Interview with Mr. Shigeo Katsu, Chairman of the Board of Directors of the First Heartland Jusan Bank JSC for Forbes.kz: DEVELOPING JUSAN'S SUCCESS

Dear Mr. Katsu, in Kazakhstan many people know you as the President of Nazarbayev University, but for those who do not know you as a financial manager, could you please tell us more about your relationship with the Jusan group?
– First of all, I am very glad to have the opportunity to shed light on some incorrect information and a few misconceptions spread by some media representatives about the Jusan group and about the Nazarbayev Foundation.

Nazarbayev Foundation (NF), our educational endowment fund, has been in existence since the establishment of Nazarbayev University (NU) and Nazarbayev Intellectual Schools (NIS). This endowment fund, by statute, is dedicated solely to funding education and research, and is a long-term funding tool for our academic institutions, aiming to gradually reduce dependence on public funding. Most of the best universities in the world, be they Harvard, Stanford, etc., have created similar educational endowment funds that receive funds from sponsors and alumni, and manage financial assets for the long-term growth of the universities. I would like to emphasize that this endowment fund should not be confused with other funds with the same title, which also bear the name of the first president.

As for the reasons for our entry into the financial sector of Kazakhstan, initially we wanted to protect the funds of the university and schools against the growing banking crisis. In 2017, we acquired a small Expobank (formerly a part of the Dutch ABN Amro Bank group), mainly for our treasury operations. Given the impeccable business reputation of NU and the financial capabilities of our endowment fund, a year later the government approached us with a proposal to acquire the troubled Tsesnabank, which at that time all other banks had refused to acquire, but due to the systemic importance of which, bankruptcy was not acceptable.

The decision to acquire Tsesnabank was not easy for us. But as bank and investment managers remember, the last decade was characterised by very low interest rates in the world and it was not that simple to increase endowment-fund assets. Therefore, we decided to enter the financial services market, because we had great confidence in the high professionalism of our financial specialists. As a result, I became the chairman of the board of directors of Jusan Bank. It should be noted that the rapid transformation of Tsesnabank from a troubled bank into a successful and sustainable financial institution was achieved thanks to the professionalism and efforts of the new management team. As you know, in 2020 we again received an offer to rescue a bank, this time ATF Bank. Our team has once again coped with the task of its recovery, and now we are one of the leaders in the financial system of Kazakhstan.

Mr. Katsu, please tell us more about the Jusan Group - what is its organisational structure and how is it different from other financial groups in Kazakhstan?
– The main components of the Jusan group are: the US registered non-profit organisation, the NU Generation Foundation (NUGF) as the parent organisation; UK-registered Jusan Technologies (JT), acting as the operating holding of the group; and directly in Kazakhstan there is a banking holding represented by First Heartland Securities (FHS) and Jusan Bank itself.

The ultimate shareholder of Jusan Bank is NUGF, a non-membership (without members or shareholders), non-profit organisation incorporated in the United States under the laws of the State of Nevada.
The USA was chosen as the jurisdiction for NUGF after a thorough analysis of the key international jurisdictions that are most favourable for the functioning of academic endowment funds. 
The sole purpose of the NUGF, according to the founding document, is to provide funding for the activities of Nazarbayev University, Nazarbayev Intellectual Schools and their subsidiaries. NUGF funds may only be used for these purposes and profits may not be distributed to third parties due to NUGF's lack of members or shareholders.

In addition, because NUGF is a tax-exempt organisation, the US federal tax authorities closely monitor that NUGF conducts its activities strictly in accordance with the above purpose. The transparency of NUGF activities is ensured through annual reporting to the US tax authority. When disbursing grants and receiving funds, NUGF is required to comply with the procedures and restrictions established for non-profit organisations by US law, including the know-your-customer (KYC) procedure and the anti-money laundering procedure.

The NUGF Board of Directors is the only body authorised to make decisions about the distribution of the foundation's funds. Again, in accordance with US tax and corporate legislation, board members must always act in the interests of the beneficiaries, as provided by the constituent documents, and cannot divert funds to other purposes.
This fund is designed to enhance the reputation of the NU and NIS in the international arena, as well as serve as a central mechanism for attracting funds for the development of NU and the NIS, especially from American companies operating in Kazakhstan, which are well aware of the universal recognition of the US jurisdiction and the rule of law in America.
Other examples of foreign universities with successful US-managed educational endowment funds are KAUST (Saudi Arabia) and ADA University (Azerbaijan) among others. 
We are proud of the composition of our experienced international board of directors with well-known public figures and a strong business reputation. In these turbulent times, when there is a military conflict in Ukraine and the international situation is very difficult with the imposition of extensive sanctions, thanks to our position in the United States, we feel completely protected. We want to assure our clients: your money is safe with us!
The US entity owns Jusan Technologies (JT), the UK-listed operating holding of our group, with a portfolio of companies in various sectors including banking, brokerage, insurance and asset management, as well as e-commerce, telecommunications, logistics and retail. M&A activities with the transformation of portfolio companies have resulted in an increase in JT's total assets, but Jusan Bank still accounts for 90% of JT's total assets.

