HALYK GROUP FINANCIAL RESULTS PRESENTATION 1Q 2019 (Moodys Ba1 / - - PowerPoint PPT Presentation

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HALYK GROUP FINANCIAL RESULTS PRESENTATION 1Q 2019

(Moody’s – Ba1 / Fitch – BB / S&P – BB) 15 May, 2019

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Disclaimer

Certain information contained in this presentation may include forward-looking statements. Such forward-looking statements are not guarantees of future performance. These statements are based

• n management’s current expectations or beliefs as of the date of this presentation and are subject

to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The Bank disclaims any intention or obligation to publicly update or revise any forward-looking statements. Basis of calculation:

• all figures in this presentation are based on IFRS audited financial statements or

financial statements reviewed by auditors, unless stated otherwise;

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Speakers

Umut Shayakhmetova CEO, Halyk Bank Murat Koshenov, CFA Deputy CEO, Corporate Banking Almas Makhanov Chief Risk Officer and Compliance Controller Aliya Karpykova Deputy CEO, Finance and Accounting Viktor Skryl Strategic office, International Activities

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Table of Contents

• 1. Halyk Group financial results 1Q 2019
• 2. Kazakhstan: Economic and Banking Sector Update
• 3. Q&A

Appendix

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One

Halyk Group financial results 1Q 2019

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1Q 2019 4Q 2018 Q-o-Q, % 1Q 2018 Y-o-Y, % Net income (1) 74.5 90.3 (17.5%) 62.1 20.1% Net interest income (2) 92.6 99.0 (6.5%) 76.1 21.7% Fee and commission income 27.0 29.5 (8.5%) 26.4 2.3% RoAE, p.a. 26.8% 35.5% 29.2% RoAA, p.a. 3.3% 4.1% 2.9% Cost of risk (3), p.a. 0.6% (0.6%) (0.5%) NIM (4), p.a. 5.0% 5.6% 4.4%

1Q 2019 Performance Highlights

(1) attributable to common shareholders. (2) before credit loss expense. (3) credit loss expense on loans to customers / monthly average balances of gross loans to customers, on consolidated IFRS basis. (4) net interest income / average interest earning assets (monthly average balances of cash and cash equivalents (less cash on hand and correspondent accounts with the NBK),

financial assets at fair value through profit or loss (less derivative financial instruments), amounts due from credit institutions, financial assets at fair value through other comprehensive income, debt securities at amortised cost, net of allowances for expected credit losses, net loans to customers), on consolidated IFRS basis. KZT bn

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01.04.2019 01.01.2019 YTD, % 01.04.2018 Y-o-Y, % Total assets 8,865 8,959 (1.0%) 8,412 5.4% Interest earning assets (1) 7,526 7,070 6.4% 6,914 8.9% Investment securities 3,051 2,822 8.1% 2,707 12.7% Net loans 3,421 3,481 (1.7%) 3,226 6.0% Other 1,054 767 37.4% 981 7.4% Gross loans 3,834 3,891 (1.5%) 3,564 7.6% Total deposits 6,385 6,527 (2.2%) 5,757 10.9% Total equity 1,150 1,066 7.9% 947 21.4% Provisions / gross loans 10.8% 10.5% 9.5% Loans / deposits ratio (2) 53.4% 53.9% 54.7% Liquid assets / total assets (3) 48.6% 48.3% 46.2% NPLs 90 days+ / gross loans (4) 9.1% 8.2% 12.7%(5)

1Q 2019 Performance Highlights

(1) cash and cash equivalents (less cash on hand and correspondent accounts with the NBK), financial assets at fair value through profit or loss (less derivative financial instruments),

amounts due from credit institutions, financial assets at fair value through other comprehensive income, debt securities at amortized cost, net of allowances for expected credit losses, net loans to customers, on consolidated IFRS basis.

(2) average annual balance of net loans to customers / average annual balance of amounts due to customers, on consolidated IFRS basis. (3) cash and cash equivalents, the NBK notes, Treasury bills of the Ministry of Finance of Kazakhstan, Treasury bills of governments of other countries, Notes of national banks of other

countries, Bonds of quasi-sovereign banks) / total assets, on consolidated IFRS basis.

(4) total NPLs 90 days+ (total principal amount of loans and accrued interest with principal and/or interest overdue by more than 90 days) / gross loan portfolio, unconsolidated (Bank

• nly), IFRS). KKB's NPLs 90+ and total loans are accounted at fair value, i.e. net of provisions created before 4 July 2017.

(5) the aggregate Halyk Bank + KKB NPLs 90 days+ (total principle amount of loans and accrued interest with principle and/or interest overdue by more than 90 days/ gross loans

portfolio, Banks only, IFRS). KKB's NPLs 90+ and total loans are accounted at fair value, i.e. net of provisions created before 4 July 2017. KZT bn

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163.7 172.7 167.9 179.4 176.2 (87.6) (82.7) (83.0) (80.4) (83.6) 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019

Interest income Interest expense

(1.8%)

Interest Income

Interest Income and Interest Expense Net Interest Margin (2) and Net Interest Spread (3) Net Interest Income (1)

(1) before credit loss expense. (2) net interest income / average interest earning assets (monthly average balances of cash and cash equivalents (less cash on hand and correspondent accounts with the NBK),

financial assets at fair value through profit or loss (less derivative financial instruments), amounts due from credit institutions, available-for-sale investment securities, net loans to customers), on consolidated IFRS basis.

