Good day. Welcome to the JSC Halyk Bank nine 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 nine months and third quarter of 2020. Participants to today's call on Halyk Bank side are Mr. Umut Shayakhmetova, Chief Executive Officer, Ms. Aliya Karpykova, Deputy CEO, Chief Financial Officer, Mr. Murat Koshenov, Deputy CEO, Corporate Banking and International Activities, Mr. Viktor Skryl, Financial Director of Finance and Subsidiaries, and myself, Mira Kassenova, Head of FI and IR.
We would like to start our presentation with an update on current epidemiological situation in Kazakhstan, which is presented on slide number six. As of November 16th, there were 121,000 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 tests were registered and over 29,000 people recovered. Unlike other countries currently experiencing surge in new daily cases, Kazakhstan have been relatively resilient, reporting around 560 average daily cases in November, compared to peak levels of circa 1,600 average daily cases recorded in July of 2020.
In Kazakhstan, we have already experienced two waves of COVID-19 pandemic with respective lockdowns 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 applies customary preventive measures limiting certain activities outside daily working hours in affected regions. Next slide, please.
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. We see some negative input in July due to the second lockdown, with the recovery followed in August and September. The short-term economic indicator for the nine months of 2020 decreased by 2.5% year-on-year, with better performance compared to decline by 2.9% in eight months of 2020.
In August, short-term indicator declined by 4% year-on-year, while in September, it recovered to - 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 -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% by corporate loans. 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 comprise 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 property. 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 nine months of 2020, we have increasingly focused on developing our online customer proposition and enhancing digital touchpoints with our customers. Overall, 5.4 million retail clients are using our online banking services at 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. Homebank monthly active users and transactions increased by circa 1.9 and 1.3 times respectively over the last nine months.
The online channel penetration continues to grow rapidly, with the 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 customer onboarding in April this year. In the third 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 a 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 new payment options. As a result, total volume of cash and non-cash payment processed by Halyk Bank in nine months of 2020 reached KZT 17.2 trillion. At the same time, customer payments and transfer volumes through our online platform, Homebank, have expanded by 53% and 1.9 times 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 1.6 times increase versus the first quarter of 2020. 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 11.4 times in September versus January of 2020. 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 ecosystem partners already contribute over 72% of total online loan issuance in the first quarter of 2020. Besides open ecosystem framework, we're introducing proprietary lifestyle and auxiliary services for retail customers.
In March, we launched online auto insurance that allow customers to acquire an insurance in five easy steps in five 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 aggregator in Kazakhstan, called Halyk Kino. It was launched in October, 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 number 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 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 SWIFT GPI, high-speed international payments processing. Volume of payments and transactions number through Onlinebank have expanded by 29% and 31% in the third quarter versus the first quarter of 2020, supporting strong customer engagement. Now I would like to hand over the call to Viktor Skryl, our Financial Director, who will provide you an update on financial performance of the bank. Thank you.
Hello. Now we can switch to Halyk Group consolidated financial results for the nine months and third quarter of 2020. In the third quarter of 2020, we earned KZT 88.7 billion of net income. The increase by 18.3% compared to Q2 2020 was due to the growth in other non-interest income positively affected by the repayment of swap agreement in July 2020, decrease in credit losses expenses, and increase in net fee and commission income quarter-on-quarter. 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 revaluation of fixed 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 revaluation of tenge-denominated deposits and to a lesser extent, as a result of fund inflows from the bank's clients. Next slide, please.
Interest expense for third quarter 2020 increased by 15.5% versus 2Q 2020, mainly due to the increase of average balance and share of KZT deposits in the amount due to customers and due to recognition of discount on receivables on sale of assets installed. Increase in interest income on loans to customers by 6.2% was partially offset by an increase in interest income on securities due to transfers in placements from high yield National Bank notes into low yielding FX deposits with National Bank following the repayment of swap agreements for the amount of $912 million.
As a result, interest income Q- on- Q stayed flat while net interest income declined by 11.3%. Net interest margin decreased to 4.3% for third quarter 2020 compared to 5% in 2Q 2020, mainly due to the increase in the volumes of placements into FX deposits with the National Bank following the repayment of swap agreement and due to one-off effects of recognition of discount on receivable on sale of assets installed. Excluding this one-off effect, adjusted NIM for third quarter 2020 would be 4.5%. NIM was also negatively affected by decrease in the average effective interest rate on retail loans due to increase in issued in unsecured loans with borrower's life insurance bundle, income on which is reflected in insurance income, and increase in online installment loans, which includes fees from merchants recognized in fee and commission income.