Given the limited market size of Kazakhstan, JT's strategic goal is to become a leading regional financial technology holding with access to the markets in the CIS and other regions (for example, Turkey). We need to grow and become stronger. We need access to a lot of capital, and therefore we are planning an IPO in a few years. That is why we have registered in the UK, the jurisdiction most suitable for attracting international investors. And, of course, in our analysis, we considered the recent listings of Kazakhstani companies on the London Stock Exchange.
We will not be attractive to investors if we act as another medium-sized bank. We must offer an attractive and innovative business model. Therefore, Jusan Group is working hard to create a unique integrated digital ecosystem through digital banking services for retail clients, SMEs and well-off individuals, as well as non-financial services based on e-commerce and mobile telecommunications. And for growth, this model requires large investments.
JT in turn owns JSC First Heartland Securities, our bank holding company registered in Kazakhstan. JT also owns Jusan Bank and Jusan Ventures, our technology group.
So, in summary, the group consists of a U.S. registered non-profit foundation operating under a favourable legal regime for educational endowment funds, an operating holding in the international financial centre in London to raise capital for the future growth of our group, and our financial and non-financial ecosystem. All this is aimed at building a financially sustainable future for NU and NIS. Thus, we are a form of social enterprise focused on the development of the Kazakh education sector.

Mr. Katsu, please tell us about how Jusan Bank saved Kazakh banks that were on the verge of bankruptcy.
– I am very proud of the Jusan team that now includes the staff of not one, but three banks, and has successfully formed into a single entity in record time. Some people believe that Jusan Bank's success lies in the government support it has received. Yes, we received support, but please keep in mind that the government asked us to take over the acquisition of organisations that at that time were on the verge of bankruptcy. At the same time, we are not the only institution that has received financial support from the government or the National Bank.
Believe me, please, the negotiations were not easy, although they were based on goodwill. There is a natural difference in the position of those who sell and those who buy. Both transactions were entered into at the market terms based on expert assessments of the assets at the time of purchase from the government and the private sector. For example, the valuation of ATF Bank's assets was made by one of the Big Four companies. Therefore, these conditions served as the basis for our agreements with the authorities. As part of the agreement, strict conditions were set for existing shareholders.
To reiterate, much of the public sector support in both bailouts came in the form of long-term loans that Jusan Bank must repay. And, I am very pleased to add that First Heartland Securities and Jusan Bank have fully met all obligations. As a result, the bank successfully exited the anti-crisis programme for both Tsesnabank and ATF Bank, thereby lifting restrictions, including on the payment of dividends.
Our team has made incredible efforts to stop the outflow of deposits and business activity, and created a model for building a profitable business. For example, the team developed a principled position on working with problem loans. The model used by our team was based on (i) principles of transparent corporate governance, (ii) a new risk management system, (iii) a clear mechanism for judicial and extrajudicial debt collection, and (iv) the absence of a corrupt element in the debt collection process. The team was given a clear task to absolutely reject and stop any attempts at informal loan restructuring, which, as I heard, was fairly common practice in the banking sector and gave rise to corruption.
When borrowers realised that it was impossible to “agree” with the bank on restructuring, and they would inevitably face litigation and the subsequent sale of collateral and other assets according to the procedure prescribed by law, many debtors preferred to refinance loans, make reasonable offers to the bank to repay the debt, or “miraculously” found funds and fully paid off debts. As a result, an effective system and algorithm for working with problem assets and their recovery was applied.
Some are of the opinion that strong support from law enforcement played a big role. However, I know the market well enough to say that other banks had the same opportunities, but did not realise them to the fullest. It was this uncompromising approach to corruption that gave quick positive results and led to the successful recovery of a significant part of the problem assets.
Unfortunately, Kazakhstan has many examples of unsuccessful attempts by the state to save banks - I will refrain from mentioning them. Such attempts resulted in the loss of public funds and left an imprint on the reputation in the international financial markets; and mainly harmed the confidence of citizens in the financial system of the country. I believe that our principled approach surprised the markets and experts; analysts did not expect such quick recovery of problem loans. I wouldn't like to speculate, but in my opinion this was the catalyst for rumours and talks about excessively large financial support provided by the state.
It has taken three years of hard work to now reduce NPLs to 10% of the total loan portfolio and significantly improve the bank's profitability. We believe that such a significant success was achieved thanks to the application of the right business approach by Jusan Bank: the bank was able not only to solve the problems inherited from Tsesnabank and ATF Bank, but also became relevant for the country's financial market as a whole. It has created an ecosystem of financial and non-financial services for SMBs and retail clients.

