud technology development, and are moving them upwards from legacy systems to software as a service. I will not dive on this in details, although I think the idea is clear. To finalize, here are some pictures of data center that [indiscernible] built and maintains for [indiscernible] Group and for our corporate customers. This is the end of my presentation. Today, we presented to you our SME business and IT. We hope you enjoyed attending our event. Dear ladies and gentlemen, this completes our presentation. If you would like to participate in our Q&A session, please click on the Q&A button. Please follow instructions provided there to join the Zoom webinar. On the Zoom webinar, you will be greeted by the moderator, who will guide you on how to ask a question.

Good afternoon, and welcome to the Q&A part of the Halyk Bank's Deep Dive Session. We will be glad to answer your questions. Please note that only related to Deep Dive questions will be accepted. [Operator Instructions] And our first question comes from Simon Nellis.

My question would just be around the profitability of the SME Banking division. If you could break down kind of how the ROE of this business is and where you think it will go? Is it accretive to group ROE? Or is it below the average? And then just also just in terms of SME earnings, I saw that in the 9 months, SME earnings were actually down slightly year-on-year. If you could just unpack what was driving that? And what's your expectation for SME earnings going forward in terms of growth and importance to the group?

[Interpreted] Simon, thank you for the question. We do not have a separate SME division in the bank's structure. However, we do have digital perception of each customer by their size and we try to maintain higher marginality on products. It's more of a standard profile of a customer. And whilst for companies of bigger size that they have a more sophisticated executive hierarchy and financial hierarchy, they may also have a different level of approach and every time they are treated on a case-by-case basis. And could you please repeat your second question, please?

It was really just about the growth in the profits. But if it's not separated out, I guess, the question is not relevant.

And I have received a question from the Q&A chat. And the first question comes from Murat. What are the benefits of your app versus Kaspi app?

[Interpreted] Our strategy is built around micro and small businesses, but in an attempt to offer them solutions irrespective of the segment of the market they operate in, it's basically to fit the interest of such micro and small businesses. As you may have seen in our presentation, we have a separate solution for entrepreneurs who work on B2G and B2B, specifically for small entrepreneurs working with mid-sized and major corporates in a way of offering them digital tender warranties. Additionally, we have provided access to government services, to entrepreneurs, whilst before it was available to -- additionally, we have provided the [ entrepreneurs ] whilst before it was available to private individuals. Now entrepreneurs can also have access for all the solutions so that they can have better access to government services as entrepreneurs.

And the second question is what is your customer acquisition strategy in the market where the major player is Kaspi?

[Interpreted] Our strategy is providing multi-channel acquisition that includes digital acquisition channels. It's a wide line-up going down to all classic channel acquisition. Also, we work through that channel in the regions and in the central office. In the regions, we do take special account of local peculiarities, regional peculiarities. And another path of customer acquisition is working through our other customers who offer a wide variety of free payment and settlement solutions that bring us over more customers. Another thing we see with our local banks here is that they offer solutions that are standard retail-based solutions, whereas with more mature businesses we see demand for more complicated, more sophisticated approaches in offering them more flexible pricing models, more flexible build-up of the product basket that they may require. Now the shortcoming of the competition we see is that of a standardized approach without making any difference in the needs of different business officers starting from CEO to CFO, to accountants at a different level, and we do it all for the bank. And a simple thing such as market feedback, many of our customers complain that the competition's pricing is not flexible, is costly and it's just a difference in the approach to pricing of services of different banking services. And another story we see is the fact that many other banks treat their customers on a standardized base, but many of the businesses that we serve operate both in retail, but they're also active in B2B segment. They're active in B2G segment. And they seem to have only one level of credit limits set for each line of business that a customer may have, whereas we're having a wider [indiscernible] data can offer much more flexible approach in pricing in different segments.

And our next question comes from Can Demir.

I wanted to ask you about the underwriting standards and processes in your guaranteed product for smaller businesses. As far as I understand, this is an off-balance sheet credit product. And I was just wondering, isn't it a very complex product to underwrite because -- especially in the case of SME because even if they are financially very sound, they can operationally fail to deliver certain business commitments simply because they are small businesses. So I just wanted to understand your train of thought in this.

[Interpreted] I'd like to start answering this by saying that in digital format, we at this time so far offer only tender guarantees. It's a guarantee that allows an entrepreneur participate in the tender procedure.

Okay. Is it possible to expand on what that entails in terms of credit risk?

Hello, Can, this is Almas. The tender guarantee normally covers the application of the participant in a tender to accept the contract if he is selected. So in that sense, it's a credit exposure -- it's less than the credit exposure, but more like a performance guarantee, except by -- in terms of accepting the offer from the contract. We have a lot of data on this type of guarantee participants. And we see that this risk is very low. Namely, we have a very -- so-called default rate in terms of the participants not accepting the contract, plus there are some rules, both on the offering side and on the bank side that allows us to screen and to select the participants for issuing the guarantee such as, for example, their experience in specific tender contracts previously, their history and so forth. So I cannot probably tell details on the rules, but they are the rules that minimize the risk to almost zero because it's not a credit guarantee, it's very default -- very well default product.

And the next question comes from the Q&A chat. Could you comment on the asset quality trend among SMEs given high inflationary and interest rate requirement? Do you observe any changes throughout the year and into fourth quarter?

[Interpreted] In the environment of high interest, that is true. We see that for small and medium businesses that leads to lower marginality and also is altering the efforts of mid-sized businesses to expand their production.

In the interest of time, I'll continue in English. For the quality side, indeed, we -- of course, we see that interest rate environment reflects on our models quote. But given the change in the environment, we also adjusted our underwriting procedures, specifically for small businesses, by taking a more conservative approach. The change in environment, we also adjusted our -- in terms of credit default models. So this is a balanced approach when we see that we can still work in that segment, but adjust our underwriting processes. Finally, on the cost of risk side, on NPL dynamics, we see that the dynamics are in line with our risk appetite and in line with our guidance that we provided overall for the bank.

Dear ladies and gentlemen, it seems that there are no questions remaining. So this completes our Deep Dive Session. Thank you very much for participation. As usual, our IR team remains open for any of your further questions. Take care, and goodbye. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]