Next two slides demonstrate changes in monthly average balances of interest-earning assets and interest-bearing liabilities, as well as average interest rates on different types of assets and liabilities and depict earlier mentioned 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 operations as well as cash operations and bank transfer settlements. The increase in fees derived from bank transfer settlements in 3Q 2020 by 38.3% compared to second quarter 2020 was caused by the pickup in issue of online installment loans, which are issued through ecosystem partners, the largest appliance and retailers in the country. Fee and commission expense increased by 10.7% compared to 2Q 2020, mainly due to increase in payment cards expenses caused by the decrease in the volume of acquiring volumes.
Operating expenses for 3Q 2020 increased by 2.2% versus 2Q 2020, mainly due to the increase in salaries and other employee benefits as a result of the increase in sales-based payments in retail business in 3Q and due to lower motivational payments in 2Q 2020. The bank's cost-to-income ratio decreased to 26.3% compared to 28.2% for 2Q 2020 due to higher operating income in 3Q 2020. Next slide, please.
This slide shows from different perspective our historically strong liquidity position, where deposits as a percentage of non-equity funding equal to 82.2%. The share of liquid assets in total assets was 42.1%. In addition, we have relatively low loan leverage with net loans to deposits equals 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 6.1% 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 gross basis, whereas SMEs and retail loans increased by 6.2% and 9% on gross basis respectively. Next slide, please.
The bank's asset quality is notably improving despite the turbulent economic environment. Thus, 90-day NPL ratio decreased to 6.4% from 6.9% as at the end of 2Q 2020. The 90-day NPL coverage ratio increased to 154.5%. The provisioning rate slightly decreased to 9.7%. Cost of risk decreased to 0.2% compared to 1% in 2Q 2020 due to repayment of large ticket problem loans of corporate borrowers and due to recovery of retail loans.
The cost of risk was also positively affected by changes in macroeconomic assumptions when calculating provisioning rates for collective loans in accordance with IFRS 9. Next slide, please. Stage 2 ratio decreased from 15.7% as at the end of 2Q 2020 to 14.8%, mainly as a result of repayment of large ticket problem loans of corporate borrowers and due to recovery of write-off of retail loans. We are additionally showing here how well the workout of problem loans collateral was done by the bank's SPV during nine months of 2020. Next slide, please.
On the 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 a fixed denominated deposit due to KZT depreciation in third quarter 2020, and to a lesser extent, due to fund inflow from the bank's clients. As at the end of 3Q 2020, the share of corporate KZT deposits in total corporate deposits was 55.5%, compared to 56.6% as at the end of second quarter. The share of retail KZT deposits in total retail deposits remains almost flat.
On slide 30, 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 sufficient capital buffers with CET and total cap standing in 22.8% and 24.3% respectively, as at the end of third quarter 2020. This completes our presentation, and we would like to open the floor for your questions.
Thank you. If you would like to ask a telephone question, please signal by pressing star one on your telephone keypad. Please ensure your mute function is turned off to allow your signal to reach our equipment. Again, it is star one to ask question. We will take our first question today from Elena Tsareva, BCS Global Markets. Please go ahead.
Good afternoon. Thank you very much for the presentation. I have several questions. First, my question is on guidance. Actually, I do not see in 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. We see just cost of risk very low and just for nine months it's already at the level of 0.9%, and margin is a bit weaker than maybe it was in the first half of the year. Do you confirm the previous guidance you provided, or do you amend any lines of guidance for this year? This is my first question.
Elena, hello. Thank you for your question. Yeah. While we formally do not change outlook in this time of the year, 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 witness in the quarter three. We don't think that cost of risk would be higher than we have for the nine months of this year so far. For nine months so far, we have 90 basis points.
I assume that 1.5% cost of risk for the full year is valid guidance, and it means that it should pick up 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.
Understood. Thank you. Just on repayment of large corporate account, if you just may provide any details on such kind, like of social sector, or maybe just the color, if it's just one-off or maybe there are some positive triggers for some repayments going forward in corporate part of the book?
Elena, unfortunately the line is not good today. Do I understand correctly that you're also asking the details on revision of provisions on the corporate loans and on retail in the third quarter? Is it correct?
