Ladies and gentlemen, welcome to Halyk Bank first half and second quarter 2019 results conference call. I will now hand over to Ms. Mira Kassenova, Head of International Relations. Ma'am, please go ahead.
Thank you. Good evening, ladies and gentlemen. Welcome to Halyk Bank conference call and presentation of financial results for the first half and second quarter of 2019. Participants to today's call on Halyk Bank side are Mr. Olzhas Akhmetov, Chief Executive Officer of Halyk Bank, Mr. Alyakot Tyssa, Deputy CEO, Chief Financial Officer, Mr. Murat Koshenov, Deputy CEO, Corporate Banking, Mr. Almat Makhanov, Chief Risk Officer, Mr. Viktor Skrin, Head of Strategic Office International Activities, and myself, Ms. Mira Kassenova, Head of Financial Institutions and International Relations. During the first half of 2019, the bank earned net income of KZT 164.2 billion.
Net income for Q2 2019 increased to KZT 89.7 billion compared to KZT 24.1 billion for Q2 2018, due to loss from impairment of non-financial assets for KZT 28.5 billion in Q2 2018, as well as KKB's recognition of tax loss carried forward of KZT 43.3 billion in Q2 2018 due to the merger into Halyk Bank. Total assets increased by 1.1% versus the end of 2018, and by 2.2% versus Q1 2019, mainly as a result of funds inflow from the repo transactions in Q2 2019. Investment securities decreased by 17.2% versus Q1 2019 on the back of accumulation of funds for repayment of a one-year cross-currency swap with NBK on the 3rd of July 2019. This also resulted in significant increase of cash and cash equivalents versus Q1 2019, mainly in short-term deposits with NBK.
Compared with Q1 2019, net interest income increased by 5.4% to KZT 97.7 billion. Net interest margin increased to 5.1% per annum for Q2 2019 compared to 5% in Q1 2019, mainly as a result of increase in the share of placement of interest-bearing liabilities into interest earning assets. Net interest spread decreased from 5.2% per annum in Q1 2019 to 5% per annum in Q2 2019, mainly due to amortization of discount on receivables of sale of assets in installments in Q2 2019. Fee and commission income for Q2 2019 increased by 13.9% versus Q1 2019 as a result of growing volumes of transactional banking, mainly in payment card operations as well as cash operations and bank transfer settlements. Prior to the merger, the transfers within legal entities' current accounts in Halyk and KTB were treated as external transfers and relevant fees were applied.
After the integration, the transfers between those current accounts are being treated as internal and therefore are free of charge. Fees derived from bank transfer settlements decreased in Q2 2019 versus Q2 2018 by 11.8%. Fee and commission expense increased by 14.9% compared to Q1 2019, mainly due to increased number of transactions of other banks' cards in the acquiring network of the bank. Operating expenses for the first half of 2019 decreased by 36.3% versus the first half of 2018, mainly due to loss from impairment of non-financial assets of KZT 30.3 billion in the first half of 2018 and cost optimization on the back of synergy effects from merger of KKB into the bank. Operating expenses increased by 9.9% for Q2 2019 versus Q1 2019, mainly due to the indexation of salaries and other employee benefits starting from the 1st of March 2019.
The bank's cost-to-income ratio decreased to 22.3% compared to 44.6% for Q2 2018 on the back of lower operating expenses and higher operating income in Q2 2018. On the balance sheet compared with Q1 2019, loans to customers increased by 2% on a gross basis and 2.1% on a net basis. The increase in loan portfolio was attributable to increase in corporate loans, 1.1% on a gross basis, increase in SME loans, 3.2% on a gross basis, and increase in retail loans, 3.2% on a gross basis. Halyk Bank's 90-day NPL ratio decreased to 8.7% from 9.1% as at the end of Q1 2019. The provisioning rate slightly decreased to 10.7% from 10.8% as at the end of Q1 2019. The 90-day NPL coverage ratio increased to 128.4%. Cost of risk on loans to customers for Q2 2019 was at 0.3% due to one-off repayments of large ticket problem loans.