(3) average interest rate on interest earning assets, less average interest rate on average interest bearing liabilities, on consolidated IFRS basis. (4) without the accelerated amortization of discount on the Bank’s Eurobonds due to early prepayment of USD 200 mln on 1 March 2019.

Comment

KZT bn 76.1 90.0 84.8 99.0 92.6

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019

21.7% (6.5%) 4.4% 5.2% 5.1% 5.6% 5.0% 5.4% 4.6% 5.2% 5.4% 5.8% 5.1% 5.5%

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Adjusted 1Q 2019 Net interest margin Net interest spread

7.6%

• Net interest margin decreased for 1Q 2019 compared to 4Q 2018 mainly as a

result of accelerated amortisation of discount on the Bank’s Eurobonds in the amount of KZT 7.4 bn due to its early partial prepayment on 1 March 2019 as well as decrease in average rates on loans to customers.

• The increase of interest expense was partially offset by decrease in deposit

rates due to continuous repricing of retail term deposits following the decrease of deposit interest rate cap by Kazakhstan Deposit Insurance Fund.

• Starting from 1 June 2019, KDIF increases cap on USD-denominated term

and savings deposits from 1% to 2%.

(4)

KZT bn

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26,374 28,012 29,350 29,505 26,973

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019

Fee and Commission Income

Fee and Commission Income

KZT mln

Fee and Commission Expense Breakdown of Selected Fee and Commission Income (1)

1,948 3,608 3,711 2,742 2,486

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Cash operations

(9.3%) 4,095 4,357 4,195 3,810 3,485

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Bank transfers – settlements

(8.5%)

(1) (1) (1) (1)

Comment

5,632 6,048 7,258 7,775 8,528 4,048 2,245 2,941 3,059 2,992 9,680 8,293 10,199 10,834 11,520

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Other fees and commissions expense Deposit insurance fees

6.3% 4.9% (14.9%) 27.6% 2.3% 19.0%

• The decrease in fee and commission income in 1Q 2019 vs. 4Q 2018 was

mainly as a result of seasonal effect.

• Starting from 1Q 2019 portion of fees relating to payment card operations

which was previously accounted within cash operations and bank transfers is represented as fees derived from payment card operations.

• Prior to the merger transfers within legal entities current accounts in Halyk

and KKB were treated as external transfers and relevant fees were applied. After the integration transfers between those current accounts are being treated as internal and therefore are free of charge. As a result, fees derived from Bank transfers – settlements decreased in 1Q 2019 vs.1Q 2018. 12,830 12,408 13,561 15,067 13,457

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Payment cards operations

(10.7%) (8.6%)

(1) adjusted: the portion of fees relating to payment card operations which was previously accounted within cash operations and bank transfers are recalculated as fees derived from

payment cards operations for all shown periods.

(1)

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1.7% 3.2% 1.6% 1.7% 1.3% 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 19,604 20,233 19,720 18,006 17,737 13,309 41,897 12,867 15,893 9,730 2,784 2,834 2,684 2,627 2,669 35,697 64,964 35,271 36,526 30,136

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019

Salaries and other employee benefits Other Depreciation and amortisation expenses (17.5%)

Operating Costs

KZT mln

Operating Expenses (1) Cost-to-Income (1)(2) Cost-to-Average Assets (1)(3)(4) Comment

116,392 137,615 138,047 127,953 125,124 35,697 64,964 33,879 36,526 30,136 30.7% 47.2% 24.5% 28.5% 24.1%

• 20.0%
• 10.0%

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019

Operating income Operating expense Cost-to-income

• Operating

expenses for 4Q 2018 include loss from impairment

• f

nonfinancial assets of KZT 2.3 bn, there was no such loss in 1Q 2019.

• Operating expenses for 1Q 2019 decreased by 15.6% vs. 1Q 2018 mainly as

a result cost optimisation on the back of synergy effect from merger of KKB into the Bank in 2H 2018.

(1) previously in consolidated reports loss from impairment of non-financial assets was shown on gross basis and income from revaluation of non-financial assets was reflected in other

• income. Due to change in representation policy, starting from 4Q 2018 the loss from impairment of non-financial assets is netted by income from revaluation of non-financial assets.

Therefore, operating income, operating expenses, cost-to-income ratio and cost-to-average assets ratio for 1Q 2018 were recalculated taking into account such change in policy.

(2) including loss from impairment of non-financial assets. (3) operating expense (operating expenses, impairment of non-financial assets) / operating income (net interest income before credit loss expense, net fees and commissions, other non-

interest income, less insurance claims incurred, net of reinsurance, and expenses for insurance reserves), annualised, on consolidated IFRS basis.

(4) operating expense / average monthly assets, annualised, on consolidated IFRS basis.

(15.6%)

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2,099 2,112 2,091 2,087 2,272 2,268 524 516 517 535 630 591 945 936 984 992 989 976

01.01.2018 01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 Corporate SME Retail

3,891 3,564 3,592 3,614

27.6% 14.5% 58.7% 26.3% 14.5% 59.3%

3,834

26.5% 14.7% 58.8%

3,568 3,251 3,226 3,240 3,260 3,481 3,421 317 338 352 354 410 414 3,568 3,564 3,592 3,614 3,891 3,834

01.01.2018 01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 Net loans Provisions

Loan Portfolio

KZT bn

Total Gross Loans (1) Total Gross Loans by Sectors Total Net Loans by Currencies

70.3% 70.9% 69.0% 69.5% 67.2% 68.1% 29.7% 29.1% 31.0% 30.5% 32.8% 31.9%

01.01.2018 01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 KZT FX

57.7% 14.8% 27.5% 58.4% 25.4% 16.2%

Comment

(1) Due to IFRS requirements, KKB loans were consolidated on net basis (i.e. net of provisions created before 4 July 2017).