Yes, correct.
Yes, we have certain repayments of problem loans. As you saw that from time- to- time, we were recording revision of provisions because we managed to recover some problem loans. That also happens in the third quarter this year. As well as we made some revision. If you remember, in the third quarter, due to change in the macro assumptions, we created some provisions related to COVID-19 estimations. That mostly happens in our retail portfolio. 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. That also gives us the possibility to adjust the, let's say, the expected loss portion of provisions. That also led to lower cost of risk in the third quarter.
Okay. Thank you. Just another question on your margin. It's quite a strong decline in third quarter because of this swap repayment. Going forward, do you expect the same low margin to stay like around 4% in next quarter? There is a chance you can somehow offset this negative effect that happened in third quarter?
Thank you for your question. Let me first explain what explained the dynamics of net interest margin in the third quarter. First of all, if you know we had outstanding swap, which actually matured in the beginning of July. Actually, the impact was for the whole third quarter. After we closed the swap, actually, we saw that on the asset side, the roughly KZT 300+ billion 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. That was the first impact. The second one was due to 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 extension.
Actually, that discount would be reversed due to time difference in the upcoming quarters. We don't think that it will be repetitive. It have a more kind of one-off impact, and we showed that in our presentation. 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. While the tenge was weakening in the third quarter, you see that the portion of dollar loans actually is reduced in our portfolio. Some portion of these dollar loans were shifted into other lower yielding dollar assets. I give in the sequence of reducing impact.
The reason number four 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. From that perspective, the interest on these loans are recognized in the fees and commission line. That is not recorded in the interest income, but rather in the fees income. These four categories is largely impacted the dynamics in NIM.
Now, let's talk about how we think the NIM will be evolving going forward. The impact of swap is gone because we have fully closed that transaction. We think that the dynamics would be now more aligned with our activity in placing our assets and we are working on building our credit portfolio. We are working on the instruments to place our excess dollar liquidity into more higher yielding instruments.
Another impact might be coming from upcoming repayment of Eurobonds. If you know we have $500 million Eurobonds, which are due to mature in January next year. All these factors, we believe, would drive net interest margin to higher level. 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. Again, this is not the official guidance yet. This is kind of the scale of reversal which I'm more talking about.
Understood. Thank you very much for the detailed answers. Yes, thank you.
We will take our next question from Egor Fedorov, ING.
Hi. Thank you for picking up my question. 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 these four reasons you told us. Can we break down these 80 basis points in terms of this negative change in net interest margin for the first quarter? What takes more? These swaps, how much is it typical for NIM? This would be my first question. The second question, given the situation on the Eurobond market, do you have any plans to go to the market with a new issue? You just said that you have excessive fixed liquidity, and you are thinking how to manage it. Well, first question actually comes from this, what is the balance in terms of your excess liquidity right now? Thank you.
Egor, thank you for your question. If I understood correctly, your first question was regarding what was the particular impact from closing of swap transaction and some other items on NIM. The impact from closing of swap transaction and subsequently rotating of assets from high yielding tenge assets into low yielding dollars was in the area of 40 basis points. The impact from additional discount on receivables is close to 30 basis points. The other portions was having a smaller impact. 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.
Okay. Thank you.
As a reminder, if you wish to ask a question, please signal by pressing star one on your telephone keypad. Our next question will come from [Leonid Distotle], Invest Capital. Please come ahead.
Hello. Thank you for your presentation. I have a couple of questions. First question, do you ever think of possibility of interim dividends? The dividends for the next year will be quite a good one. 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?
[Leonid], thank you for your question. So far, we have a dividend policy to make payments once a year after we concluded the annual audited results, which needs to be approved by the general shareholders meeting. Far, we are not changing the frequency of these payments. Next decision on dividend payments, first of all, proposal will be done by the Board of Directors. Usually, it happens in the month of March, and then usually then it follows by the general shareholders meeting late April or beginning of May.
Okay, thank you. Second question, do you have any plans or maybe a discussion about Moscow Exchange listing? I think it also will be very good for your capitalization because many Russian investors are interested in your shares, it will be much more convenient for them to invest in Russia.
[Leonid], I'm afraid that we didn't get your question. Could you please repeat? Today we have a bit dead line.