Stage 3 ratio decreased to 18.6% from 20.4% as at the end of Q1 2019 as a result of repayments and write-offs of previously impaired indebtedness of corporate and retail borrowers. On liability side, deposits of legal entities and individuals decreased by 4.9% and 4.6% respectively compared to year end 2018, mainly due to partial withdrawal of funds by the bank's customers to finance their ongoing needs. As of 30th June 2018, FX share of corporate deposits decreased to 44.2%, whereas share of FX in retail deposits remains mainly the same. Compared with Q1 2018, total equity decreased by 1.9% due to dividend payment for financial year 2018, partially offset by net income earned by Halyk during Q2 2019. The bank continues to maintain very high capital adequacy ratios. Based on our six-month financial results, we have updated our forecast for financial year 2019.
Net loan portfolio growth outlook remains unchanged in the area of 7%. Consolidated net income is to be approximately KZT 300 billion. Cost of risk is expected to be around 0.7%. Cost-to-income ratio is to be below 27%. Net interest margin outlook remains unchanged around 5%. Return on average equity is to be above 26%. This completes our presentation. Now we would like to open the floor for questions, please.
Thank you. Ladies and gentlemen, we will now start our question and answer session. If you wish to ask a question, please press zero one on your telephone keypad. Thank you for holding until we have our first question. Our first question comes from Isaac Schwartz, Robbotti & Co. Please go ahead.
Hi, everyone. Congratulations on the strong earnings and also on the improvement in cost of risk and provisioning. I was just wondering, looking back at the decade since the financial crisis, you generally earn more in the second half of the year than in the first half of the year. I think the only year where you earned more in the first half of the year than the second was 2014 when the oil price and the ruble and the regional currencies spiraled at the end of the year. I was wondering, first of all, why has the business tended to be seasonal in that way? Can we draw any assumptions about 2019 given that track record? Hello?
Yes. Hello, Isaac. Just a moment, please.
Oh, sure. Sorry. I didn't know. Heard me. Thanks.
Yeah. Okay. You're probably right if we looking back into the history. The logic which we put in providing these assessments, first of all, we, as Halyk, always trying to look from the budget perspective from the conservative side. This is number 1. One of the biggest, probably reason. Typically, our operating costs are high in the second half of the year compared to the first half of the year. As you noticed, we also mentioned that starting from March this year, we increased salaries of our employees, and that might drive our operating cost higher. Looking at the volatility on the FX side, we also putting certain conservative estimates on the cost of the swap, which we extended for another one year. Also, the first half was particularly good in terms of cost of risk.
As you see, our cost of risk for the first half is standing at 50 basis points. While we reducing the overall guidance for the whole year from 90 basis points to 70 basis points, it still assumes higher cost of risk for the second half of this year. Again, I want to stress that when providing guidance, we basically look at the figures which are budgeted, and our typical approach in the budget process is look from a more conservative point of view.
Thank you, Murat. Could you also just talk a little bit more about cost of risk? Looks like you guys have done a really great job on that side, but what factors were at play that made the rate come down so sharply in the last year?
We think in terms of the cost of risk, we think that we already, for last probably couple of years, except probably some one-offs, are running on the normalized level. Probably, the first quarter was more normalized compared to the second quarter when we had some one-off repayments of problem loans. That's why for the second quarter, our cost of risk is standing at 30 basis point, which probably is a bit lower than we would consider the normalized level. That's why we increasing the budget for the second half of the year. Saying that, I have to stress that we continue to work hard on the problem loans, and while we do not see specific reasons why we should really expect any one-off, but certainly, that might happen depending on whether we would be more successful in workout than normally we would expect on certain bigger loans.
Thank you.
Our next question comes from Andrew Keeley, Sberbank. Please go ahead.
Good afternoon. Thank you for the call. I guess I have just a follow-up on Isaac's question in terms of your cost of risk, Murat. These kind of one-off workouts that you referred to, mainly, are they coming from Kazkommertsbank legacy related loans and recoveries, or are they from Halyk's book? I guess just generally, do you feel that you're pretty much through all of the workout process and recoveries from the legacy Kazkommertsbank book that you inherited? Do you think that's more or less done now? Thank you.