• The decrease in loan portfolio was mainly on the back of decrease in SME

and retail portfolios due to seasonality.

59.1% 15.4% 25.4%

• KZT bn

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9.5% 9.8% 9.8% 10.5% 10.8% 64.8% 69.4% 79.4% 129.2% 120.7%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 Provisioning Rate Coverage Ratio

• 4.6

14.1 13.7

• 5.3

6.2 (0.5)% 1.6% 1.5% (0.6)% 0.6%

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Credit loss expenses on loans to customers Credit loss expenses, as % of loan portfolio

110.0%

• 50

Provisions 31.12.2018

• Add. provisions

recognized Recoveries of allowances on previously written-

• ff assets

Write-offs FX differences Provisions 31.03.2019

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9.0%

(1) the aggregate Halyk Bank + KKB NPLs 90 days+ (total principle amount of loans and accrued interest with principle and/or interest overdue by more than 90 days/ gross loans

portfolio, Banks only, IFRS). KKB's NPLs 90+ and total loans are accounted at fair value, i.e. net of provisions created before 4 July 2017.

(2) IFRS provisions/gross loans, on consolidated IFRS basis. (3) credit loss expense on loans to customers / monthly average balances of gross loans to customers, annualised, on consolidated IFRS basis. (4) previously in consolidated reports recoveries of provisions on KKB loans created before the acquisition of KKB by Halyk (5 July 2017) were reflected in other non-interest income. As

per paragraph 5.5.14 of IFRS 9, starting from 3Q 2018 these recoveries of provisions are being reclassified as an impairment gain and recognized as reduction of credit loss expenses. Therefore, cost of risk for 1Q and 2Q 2018 were recalculated taking into account such recoveries of provisions.

(5) additional provisions recognized (changes in models/risk parameters + new originations of fin.assets + derecognition of fin.assets). (6) as the beginning balance of provisions did not include the provisions on KKB loans which previously were consolidated on net basis (i.e. net of provisions created before 4 July 2017),

in the financial statements we additionally disclosed the amount of recoveries under such loans as recoveries of allowances on previously written-off assets.

(7) taking into account a gross basis of purchased credit-impairment financial assets from KKB, write-offs on consolidated IFRS basis for 1Q 2019 were KZT 8.5 bn.

Cost of Risk on a Consolidated Basis

454 441 394 317 343 12.7% 12.3% 10.9% 8.5% 9.1%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Amount Ratio KZT bn

Cost of Risk(3) (4) NPL 90 days+ (1) Dynamics Provisioning Rate(2) + NPL 90 days Coverage Ratio

Provisions on Loans to Customers

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Comment

(3) (3)

414

(6)

410

(5) (7)

• Halyk Bank’s 90-day NPL ratio increased to 9.1% from 8.2% as at the

end

• f

2018. The increase was mainly as a result

• f

some indebtedness of previously impaired corporate borrowers became

• verdue.

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IFRS 9 Asset Quality Indicators

Stage 2 Stage 3 (1) (2) Stage 2 + Stage 3

(1) Including POCI. (2) Stage 3 loans include NPL 90+, restructured loans and other loans with signs of impairment.

KZT mln

179,574 143,366 142,664 118,926 5.0% 4.0% 3.7% 3.1%

01.07.2018 01.10.2018 01.01.2019 01.04.2019

Stage 2 Ratio (Stage 2 / Gross Loans )

705,904 750,749 763,396 781,993 19.7% 20.8% 19.6% 20.4%

01.07.2018 01.10.2018 01.01.2019 01.04.2019

Stage 3 Ratio (Stage 3 / Gross Loans )

885,478 894,115 906,060 900,919 24.7% 24.7% 23.3% 23.5%

01.07.2018 01.10.2018 01.01.2019 01.04.2019 Stage 2 + Stage 3 Ratio (Stage 2 + Stage 3 / Gross Loans )

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42.7% 44.5% 41.4% 41.0% 42.6% 57.3% 55.5% 58.6% 59.0% 57.4%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

By currencies

KZT FX

Funding Base

54.2% 53.3% 49.7% 48.3% 50.3% 45.8% 46.7% 50.3% 51.7% 49.7%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

By currencies

KZT FX KZT bn

Retail Deposits Deposits of Legal Entities

1,436 1,174 1,229 1,375 1,289 1,261 1,670 1,592 1,757 1,814

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

By types

Term Deposits Current Accounts

3,103 2,667 2,792 2,848 2,918 2,843 393 453 399 478 438

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

By types

Term Deposits Current Accounts

3,282 3,060 2,697 3,245 2,844 3,247 3,131

58.7% 41.3% 46.8% 53.2% 41.5% 58.5% 56.1% 43.9%

2,821

56.4% 43.6%

3,396

14.1% 12.8% 14.0% 12.3% 13.4%

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933 877 952 1,029 1,113 105 114 83 86 1,038 982 1,065 1,111 1,199

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 Tier 1 Tier 2

105

Solid Capital Position

Capital Adequacy Ratios, consolidated (1) Capital Structure, consolidated (2) Capital Adequacy Ratios of Halyk Bank, only (1) Capital Structure, Halyk Bank, only (2)

18.1% 17.2% 17.8% 18.5% 19.5% 20.0% 19.1% 19.9% 19.9% 20.9%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 CET Tier 1 Tier 2

807 796 942 1,015 1,087 994 109 98 99 100 807 796 1,051 (3) 1,113 (3) 1,186 (3) 1,094 (3)

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 01.05.2019 Tier 1 Tier 2

(1) starting from 1January 2016, the Bank calculates its capital (both consolidated and unconsolidated) taking into an account the principals, methods and coefficients employed by Basel III

Committee.