Okay. Do you have any discussion about possibilities of Russian Moscow Exchange listing? Many Russian investors interested in your shares and very good dividend yield, very good bank, and it will be much more convenient for them to invest in Russian market. It will be very helpful for your capitalization.
At this point of time, we have our shares listed on Kazakhstan Stock Exchange and our GDRs listed on London Stock Exchange and AIX. At this point of time, we do not have plans to list our instruments on other exchanges.
Okay, thank you.
Thank you. Our next question will come from Tunde Ojo, Harding Loevner LP. Please go ahead.
Hi. Thanks for the presentation. Two from me, please. The first is, do you mind giving an update on the value of loans still under relief? Maybe if you can give it by segment as well, retail, SME, corporate. That would be helpful. More broadly, what are you seeing from your customers in terms of repayment behavior as things open up? Are they coming forward to repay further or are they still largely under a moratorium? Just to get a sense of the movement over there. The second question from 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 disbursed since that has been launched by the government of Kazakhstan? Thanks.
Tunde, hello. Thank you for your question. One moment, please. Regarding your first question, just to remind, we had close to 16% of retail loans for which we provided repayment holiday. At this point of time, almost none of these loans remain in this payment holiday. We had less than 1% of these loans which went into NPL 90+, so it's fully reflected in NPL position, which we are providing in our presentation. Regarding SME, as I remember, we had close to 25% of loans for which we provided the payment holiday. Again, majority of loans already start performing according to schedule. We still have, at this point of time, around 6% which are still in the payment holiday. Could you please repeat your second question? Because I'm not sure that I get it correctly.
Yeah. Thanks. Talking about the concessional government loan, about KZT 600 billion concessional government loan that was launched, I think in Q2, during the pandemic. Right? I was wondering how far have you gone on that. Has the government disbursed? Have you been able to make any headway on disbursing those loans to your customers, and how much?
Yeah. We actively participated in this program. Now I get it. Yes, we had the highest allocation of these amounts, close to 30%, in terms of the limit. In terms of the placement, I think we have placed even higher portion of money which was allocated. It was more than 30%. We're also participating in other programs because also there are additional initiatives from the government side in order to lower the rates on these loans and also extending the tenure backwards. They would be the concession interest would be applicable starting from months of March when the state of emergency was introduced. We also now actively working with our customers and the government institutions in order to make these government programs which would be applicable for our customers.
Okay, thanks. I'm just going to revert back to the first question a little bit. Can you give us a sense of the level of corporate loans that have been given some sort of relief or been restructured just due to the pandemic?
While on the retail and the SME, we were acting on, let's say, massive scale. We were mostly approaching them formally in terms of providing the restructuring. On the corporate loan, we look from different perspectives. We, on slide eight, are providing a number of sectors, which we believe is those which, to a certain extent, are affected either by the quarantine measures from the government side or because they are affected by a sharp reduction in oil prices. We have been providing these statistics for the third quarter already. 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, all the payment from our customers is done as the timing due. There is no restructure 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. The restructures which we have is mostly in these three sub-sectors.
Okay. All right. Thanks.
Thank you.
Thank you. As a reminder, please press star one to queue for a question. Our next question is a follow-up from [Leonid Distotle], Invest Capital. Please go ahead.
I have one more question. Could you just give some comments about possible competition with Kaspi Group? It seems they're very successful IPOs. What is your expectation from this side? What is the situation now, and what is your expectation for the next years?
[Leonid], we are not sure that we understood the exact question on Kaspi side on competition side. Could you please specify?
Since Kaspi has very successful IPO and their business expanding quite well in financial sector, do you feel any competition from their side? Is it influence on your business now, or what is the expectation for the next years from this side?
Yeah, because we actually face on the same market. Obviously, any competition with any banking or non-banking institutions is felt. We active not only on the bank side, we also have business on insurance side. We have also subsidiaries in the brokerage. 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 becoming more active in terms of building different kind of platforms, marketplaces, financing solutions. We think that competition is tight. It will continue probably to be tight because the consumer area in Kazakhstan, I think, still have potential, and not only on the consumer side, but also, for example, on the SME side.
We, as the bank, are trying to have our role in all these developments. We active not only on retail side, as you see, we 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. We, as the bank, trying to, let's say, make our efforts not only on the consumer retail side but also along all the business lines where we as the group are present.
Yes. Thank you.
Our next question will come from Simon Nellis, Citibank.