There was some corporate loans from Halyk portfolio but the majority is coming from legacy Kazkommertsbank portfolio. Obviously, if you look, for example, results for the last year, we also were successful in recovering some bigger loans. The more we recover and the more we write off on the cases where we do not see any prospect, the less is remaining in the pot, if you like. The chances on positive side is less when you have a reduced portfolio of problem loans. We are currently in the trend that we are reducing our problem loans.
Okay. All right. That's clear. Thank you. I have a second question on your fee income. Now, obviously, you explain to some degree why the year-on-year fee income growth or contraction in fee income is coming from this lower fees derived from bank transfers. Also, when you look at your net bank payment card fee growth, I think the contraction in the first half of the year was almost 20% year-on-year. I'm just wondering whether you can just give us a bit more color as to what's going on there, why that is so weak, and just any kind of sense of whether you feel that you're going to be getting back to positive year-on-year fee income dynamics anytime soon would be interesting to hear your thoughts. Thank you.
Thank you for your question, Andrew. Just a moment, please. We still think that the majority of reasons on fee and commission dynamics is related to integration process. As we said before, when the customers were paying from Halyk to Kazkommertsbank and vice versa, that was considered as external payments. It would be considered as a payment within the bank, whereby the cost of that would be the fee for the customer would be basically zero. We, during integration process, had to unify the tariffs for the same customers and for the benefit of the customers, in many cases, the tariffs was set at the lower level, like we have some overlap on the corporate customers and on some products. In many cases, we had to choose the tariff scheme which the customer enjoys in one of the bank and which was the lowest.
Yeah, there was some dynamic in terms of high increase in fees and commission expenses compared to fees and commission income. That was too large, compared to the tariff policy. We're looking into that. If you see the dynamic for the second quarter, actually, our fees and commission income in nominal terms increased higher than the nominal increase in fees and commission expenses. We see that on accretive basis, the net fees and commission income start increasing. We think that the integration situation has been left behind, and we are ready to gain more on the fees and commission income.
Okay. You would think that you would be returning to positive growth certainly next year in terms of the overall fee and commission income. Is that fair?
Yes. In terms of direction wise, yes.
Okay. Thank you. I have a couple other questions. On your retail lending, there's quite a contrast between mortgages and consumer. Your mortgages are basically contracting, and your consumer are growing quite strongly. Can you just give us a little bit more color as to why that's the case, and whether you expect directions in those two segments to continue as they currently are? Thank you.
Yeah. In terms of consumer lending growth, I think it's the general sector specific that we see a high increase in the consumer lending. From that perspective, we, I think, are getting positive from our wider network, which we have across the country. That's why we see that our consumer loans indeed increased more than by 5% in the second quarter. Also, this is the seasonal increase, because typically you see a high demand for the consumer loans in the second quarter. In terms of the mortgages, we are increasing the new mortgage loans, partly because of the new Government Program. Because we will continue to lend mortgage even in a situation when other banks were not providing any mortgage, and that was specifically during last five or six years, when we're probably the only commercial bank which was active on the mortgage area.
We see that amount of mortgage loans which are being repaid is exceeding, at this point of time, the new mortgage generation. Certainly, there is still some problem loans on the mortgage side, and we continue to work out repay and working on repayment of mortgages. That also contributed to decrease in the mortgage for the first half of this year.
Okay, thank you. Just final quick question, although I have a feeling I know what your answer will be. Is there any update on this potential sell down by the main shareholder? Obviously, this was first noted back in May, and we've not heard a great deal since. Can you give us anything on that?
Nothing has changed, at least as we know from Halyk Bank side since their announcement. Yeah, to reiterate the Almex said that they're looking to consider sell part of their shares, but to remain the controlling shareholder, and they guide it at the subject to the favorable market conditions. Since then, there was no further announcements from their side. I'm afraid I cannot add anything on top of that at this point of time.
Okay. Fair enough. Thank you.
Our next question comes from Babatunde Ojo, Harding Loevner. Please go ahead.