(2) almost the entire capital is a high quality core capital as a result of limited use of Tier 2 instruments. (3) as a result of merger of KKB into Halyk Bank, Tier 2 capital from KKB was transferred to Halyk Bank. Therefore, starting from 28 July 2018, capital structure of Halyk Bank includes Tier 2

capital.

(4) after the accrual of dividends for FY2018.

KZT bn 21.7%

20.6% 19.4% 19.7% 20.4% 18.6% 21.6% 20.6% 21.6% 21.6% 22.3% 20.5%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 01.05.2019 k1 - Halyk k1-2 - Halyk k2 - Halyk

k2 minimum = 12% k1-2 minimum = 10.5% k1 minimum = 9.5%

(4)

KZT bn

(4)

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Halyk Bank’s Market Position

29.3% 28.7% 30.2%

01.10.2018 01.01.2019 01.04.2019

27.2% 28.2% 31.4%

01.10.2018 01.01.2019 01.04.2019

33.2% 34.3% 34.7%

01.10.2018 01.01.2019 01.04.2019

32.7% 33.9% 35.8%

01.10.2018 01.01.2019 01.04.2019

#1 #2 #2 #2 #2 #2 #1 #1 #1

36.6% 38.4% 38.2%

01.10.2018 01.01.2019 01.04.2019

#1

35.6% 39.1% 39.1%

01.10.2018 01.01.2019 01.04.2019

#1 #1

37.6% 37.9% 37.3%

01.10.2018 01.01.2019 01.04.2019

#1 #1 Total Assets Gross Loans Net Loans Equity (4) Total Deposits (5) Total Corporate Deposits (5) Total Retail Deposits (6) Corporate Current Accounts Retail Current Accounts Net Income (1) Net Interest Income (2) Net F&C Income

39.6% 51.0% 54.5%

3Q 2018 4Q 2018 1Q 2019

#1 #1 #1

42.0% 44.5% 40.6%

01.10.2018 01.01.2019 01.04.2019

#1 #1 #1

42.4% 42.2% 44.7%

01.10.2018 01.01.2019 01.04.2019

#1 #1 #1 #1 #1 #1

21.5% 21.4% 18.6%

3Q 2018 4Q 2018 1Q 2019

#2 #2 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #1 #2

41.2% 44.9% 38.3%

3Q 2018 4Q 2018 1Q 2019

#1 #1 #1

(1) excl. banks with negative income. (2) after credit loss expense, excl. negative net interest income. (3) adjusted market share (without the accelerated amortization of discount on the Bank’s Eurobonds due to early prepayment of USD 200 mln on 1 March 2019) – 64.0%. (4) excl. banks with negative equity. (5) excl. term deposits of SAPF; consists of term deposits and current accounts. (6) consists of term deposits and current accounts.

Source: NBK (unconsolidated, KAS), Halyk Bank, SAPF.

(3)

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Kazakhstan: Economic and Banking Sector Update

Two

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Macroeconomic stabilization Comment Investment grade sovereign ratings Temporary slow down in industrial output, investments are solid

Source: Bloomberg Source: The National Bank of Kazakhstan (NBK) Source: Committee on Statistics of Kazakhstan

Agency Rating Outlook Date Moody's Baa3 stable 16.10.2018 S&P BBB- stable 03.10.2018 Fitch BBB stable 28.09.2018 168 173 172 171 54 56 58 59 4.1% 4.2% 4.1% 4.1%

01.04.2018 01.07.2018 01.10.2018 01.01.2019

Nominal GDP for 12 months (US$bn) Nominal GDP for 12 months (KZTtrn) Real GDP Growth, %,YTD

Macro Update

39.5% 25.8% 21.6% 17.2% 7.0% 5.3% 5.2% 4.8% 4.1% 3.2%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Capital Investments (yoy growth) Industrial production (yoy growth)

change in% to the corresponding period of the previous year

• In sectoral breakdown, the economy snapshot shows a slight slowdown in

industrial output by 3.2% (5.3% yoy in 1Q18), in transport by 4.4% yoy (4.6% yoy in 1Q2018), while construction accelerated to 8.9% yoy (5.9% yoy in 1Q18) and trade by 7.2% yoy (6.2% yoy in 1Q18). At the same time, the construction industry is growing mainly due to an increase in works in the extractive sector, while in trade growth is driven by the increase in the wholesale trade of oil.

• Domestic demand in the first quarter of 2019 maintained a positive trend due to

an increase in wages, pensions, growth in consumer lending, which supported retail and wholesale trade growth (excluding oil trade) at the level of 5% yoy.

• Growth of investments in fixed assets remained at a high level of 7% yoy in the

first quarter of 2019, which is a very strong indicator given the growth of 39.5% yoy in the same period last year. It is noteworthy to mention that 2018 investments have increased significantly by 17.2% yoy, reaching 18.9% of GDP, which was the best indicator since 2010.

• The price of oil throughout the first quarter was rising steadily, adjusting after a

slump at the end of 2018 to US$50 per barrel, and currently exceeds $70 per barrel.