Hi. Thanks very much for the call. 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, did you report some gains in the third quarter from disposing these assets? How's the outlook for further disposals and the impact that could have on the earnings? That would be my first question. 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?
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? 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, they're looking to roll out a QR-based acquiring solution that would basically bypass most other traditional rails. I am just wondering how you feel about that and how you can compete against that. Thank you.
Simon, thank you very much for your questions. Let us answer them one- by- one. Regarding the work of our SPV subsidiaries. Despite the situation with quarantine, when the work of our subsidiaries as well as customers were limited in terms of visiting these assets, 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 IR 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 non-banking activities. You'll find there that we are showing net gains on sales of commercial property and net gains on sales of assets held for sale.
It's actually two items which are largely corresponding to any property which is sold either from bank balance sheet or from the balance sheet of our subsidiaries, which is related to stress assets or problem loans. For the third quarter, the aggregate gain was KZT 4.3 billion. For nine months, it is above KZT 16 billion. We try to maximize the gain which we can get from the assets which is held by our SPV or by the banks. Regarding the dynamics on Stage 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 left. What is generally the amount that you recover, like in cents on the dollar? Or is that not something that you've looked at there? I'm just wondering how much of that can be recovered in the future?
Actually, there is no specific percentage which we would say usually gain from historical, because I think when we talk about the large items, then it's really a one-by-one situation. I'm afraid that there is no kind of the rule of thumb percentage. You might notice the same note that the scale perspective, we had more or less same amount which we recorded in the 2019 and 2020. Like in 2019, for nine months, we had gain of KZT 14 billion, and to remind, this year we had KZT 16 billion. It's pretty much the same scale, but I don't think that you should take it as a kind of guidance going forward. It really depends on particular situation.
If I compare the KZT 16 billion with the KZT 40 billion of reduction in disposals, is that how to look at it? You kind of recover 50% or just below 50%?
Because on SPVs, we're showing only assets which is sold by SPVs. These lines in Note 26, that also includes the workout done by the bank itself from the balance sheet of the bank. It would include any workout which is done by our other subsidiaries. Like we have subsidiaries, for example, in Russia, and because of acquisition of a subsidiary of KKB had certain acquired problem assets and problem loans. They're also progressing well with reducing their portion. In that slide, particularly, we're only showing the proportion of that. The total amount of workout position might be higher, but I don't have this specific at this point of time in front of me. Regarding your second question, I think it was on Stage 3 dynamics?
Stage 3 dynamics, yeah, migration.
Yeah. We indeed had a good quarter in terms of reducing the Stage 3. That was the combination of working out a 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. Actually, that also helped to reduce the Stage 3. Could you please repeat your third question? I think it was on the fees, on the-
Actually, it was-
...the payments.
...on payments, yeah. Just how are you going to respond to-
Yeah
...Kaspi's kind of competitive threat to take over the acquiring market?
Yeah. One moment please, Simon.
Yeah. Thanks.
It's a bit not straightforward question- and- answer, I think, because yes, as you know, for example, on acquiring, there is official part. Official part, I mean, it can be e-commerce or the POS terminals where banks are using the cards of, let's say, Visa, Mastercard, American Express, or UPI. This is one portion, and you can measure the, let's say, market share of banks on that side. There is some other portion of payments which are not necessarily coming through the cards issued by international systems. Sometimes they can be within the banks and some players actually heavily promoting that. This is not necessarily visible for other players.
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. I should be cautious in terms of the naming. If we talking about the, let's say, portion which we talk 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%. Again, it depends really what particular payments you're talking about and what you'll be including. As I said, not necessarily all payments might be visible from the statistics perspective.
I guess what I'm really wondering is do you see pressure on interchange rates or MDRs from this competitive threat? I think they're rolling out disruptive pricing if you use the Kaspi app with a Kaspi point of sale terminal that can acquire a QR code. Do you think that's going to put pressure on your fee business? That's, I guess the main question I'm asking.
The competition is tight indeed in this kind of business. Again, it's not about Kaspi and us only. There are 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, if you notice in a few quarters last year, we see the situation when we had quite pricing dynamics in terms of net fees and commissions. Lately, we see some stabilization on that side, and we also are trying to provide some other solutions of the customers. You see that we have increasing percentage of people who are using our Homebank 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.
Okay. Thank you very much.
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