Good afternoon. Thanks for the presentation and congratulations on a very strong result. Two questions from me, please. The first is on the realization of cost synergies from the Kazkommertsbank acquisition. My understanding is the cost synergies are going to start from this year, given that the integration was last year. Can you quantify, first half, how much cost synergies you've realized from this merger? What is left to be done in terms of operational IT and branch optimizations and other sort of synergies that you intend to realize going forward? That's my first question. The second is on the loan growth. I was expecting somewhat higher loan growth guidance for Halyk Bank and even the entire banking system as a whole. Given that the Kazakhstan economic growth is recovering, real GDP of about 4%.
If I lay that over on inflation of about 5%, I would have expected the loan growth should be around 10% or even mid teens. Just seeing 7% growth, I was wondering what, in your view, is limiting loan growth in Kazakhstan and for Halyk specifically as well. Thanks.
Yes, Sunder. Thank you very much for your questions. One moment, please. Sunder, unfortunately, I do not have this particular presentation between myself, but we provided, I think during the Capital Markets Day, the information on these synergies, which we realized, and you can find that presentation on our website.
Okay.
As a general guidance, what I can say that we start realizing synergies immediately we acquire KKB. Even before we merge with KKB, we already start looking at the possibilities to reduce our costs. Basically, it's coming from two sources, reducing the number of branches and outlets, and secondly, reducing the number of 50. Already, during 2017, the second half, we realized certain synergies. By the time we made the legal merger, part of the synergies have been realized. Still, you can look on slide 10 of this presentation, operating costs, you see that even despite the increase of the salaries starting from March of this year, still the salary and other employee benefits cost reduced by KZT 1 billion.
Even if you would exclude the recent increase in salaries, the reduce would be by KZT 2 billion, which is roughly 10% decrease for the second half alone. That is not the whole synergy because as I said, even before the second half of last year, part of the synergies have been realized. I encourage you to look through that presentation, which I mentioned, and if you have.
Okay
any remaining questions, ready to reconnect with you. Regarding the loan growth, as you see, the growth in Kazakhstan is driven by different sectors. Some of the sectors which are driving increase is actually the sectors which are presented by extraction sectors like oil and gas, metals and mining. Not all of the companies, or I would say typically, the companies which operate in this extraction sector attempt to borrow either through their parent companies or they're borrowing on the debt capital markets or from foreign banks. When we talk about the growth of the Kazakh banking sector, it's to a large extent limited to the sectors which are outside the extraction sector, with probably some few exceptions.
Yeah, but-
If you look, for example, for the growth of GDP, we have preliminary growth figures for the first half of this year. Indeed, GDP growth constitutes 4.2%, but if you look for different sectors, they grew with different dynamics. For example, extraction of ferrous metals increased by 17%, and this is exactly sector which are not fully reliant on the Kazakh banking sector as a funding source. Some other sectors which are typically you find within Kazakh banking portfolio, for example, trade increased by 7.5%, transportation increased by 5.4%. Construction increased by 11.5%, but again, part of construction increase was related to activities on Tengizchevroil. Again, this is the big project on the western part of Kazakhstan oil and gas fields, and it's entirely funded by international investors.
Part of that related part of construction activities, again, related to construction on Aktogay production, and this is the facility of KAZ Minerals. KAZ Minerals is funding itself from China Development Bank. You see many of sectors and many of growth drivers is funded by external sources. Unfortunately, it doesn't allow Kazakh banks to fully realize potential growth.
Okay. Thanks for that insight. That's very helpful for me. In your view, when do you think the sectors that would directly benefit the banking sector would start accelerating in terms of growth, and then the bank and Halyk, of course, would then benefit from that, and then you can start growing double digits. Are you seeing that happening next year, or you're still looking at single digits growth, loan growth in the foreseeable future?
I want to add to my previous messages that still we able to have indicators on some of the projects which was drivers of the growth this year, we able to directly participate. Of some of them, we participating indirectly, because still running the big project means that the companies are hiring contractors, they're hiring subcontractors, and this is directly the customers of Halyk Bank or other Kazakh banks. We still able to a certain extent gain from the growth projects, but not to 100%, as I said.