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Stable low unemployment with moderate inflation

Source: Statistics Committee

Macro Update

6.6% 5.9% 6.1% 5.3% 4.8% 4.9% 4.9% 4.8% 4.8% 4.8%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Inflation (yoy) Unemployment Rate

Pick up in real wages support consumption

4.8% 5.6% 7.0% 6.5% 4.8% 2.0% 2.2% 3.1% 2.1% 5.2%

01.04.2018 01.07.2018 01.10.2019 01.01.2019 01.04.2019

Real retail sales Real wages

Source: Statistics Committee

• As of the end of 2018, inflation has reached its minimum since introduction of the

inflation targeting regime. The plunge from 5.3% yoy at the end of 2018 to 4.9% yoy in the beginning of 2019 was conditioned by the state administration of the payable services’ prices, which grows has decreased from 4.5% yoy to 1.2% yoy slowing inflation to 4.9% yoy. Non-food prices got frozen at 6.0% while food prices keep moving up to 7.1% yoy fueling inflation up.

• The unemployment rate remained at 4.9% in 2018 (5.0% in 2017). Monthly data

evidence that the rate of 4.8% has persisted for 9 months already. Self- employed shared 22.8% of the labor force as of 2018 and the number of self- employed experienced 0,8% yoy decrease.

• The wages started to recover at the beginning of 2018 mainly due to private
• sector. This year the real wages growth is boosted by an increase in

minimum wages by 50% and mostly targeted at public sector workers. Starting from June the wages of education, health care, state sector workers are going to be increased also.

• Due to expanding consumer loans and subsidised mortgages, the retail sales

grew by 6.5% in 2018, it was the fastest growth vs. the other sectors of the

• economy. In the first quarter of 2019 the retail sales grew by 4,8% yoy

showing slight deceleration, however in March 2019 retail trade improved to 6,2% yoy.

20

Macro Update

Exchange rate dynamics Interest rate adjustment

Source: The National Bank of Kazakhstan Source: Bloomberg

318 341 363 384 380 66 77 82 54 69 01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 USD/KZT Exchange rate Brent Oil Price

17.0% 15.0% 13.0% 12.5% 12.0% 11.0% 9.0% 9.25%

06.05.2016 12.07.2016 04.10.2016 15.11.2016 21.02.2017 06.06.2017 22.08.2017 10.10.2017 28.11.2017 16.01.2018 06.03.2018 17.04.2018 05.06.2018 16.10.2018 10.01.2019 05.03.2019 16.04.2019 Base rate

10.5% 10.25% * the next base rate committee – 03.06.2019 9.0%

• During 2018, the monetary policy was mostly neutral - NBK progressively

reduced the base rate until 3Q2018, along with declining inflation, however increased it in October 2018 up to 9.25%. Since October the base rate remained unchanged until April when it was cut down to 9,0%.

• Liquidity in the financial system remained high as the demand for loans

mostly came from retail sector while corporate sector demand was low. As

• f the end of the first quarter of this year, the amount of excess liquidity

increased by 20.9% QoQ and amounted to about KZT5.2tn.

• Uptrend of oil prices throughout 1Q2019 to US$68.4bbl and strengthening
• f the Russian ruble to the US$ to 65.7 rubles (at the moment USDRUB

FX rate reached 63.9 rubles) affected the national currency that reached KZT380 at the end of 1Q2019.

• Despite of the high level of energy prices and strengthening of USDRUB,

the national currency is at a stable “weak” level to eliminate currency arbitrage, to provide favorable conditions for export-oriented companies, as well as to manage trade deficit with the main countries-trading partners (including the Russian Federation).

21

Macro Update

Government debt Stable FX reserves

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

58.4 58.0 56.4 58.0 59.0 30.6 30.1 30.0 30.9 27.0 89.0 88.1 86.4 88.9 86.0

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.03.2019 Oil Fund FX Reserves (US$bn) NBK FX Reserves (US$bn)

40.2 38.4 35.5 35.2 23.8% 23.2% 21.9% 20.8%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 Government debt (USD bn) Government debt/GDP

• Consolidated international reserves in March 2019, according to preliminary

data from the NBK, amounted to US$86.0bn. The consolidated assets since the beginning of the year amounted to 3.0% or US$2.6bn due to the reduction of the reserves of the NBK by 12.6% to US$27bn.

• In the structure of the reserves of the NBK, a significant reduction was
• bserved in the foreign currency reserves (by 27.3% from the beginning of

the year to US$12bn). The reduction of NBK’s reserves in foreign currency in February by US$1.9bn was conditioned by refinancing and repurchase of liabilities of KazAgro NMH, as well as a 37.4% reduction from the beginning

• f

the year under the currency and deposits item in banks whose headquarters are located outside the country down to US$1.8bn.

