Samat Kuljabaev: XacBank would be the largest bank in Kyrgyzstan.

We had the pleasure of talking with Mr. Samat Kuljabaev, Chief Risk Officer at Kompanian Bank CJSC, who has been working at XacBank as a visiting risk officer. 

Would you kindly introduce yourself to our readers? Also, please share with us your reason for coming to Mongolia?

First of all, I would like to introduce to you the organization that I came from. Like XacBank, Kompanion was also established by Mercy Corps and shares many of XacBank’s core values like serving the underserved in rural areas. Kompanion was established in 2004 as a non deposit-taking MFI through consolidation of five Mercy Corps affiliated micro-credit agencies in Kyrgyzstan.

Like XacBank, Kompanion is also a mission-driven MFI with a strong identification with the rural population. Due to the nature of the Kyrgyz economy, we are mainly engaged in lending to small-scale agricultural production, financed by group micro loans.

Since its establishment, Kompanion has had the strategic vision of becoming a bank, not only to diversify its funding sources and to reduce funding costs but more importantly to provide a wider menu of services for our clients. In January 2016, after about 18 month after our application, Kompanion received its banking license.

Currently, Kompanion Bank is still in the active stage of transformation from microfinance entity into a fully-fledged bank. Our Office network is comprised of 110 outlets covering most of the populated areas of the country and approx. 1000 employees. The outstanding loan portfolio is $74 million, of which 22% is SME portfolio. The current shareholding structure of Kompanion is as follows: Mercy Corps (65%), FMO and two funds managed by Triodos (35%).

The main objective of my visit was to learn from XacBank, best practices in the risk management and challenges XacBank faced during transformation of its business model. Understanding those challenges and practical solutions are critical for Kompanion Bank at this stage of its development. I want to add value and assist Kompanion’s management in shortening its development curve with great experience I received at XacBank.

What are the similarities and differences in the banking sector of Mongolia and Kyrgyzstan?

Regulations

Operating environment

External shocks, periodic political instability

If you were to compare Mongolian banking sector’s progress with the global banking sector, where are we?

In good shape. XacBank would be the largest bank in Kyrgyzstan. Yet, NPLs of Mongolian banks are much higher than Kyrgyz banks.

Why choose Mongolia for studying the know-how? And especially XacBank among other banks?

Well Mongolia is very similar to my home country – common roots, same history, similar operating environment, traditions, etc. I can list tons of similarities between Mongolia and Kyrgyzstan. XacBank is one of the great examples of successful transformation in the microfinance world, there are numerous similarities between our organizations, besides having the same founder (Mercy Corps).

Kompanion’s board of directors puts risk management at the core of its business strategy and operations. Our board of directors and executive management team are well aware that XacBank’s board and management have the same focus on risk management. Given the similar history and excellent governance of two organizations, choosing XacBank as a place for my exposure visit was very logical.

While our risk function at Kompanion is in its early stage of development, we have also started implementing three lines of defense in the internal control environment with business units at the front line, risk at the second line and internal audit at the third line. However, this control structure needs to be strengthened. In this respect, the efforts of the XacBank risk team (including facilitation of training to all senior and middle management team) in establishing the three lines of defense is a very good illustration how it should be done. It was very helpful.

What was the biggest lesson you learned about risk management from XacBank?

I have acknowledged myself with XacBank’s new risk framework, three lines of defense, risk modeling and reporting at Xacbank.

I liked the work atmosphere and professionalism of the whole risk team. In this respect, I could see an ultimate model how to organize risk function at Kompanion Bank.

The biggest lesson is very simple – risk reports should be straightforward and understandable. Risk team should be reachable and always strive to be a business enabler.

In your opinion, what is becoming the biggest risk in the banking and finance sector recently? And how can we prepare/avoid that?

While taking a step from a credit-only MFI to becoming a bank, the focus requires carefully designed processes with more business-oriented elements and prudent credit risk and operational risk management. Kompanion only recently started to issue SME loans and third of them are already in foreign currency. There is still a gap in having established the necessary organization, procedures, staffing, training and incentive systems. I think it is very common for both banks right now. In current turmoil, we should always stay cautious and do what we are best at...

The biggest risks in the banking sector for me is always - operational risk. All other risks are either root cause of an operational risk or the external risks that are beyond our control. It is the people who make mistakes, either intentionally or unintentionally, while the banking business is the people business. That is why, it is important to constantly enhance risk culture, invest in professional development, and facilitate risk awareness/anti-corruption campaigns for all staff.

Aside from risk management, what new ideas and expertise would you like to share/implement at your bank that you learned from XacBank?

Challenge for my organization is the change of the institution from a pure group loan product oriented business of the MFI to a true customer-oriented bank that provides full set of world class financial services. This means to change the actual “business culture” and seek the integration of new types of loan products, deposit and transactional business and banking services. We are still facing challenges to find right business strategy and implementation. In this regard, the talks I had with XacBank management team were very helpful to get feedback and insights, in terms of performance management, retail strategy, branch organization and management. Also it was very important to get general understanding about Xacbank’s approach in project management, establishing information security, IT management, compliance matters.

What would you like to say to your fellow XacBankers?

I would like express my most heartfelt appreciation to Mr. Bold, Torsten and all XacBankers for opportunity to visit XacBank and Mongolia.

I wish all the best in this life to all of you at XacBank and I hope that your great team preserves the joy and passion I was able to see during these days. You are always welcome in Kyrgyzstan, if you happen to visit my country, you can reach me through Sansar or Nurjan.

I hope that the risk team of XacBank will become a true competence center and in-house consultant supporting the business units to ensure the right balance between risk and returns. I am sure that with such risk culture, the objectives outlined in the risk management framework road map will be achieved on time and as expected.

Thank you for taking your time to talk with us. 

Thank you.