With regards to next year, probably it's a bit premature to say because, as you see in current environment with globalization, a lot of elements might influence development of Kazakh economy, including development of oil price or developments of Russian ruble, and in the environment when there are a lot of frequent changes like trade wars, geopolitical issues, probably looking for the next year, it's a bit premature. If we talk about from the particular figures. If the figures remaining or if the situation remain as is, we expect that we'll continue to grow at the same pace as we experiencing this year so far.
This year so far. Okay. Just lastly from me, do you think the interest rate in Kazakhstan is still somewhat high enough to deter corporates from demanding more loans? Is interest rate a factor in this equation that we're just talking about? In your view, no?
In terms of rates, they already reducing in Kazakhstan for the last, probably three years. That was a reduction on both deposit side and credit side. Further development on the interest rates will depend how the dynamic with inflation will continue. As you know, probably National Bank is reducing corridors inflation. For example, couple of years ago, the corridor was between six and eight. Last year it was five to seven. Starting from this year, they lowered the corridor 4%-6%. Currently, inflation is standing at the level of 5.4%. There are some press
Hello? Please hold the line. The conference will resume shortly.
Yes. Hello?
Yes.
I think we have been disconnected. What I wanted to say on the rate is that it will depend on the dynamics of inflation. While inflation has lowered to the level of 5.4%, and it stays within the corridor of 4%-6%, we see that, for example, on food inflation year-over-year standing at level of 8%. The National Bank said in recent statement that if they would see further pressure on inflation, they even might consider increasing the base rate. For me, first we have to look at inflation and then depending on inflation dynamic, we'll see the direction of interest rates.
Yeah. Oh, okay. I think for me, the direction of my question is, are your customers complaining about the interest rate being too high, or do you think they're comfortable with it at this level?
I think currently the rates, if we take, for example, 10-year horizon, probably currently the rates are not the cheapest, but I think they around the average rates.
Okay.
Current rates for corporate and SME customers, they would allow, in our opinion, to finance their ongoing needs and even look into the capital expenditures.
Okay.
Obviously, if the rates would lower, then it would increase activity.
Okay.
In our opinion, it's not which is the main factor which might dampen their business activity.
Got it. Okay, thank you. There's just last one, if you don't mind me chipping in one more, is what's the size of your structured book right now as at end of June?
It's around 8.6%.
8.6. Thank you. Thanks.
Our next question comes from Svetlana Uslanova, VTB Capital. Please go ahead.
Hello. Thank you very much. I have several questions. First of all, I would like to know what is your outlook for NIM performance? From what we saw in the second quarter, you have a higher share of KZT and term deposits, which might bear a higher interest cost for you. We also saw quite rapid growth of consumer loans and corporate loans that outperformed the sector. What do you think will be the trends in the second half of the year for NIM based on these changes? I also wanted to ask, looking at your results on insurance operations, can we consider that those KZT 2 billion of net result is a kind of run normalized level for the coming quarters? Thank you.
Hello, Svetlana. We do not think that these changes would materially impact our net interest margins dynamics. We're not changing the guidance for the year. We still think that NIM would stay around 5%. For the first half, as you noticed, our NIM, according to our calculation, standing at 5.1%. Regarding your second question, please allow one minute.
Okay.
Probably we do not have a specific figure, but the first and second quarter more normalized in terms of the net interest income. The exact figure will depend on how reserves are created and they are unwinded. There are some specific rules according to regulation. That might, to a certain extent, affect the results of particular quarter. But the results are more or less normalized for this period of the year.
Okay, thank you very much. Still on NIM, basically, am I right then assuming that in the second half, NIM will slightly decline, both reported and risk-adjusted? You can consider it will stay relatively stable?
It probably stay within relatively stable because we are saying approximately 5%. That also would include certain variations.
Yeah. Okay.
It would not be any factor quite materially alter the results which we have just posted.
Okay. Thank you very much.
On risk-adjusted NIM, including the provisions, we already, I think, covered during discussions of cost of risk.
Yeah. Thank you very much.
Ladies and gentlemen, I would like to remind you, if you have any questions, please press zero one on your telephone keypad. Borek Kroger, Arca Capital, please go ahead.