• Another increase in expenditures of the consolidated budget by 2.8pp to

23.4% of GDP, according to our estimates, will again increase the deficit of the consolidated budget, which has been observed for the fifth consecutive

• year. In addition to the National Fund, the use of extra-budgetary funds

(NBRK, UAPF) is increasing, as a result, the consolidated budget can come to balance only by 2021, if external conditions will remain favorable. In the first quarter, there was an excess of receipts of funds to the National Fund

• ver its use, overall for the year the fund's assets will increase only slightly.
• The state budget balance in January-February 2019 was formed with a deficit
• f KZT51.1bn (KZT106.7bn for 2M18), with a planned deficit of KZT1.3tn for

2019 or 2.1% of GDP, against -1,5% previously planned before changes due to the increase in government spending aimed at improving the welfare of the

• population. As a result of higher budget deficit, the Government debt is

expected to remain low as the bulk of financing will be provided the National Fund. * * Halyk estimates

22

Macro Update

Current account* Trade balance

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan USDbn Source: The National Bank of Kazakhstan

Services balance Primary income balance

Source: The National Bank of Kazakhstan 6.2 6.4 6.5 7,3 7.1 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Trade balance

• 6.2
• 5.8
• 5.6
• 4.4
• 5.3

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Primary income balance

• 0.9
• 1.0
• 1.3
• 1.4
• 1.1

1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Services balance

• 0.9
• 0.5
• 0.2

1.5 0.8 1Q 2018 2Q 2018 3Q 2018 4Q 2018 1Q 2019 Current account USDbn USDbn USDbn (*) preliminary data * * * *

23

4,651 4,633 5,246 5,373 5,627 5,867 6,032 6,117

1.42 1.43 1.56 1.60 1.64 1.68 1.74 1.77

1.4 1.5 1.6 1.7 1.8 1.9 2 1000 2000 3000 4000 5000 6000 7000

2015 2016 2017 1Q18 2Q2018 3Q2018 4Q2018 1Q19

Dynamics of total Retail loans (bn KZT) loans/borrowers

# of banks operating in Kazakhstan Assets

Macro Update

38 35 33 32 28

2014 2015 2016 2017 2018

24,158 23,769 24,255 24,539 25,244 24,577

01.01.2018 01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Kazakhstan banking sector assets (KZT bn)

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

Dynamics of top 5 ranking in Kazakhstan banking sector

In February 2019, in accordance with the measures approved by the NBK and the Government of Kazakhstan to improve the financial sustainability of Tsesnabank and provide support to the agricultural sector, and in order to implement a uniform debt management policy for enterprises of the agro-industrial complex, JSC Problem Credit Fund acquired a portfolio from Tsesnabank agricultural loans in the amount of KZT604bn.

Source: First Credit Bureau LLP Source: The National Bank of Kazakhstan

Dynamics of total Retail loans in Kazakhstan banking sector

According to the data of the First Credit Bureau (BCP), the ratio of the number of loans to the number of borrowers was 1.77 (1.68 at the end of 2018, 1.43 at the end of 2017), which is the historical maximum showing a trend of monthly growth.

4 5 1 2 3 1 2 3 4 5

01.01.2018 01.04.2019

24

Loan growth dynamics Deposit growth dynamics

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan Data adjusted for deposits of non-financial organizations in the NBK 7,997 8,385 8,364 8,657

8,450 8,824 9,464 9,284 9,896 8,758

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Retail deposits Corporate deposits 12,566 12,831 16,821 12,668 17,849 17,648 18,553 13,092 (4.7%) (7.3%)

Growth Driven by Retail Lending

17,208 12,473 7992 7997 7571 7,789 7,037 4574 4834 5096 5,303 5,436

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Corporate loans Retail loans

• The main reduction in the loan portfolio is associated with the repurchase of

Tsesnabank's problem corporate loans for KZT605bn. Corporate lending decreased by 9.7% YTD. Retail lending increased by 12.5% YTD. The main drivers of retail lending continue to be: consumer lending (+2.7% YTD) and mortgage loans (+4.3% YTD). In 2019, consumer lending becomes the largest segment in total lending with a share of 27% (25% at the end of 2018, 23% at the end of 2017, 20% at the end of 2016). Previously, the leading share was lending for the purchase of working capital.

• In the first quarter of 2019, deposits in the economy decreased by 7.3% YTD.

Excluding deposits in the NBK deposits in the economy showed a decrease

• f 2.5% YTD. The retail deposits decreased by 2.4% YTD. Corporate

deposits in the economy decreased by 11.5%. At the same time, the decrease in the corporate deposits in commercial banks amounted 2.6%

• YTD. Despite the good growth of the economy, there is an outflow of deposits

in the monetary system of Kazakhstan.

• In general, there was a decrease in the banking sector deposits due to the
• utflow of funds to repay the obligations of national companies.

KZT(bn) KZT(bn)

25

Dynamics of Retail lending (gross) Dynamics of Corporate lending (gross)

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

Dynamics of Retail and Corporate Lending

• The main drivers of retail lending are: consumer lending (+ 2.7% from the

beginning of the year) which accounted for 63% of total retail lending (63% at the end of 2018, 64% at the end of 2017) and mortgage lending (+ 4.3% from the beginning of the year) which took 25% of retail lending (25% at the end of 2018, 24% at the end of 2017).

• The structure of corporate lending at the end of 1Q 2019: 27% - the service

sector (26% - at the end of 2018), 27% - industry loans (26% - at the end of 2018), 24% - trade loans (23% - at the end of 2018), 10% - loans to construction (10% - at the end of 2018), 7% - transport (8% - at the end of 2018), 3% - agriculture (6.3% - at the end of 2018).

• Bank loans issued to SME since the beginning of the year decreased by 7%.