Thank you for the opportunity to ask a question. I just want you to provide a little bit more detail on the deposit side, where you mentioned that senior outflow, because there's been a requirement for customers to finance ongoing needs. That seems like a very high-level comment. Can you provide more granularity on that specific trend in the deposit book?
Yes. Hello, Kroger. Thank you for your question. Basically, under that definition, we can provide more granularity. There was one customer which used the proceeds in order to repay outstanding Eurobonds, so that was a significant amount. The second customer actually used that fund, it's a big contractor in one of the biggest projects which currently undergoing, and it's received financing from non-banking sources, but it's used that fund in order to buy capital goods in this project. There are number of customers which moved their deposits from Kazakh banks. It was not only actually in Halyk, but they moved dollar deposits from Kazakh banks into foreign banks. Basically, probably there are three biggest reasons, but we also see a number of other customers which use their funds in some financing of their needs with working capital or capital expenditures.
Okay. That's very helpful. I guess if it's such large ticket items, it sounds one-off in nature, does that mean we can expect the deposit balances to remain more static going forward?
Yes, we think so.
Okay. Then the second question I have is somewhat more high-level. If I step away and I look at the business model, your capital formation is strong. You did indicate that you were going to look across the border at a little bit of M&A activity. On the loan growth side, it's not dramatically strong. We're probably going to end up with a balance sheet with extremely strong capital levels by the end of the year. You did indicate you're going to pay higher dividends going forward, but this must clearly provide a lot more upside for us as shareholders to expect a dividend payout of larger than 50%. Can you comment on that?
Yes. Generally, you, I think, are right that in the situation when our return on equity is far above 20%, in situation when our risk-weighted assets are not growing more than by 10%, if we would be paying 50% as we did this year, then we still would be in a situation of further accumulating capital, increasing capital adequacy ratio. We think that we already firmly capitalize financial institution, so we do not have intention to further build capital in situation where we do not see particular need for that. That's why during June this year, the board of directors made decision to amend dividend policy where the corridor has been increased from 50% to 100%. We think that we have all the possibility to increase dividend payouts with a minimum level of 50%.
The particular figure would depend on the prospects on particular results of a particular year, as usual areas where we look during determining the particular dividend payout ratio for particular year.
Okay. Would you be prepared to give us a guidance on how we should think about capital ratios at the end of the year?
Yeah. Normally, we do not have a particular target on capital adequacy ratio because it's dependent on different factors, and one of them is difference between how capital adequacy ratio is calculated according to National Bank of Kazakhstan guidance and, for example, how the rating agencies are looking to that. There is different risk weight depending on the composition product wise and sector wide of our credit portfolio. We are looking at different factors when we determining whether we have sufficient capital or we have possibility to pay out. The level which we have at this point of time in our view, is more than sufficient to allow distribution of dividends above that figure.
Okay. Yep, those are the questions I have. Thank you very much.
Our next question comes from Ivan Gvozditskiy, Renaissance Capital. Please go ahead.
Yes, hello, colleagues. It's Ivan from RenCap. Thank you for the call and the opportunity to ask questions. I have a couple of questions. My first one would be on the AQR in Kazakhstan. Could you share us any details that you know about the exercise? What are your expectations and potential implications for both Halyk and the sector in your view? My second question would be a bit more high-level discussion. If you could just give us some color on how competitive balance is evolving in the sector, I mean, some banks were going through the cleanup and some ownership changes earlier this year. If you could just maybe highlight a little bit how this has affected so far competition in corporate lending, in mortgages, and in consumer lending, it would be really helpful. Thank you.
Thank you, Ivan. Regarding your first question on AQR, the process has already started. Actually, the National Bank chose 14 banks, the top 14 banks, which is actually half of the banking sector in terms of the number of the banks. In terms of credit portfolio, they're covering close to 90%. Pretty much a significant coverage of credit portfolio of covered banks. Because actual AQR started just a few weeks ago, at this point of time, it's probably too premature to say what the potential outcomes might be. The only we can say that the exercise is very comprehensive, very intense, and it's taken a lot of resources of parties which are participating in this project. We have to wait until the results.