The main segments of SME lending are trade with 23% share (23% - at the end of 2018), other sectors with 38% share (36% - at the end of 2018). 3.0 3.2 3.2 3.3 3.4 1.1 1.1 1.2 1.3 1.4 0.5 0.5 0.7 0.7 0.7

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 Consumer Mortgage Other

5.3 5.3 5.1 5.4 4.8 2.7 2.6 2.5 2.4 2.2

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019 Large Corporates SME (including private entrepreneurs) KZT(tn) KZT(tn) 23.7% 24.9% 25.3% 25.3% 27.3% 8.8% 8.9% 9.5% 10.0% 10.9% 3.9% 3.9% 5.4% 5.2% 5.4% 21.6% 20.6% 19.8% 18.1% 17.6% 42.0% 41.7% 40.0% 41.4% 38.8% Share in total gross loans Share in total gross loans

26

22.1% 24.5% 27.0% 26.3% Retail – FX Retail – KZT Corporate – KZT Corporate – FX 21.7% 27.4% 31.0% 19.9%

Currency and Sector Breakdown of Deposits

KZT 80.3% FX 19.7%

FX lending ~1/4 of total Share of FX deposits in the banking system

Source: The National Bank of Kazakhstan as at 01.04.2019 Source: The National Bank of Kazakhstan

By currency By sector Other 15.5% Communication services 0.4% Transport 3.9% Agriculture 1.8% Construction 5.8% Industry 15.3% Trading 13.7% Retail loans 43.6% 01.01.2019 01.04.2019

FX 48.4% KZT 51.6% FX 41.5% KZT 58.5%

Total: KZT 12.5 tn Total: KZT 18.5 tln Total: KZT 17.2 tln

• The banking system is focused on lending of trade, services and retail
• lending. Given the strong dependence on imports, the growth of these

segments has a rather weak effect and in some cases a negative impact on the growth and development of the economy of Kazakhstan. This situation is due to the lack of a sufficient number of high-quality solvent borrowers in the

• ther segments, which forces banks to strengthen the benchmark on high-

yield and less risky lending segments.

• The main impact on the total outflow of deposits is caused by a significant

decrease in corporate foreign currency deposits (-KZT1.5tn YTD), while there is no substitute inflow of tenge corporate deposits (+KZT300bn YTD). A similar process, though less obvious, occurs in deposits of the population.

27

3,770 3,799 3,667 3,875 3,873

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Regulatory Capital ( KZTbn)

Sector Funding Structure, Capital Adequacy and Asset Quality

Steady equity build-up RoE

Source: The National Bank of Kazakhstan (1) ROE ratio based on aggregated financials for banking sector, post tax Source: The National Bank of Kazakhstan

7.0% 10.5% 17.4% 21.2%

1Q 2018 2Q 2018 3Q 2018 4Q 2018

RoE Banking Sector

• The growth of the NPL level is almost entirely associated with a significant

recognition of Tsesnabank’s previously hidden distressed debts.

Funding structure NPL levels dynamics

Source: The National Bank of Kazakhstan Source: The National Bank of Kazakhstan

13.3 13.5 13.2 13.8 13.0 16.4 16.9 16.6 17.0 16.7 80.9% 79.9% 79.3% 80.8% 78.3%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

Gross Loans (KZTtrn) Customer Deposits (KZTtrn) Loans/Deposits 1,332 1,180 1,124 1,016 1,123 10.0% 8.8% 8.5% 7.4% 8.6%

01.04.2018 01.07.2018 01.10.2018 01.01.2019 01.04.2019

NPLs (90 days+), KZTbn NPL Ratio (90 days+)

• The first quarter of 2019 for the banking system of Kazakhstan ended with a

decrease in deposit funding and a reduction in corporate lending with a rather high growth in retail lending. At the moment, the main driver of lending is lending to individuals and companies in the trade and services sector.

28

APPENDIX

29

1Q 2019 4Q 2018 Q-o-Q, % 1Q 2018 Y-o-Y, % Interest income 176,183 179,435 (1.8%) 163,733 7.6% Interest expense (83,574) (80,398) 4.0% (87,617) (4.6%) Net interest income before credit loss expenses 92,609 99,037 (6.5%) 76,116 21.7% Fee and commission income 26,973 29,505 (8.6%) 26,374 2.3% Fee and commission expense (11,520) (10,834) 6.3% (9,680) 19.0% Net fee and commission income 15,453 18,671 (17.2%) 16,694 (7.4%) Insurance income

(1)

843 4,342 (80.6%) 292 2.9x Other non-interest income

(2)

12,930 7,029 84.0% 20,192 (36.0%) Credit loss expense and recoveries of other credit loss expense

(3)

(9,376) 12,053 (1.8x) 2,494 (4.8x) Operating expenses

(4)

(30,136) (36,526) (17.5%) (35,697) (15.6%) Income tax expense (7,821) (14,330) (45.4%) (10,159) (23.0%) Net Profit from continuing operations 74,502 90,277 (17.5%) 69,932 6.5% Non-controlling interest

• 10,464

(100.0%) Profit for the period from discontinued operations

• 2,585

(100.0%) Net Profit 74,502 90,277 (17.5%) 62,053 20.1%

Dynamics

KZT mln

P&L Summary

(1) insurance underwriting income (gross insurance premiums written, net change in unearned insurance premiums, ceded reinsurance share) less insurance claims incurred, net of

reinsurance (insurance payments, insurance reserves expenses, commissions to agents).

(2) other non-interest income (net gain on foreign exchange operations, net loss from financial assets and liabilities at fair value through profit or loss, net realised gain from financial assets

at fair value through other comprehensive income (IAS 39 - available-for-sale investment securities),share in profit of associate and other income).

(3) total credit loss expense (including credit loss expense on loans to customers, amounts due from credit institutions, other assets, financial assets at Fair value through other

comprehensive income and cash and cash equivalents) plus recoveries of other credit loss expense.

(4) including loss from impairment of non-financial assets.

30

31/03/2019 31/12/2018 Change YTD, % 31/03/2018 Change Y-o-Y, % Total assets 8,864,688 8,959,024 (1.1%) 8,411,931 5.4% Cash and reserves 1,603,235 1,870,879 (14.3%) 1,386,943 15.6% Amounts due from credit institutions 49,585 55,035 (9.9%) 86,357 (42.6%) T-bills & NBK Notes 2,388,242 2,226,320 7.3% 2,051,492 16.4% Other securities & derivatives 842,740 782,356 7.7% 722,279 16.7% Gross loan portfolio 3,834,366 3,890,872 (1.5%) 3,564,346 7.6% Stock of provisions (413,564) (409,793) 0.9% (338,381) 22.2% Net loan portfolio 3,420,802 3,481,079 (1.7%) 3,225,965 6.0% Other assets 503,722 487,226 3.4% 364,823 38.1% Assets classified as held-for-sale 56,362 56,129 0.4% 574,072 (90.2%) Total liabilities 7,714,905 7,893,378 (2.3%) 7,464,522 3.4% Total deposits, including: 6,385,098 6,526,930 (2.2%) 5,756,556 10.9% retail deposits 3,281,658 3,395,590 (3.4%) 3,059,674 7.3% term deposits 2,843,352 2,918,070 (2.6%) 2,666,681 6.6% current accounts 438,306 477,520 (8.2%) 392,993 11.5% corporate deposits 3,103,440 3,131,340 (0.9%) 2,696,882 15.1% term deposits 1,289,374 1,374,592 (6.2%) 1,435,634 (10.2%) current accounts 1,814,066 1,756,748 3.3% 1,261,248 43.8% Debt securities 827,804 900,791 (8.1%) 924,693 (10.5%) Amounts due to credit institutions 167,909 168,379 (0.3%) 158,486 5.9% Other liabilities 334,094 297,278 12.4% 247,461 35.0% Liabilities directly associated with assets classified as held for sale

• 377,326

(100%) Equity 1,149,783 1,065,646 7.9% 947,409 21.4%

Balance Sheet Summary

KZT mln

31

Key Financial Indicators

(1) net loans to customers / amounts due to customers, on consolidated IFRS basis. (2) (cash and cash equivalents, the NBK notes, Treasury bills of the Ministry of Finance of Kazakhstan, Treasury bills of governments of other countries, Notes of national banks of other

countries, Bonds of quasi-sovereign banks) / total assets, on consolidated IFRS basis.

(3) allowance for expected credit losses/ gross loan portfolio, on consolidated IFRS basis.

31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 Amounts due to customers / total liabilities 82.8% 82.7% 81.9% 82.5% 77.1% Loans / deposits ratio (1) 53.6% 53.3% 53.7% 53.2% 56.0% Liquid assets / total assets (2) 48.6% 48.3% 48.0% 48.0% 46.2% IFRS Provisioning rate (3) 10.8% 10.5% 9.8% 9.8% 9.5% Common Equity Tier 1 capital adequacy ratio 19.5% 18.5% 17.8% 17.2% 18.1% Tier 1 capital adequacy ratio 19.5% 18.5% 17.8% 17.2% 18.1% Tier 2 capital adequacy ratio 20.9% 19.9% 19.9% 19.1% 20.0% k1 capital adequacy ratio 20.4% 19.7% 19.4% 20.6% 21.7% k1-2 capital adequacy ratio 20.4% 19.7% 19.4% 20.6% 21.7% k2 capital adequacy ratio 22.3% 21.6% 21.6% 20.6% 21.6%

32

31-Mar-19 31-Dec-18 30-Sep-18 30-Jun-18 31-Mar-18 Number of branches and outlets 645 647 656 667 688 Number of ATMs 4,407 4,408 4,559 4,415 4,556 Number of POS-terminals 70,527 67,053 67,905 71,528 77,925 Information and transaction terminals (multiservice kiosks) 69 71 73 83

• Payment terminals

1,069 1,097 1,093 1,081 1,169 Clients of internet banking, individuals 3,652,853 3,584,961 3,375,190 3,439,585 3,210,124 Clients of internet banking, legal entities 165,858 131,271 112,000 116,936 98,277 SMS banking clients 3,084,739 3,095,331 2,910,031 3,085,374 2,982,253 Telebanking clients 271,819 268,577 239,727 225,409 211,362 Payment card holders 8,099,654 8,397,187 8,282,927 8,962,937 8,441,579 Payroll project clients (legal entities) 41,237 41,003 41,312 44,735 44,420 1Q 2019 4Q 2018 3Q 2018 2Q 2018 1Q 2018 Cost-to-income (1) 24.1% 31.1% 25.3% 47.2% 30.7% Return on average common shareholders’ equity (RoAE) 3.3% 35.5% 33.8% 11.4% 29.2% Return on average assets (RoAA) 26.8% 4.1% 3.7% 1.2% 2.9% Net interest margin 5.0% 5.6% 5.1% 5.2% 4.4% Operating expenses / average total assets 1.3% 1.7% 1.6% 3.0% 1.7%

Key Financial Indicators (Continued)

(1) operating expense / operating income (net interest income before credit loss expense, net fees and commissions, other non-interest income, less insurance claims incurred, net of

reinsurance, and expenses for insurance reserves), on consolidated IFRS basis.