National Bank expect that the preliminary results would be at the end of this year, and probably it might take some more time in order to discuss with them. In terms of your second question, how the recent trends in the banking sector is affecting competition. Far this year, we see situation when First Heartland Bank acquired Tsesnabank or they actually became regulated banks, actually. We do not see that particular event impacted the competition. From other activities, we know that Bank Kassa Nova merged into ForteBank. Again, they were banks within same group, no change. The most recent one is merger of three banks. Each of them are outside top 20, so no impacts on the competition really from these particular three events.
Great. Thank you very much.
Our next question comes from Elena Tsareva, BCS Global Markets. Please go ahead.
Hello. This is Elena Tsareva from BCS. Thank you for the opportunity to ask questions. I have just several follow-up questions. First, on dividends. Could you please advise if new dividend policy is effective this year? I mean, if there is any possibility, no constraints to pay theoretically more than 50% as a payout for this year, for the income of this year. This is my first question.
Yeah. As I said, while we amended the dividend policy to pay dividends from 50% to 100% of net income, obviously, during making any decision on payouts, we are looking at any contractual limitations. At this point of time, we have covenants set in our Eurobond issues, which limit dividend payments to 50%. One of the bond is maturing January 2021. If we would be making decision for results of 2019, that bond would still be outstanding. When we would be making decision for the year 2020, and we would make decision in March, the board would be making decision or recommendation in March 2021. By that time, this bond already would mature. We have another bond outstanding, which also have that limitation. These bonds, while maturing in 2022, the bank have options for early repayment.
As you know, this first quarter of this year, we made decision to prepay $200 million of that amount. There's still $550 million outstanding, but as I said, the bank can make partial or full repayments anytime when it decides. We don't see the limitation on that particular bond as a big hurdle.
Hello?
I think you also said that you also asked whether there is limitations to pay more than 100%. Probably I didn't understand your question correctly.
No, I was asking about paying above KZT 50, yeah. If you can share your views about KZT 500, if there are any limitations, it could be also helpful.
We do not see currently situations where we would be making one of big payments because we don't think that it's benefiting either the bank or our investors.
Fair enough. Thank you. You said that one of the bonds has an option for early redemption, but the second one, which matures January 2021, doesn't have any early redemption opportunity, and you don't intend to early redeem it?
On the bond, which is maturing January 2021, there is no prepayment options. That was the bond that was issued by Halyk Bank itself, but it's maturing within 17 months.
Wonderful. Thank you. Just a small follow-up on deposits. Given all these explanations you gave about dynamics in the second quarter, what is your strategy in terms of deposits, given you have a very liquid balance sheet, and particularly you don't need to attract more deposits? What is the strategy maybe in terms of interest rates, in terms of volumes, how you manage deposits in this industry?
Well, there is no change to the policy. Generally, we tend to keep a diversification of our deposit sources. This is important to have from a risk perspective, diversified funding sources. Also we are trying to be on the lower side compared to the competition. We are trying to keep these two things, to find the balance between diversification and to lower cost of funds when we see these possibilities. Generally, on the retail customers and the corporate customers, we would charge deposit rates, which typically would be cheaper than the average on the market.
Yeah. Wonderful. Thank you. Just a small question on Uzbekistan. You just recently entered the market a bit, but maybe you can share your views, what opportunity you see there, and how you think you can benefit there as well.
Yes, we have developments indeed. May this year, we received the license, a full banking license to operate in Uzbekistan. Already last month, the bank started operations, started activities with the customers, and they already started granting loans. The first loan has been granted a few weeks ago. The bank is up and running. It's started operating with activities with corporate customers and private entrepreneurs on providing cash management. The bank is working on introducing the internet bank, so hopefully, it would also be running in the near future. Later on, we also would look into opportunities to work with private individuals. We see the market as very interesting, and we see big prospects in this market.
Many thanks for your answers. That's it for me. Thank you.
Ladies and gentlemen, as a reminder, if you have any questions, please press zero one on your telephone keypad. We have no further questions. Dear speakers, back to you for the conclusion.
Dear ladies and gentlemen, thank you very much for participating in our call today, and as usual, our IR team remain open to any further questions. Thank you very much. Bye.
This concludes today's conference call. Thank you for your participation. You may now disconnect.