Recently, some financial market experts have raised the issue of the bank's excessively high dividends during 2020-2021, especially given the level of government support it receives - some might even characterise them as overly generous. Could you comment on whether the payment of these dividends is justified?
Thank you for this important question. I would like to provide clarification on this matter. During negotiations with the authorities on the purchase of banks, we asked them to transfer to us institutions with at least a zero balance. I think everyone agrees that no one, of course, wants to take on a completely bankrupt bank with negative assets. Therefore, we negotiated with all authorities and stakeholders, including Samruk-Kazyna and other quasi-state organisations to provide liquidity and deposit base support. We had to stop the losses, i.e. the outflow of deposits and the customer base. For instance, we were able to consolidate public sector deposits into long-term liabilities of Jusan Bank and ourselves invested about 167 billion tenge to capitalise banks. Taken together, the measures taken successfully prevented the bankruptcy of the two largest banks in Kazakhstan.
Regarding the level of official support to stabilise the banking sector, I would like to note that the financial support provided by Jusan does not stand out from the support provided by the state to other banks (Halyk Bank, RBK Bank, Eurasian Bank, Kaspi Bank, etc.) in terms of volume and breadth of coverage.
As a result of hard work, we were able to pay out the dividends, but the question is why and for what? Because we want to develop our ecosystem, which we had to create from scratch. Accordingly, we have invested heavily in integration technologies. That is, we have paid dividends to invest in our ecosystem, which serves as the basis for future growth. This is where 97-98% of the dividends you mentioned were invested.
I've looked at the dividend levels of other government-backed banks, and by comparison, Jusan Bank hardly stands out in relation to investors or its own staff, as we do reinvest everything into growing the business. Most importantly, we were able to start financing the development of the NIS schools and the university.

Mr. Katsu, what are the benefits of this activity for the economy of Kazakhstan and what are your plans for the future?
– I can say with confidence that our painstaking work is already producing tangible results. We paid more than 30 billion tenge in taxes to the state treasury. This means that 30 billion tenge of our labour has turned into income for the country and society. I want to object to anyone who says, "Wouldn't other banks be able to do the same thing?" I would answer: maybe, but it is important to take into account where we started and how bad the performance of the two banks was when we bought them - they could have just dragged us down! Our success is not the result of luck or chance. We have already created tremendous value for the economy, including restoring the banking system and preserving jobs.
We have also developed advanced financial services for small and medium businesses and the corporate sector. At Jusan Invest, we provide what we call financial literacy training. We successfully attract clients who have never invested before: housewives, students, and many others, and actively introduce them to the concepts of investing and financial planning. I believe that this is a huge contribution to the development of society.
We are a conscientious company. We are also working closely with government agencies and the presidential administration and are negotiating with our foundation's board of directors in the United States to obtain permission to provide assistance to the “Kazakhstan Halkyna” People's Fund, and we hope to make an important contribution in the near future. We fully support the idea that “Kazakhstan Halkyna” should support households, families and individuals in distress in Kazakhstan. We are guided by the rules and bylaws of our foundation in the United States, according to which the profit from all types of commercial and financial activities of the Jusan group must go only to the development of education. Of course, transparency is important regarding the use of funds. Our clients and the public will be invited to monitor how the funds are used and everything must also comply with our reporting requirements.
Since the beginning of this year, we have all been hit by two events that are conditionally referred to in business as “black swans”: the tragic January events in Kazakhstan and the terrible military conflict in the Ukraine. The effects of economic and financial sanctions against Russia are already being felt here and around the world. For example, the long-term nature of the imposed sanctions is very likely to provoke structural changes in economic and financial relations between Kazakhstan and the Russian Federation. In particular, among other things, a departure from the established de facto peg of the currencies of our two countries is not ruled out. I am sure that the authorities are doing everything possible to save the country from shocks, but it will be very, very difficult. Despite external threats, we will try to support the economy by providing loans and supporting households and businesses. I have to say that our income projections, at least for this year, will depend very much on the global economic crisis, in particular on the situation here in Kazakhstan. The current situation has once again reminded us that in such challenging times, having a sufficient liquidity cushion and a strong capital reserve are more important than ever.
Let me end this interview with a few words about our plans for the future. I am grateful to our management team for developing a new business strategy for our group. Jusan is just one of many banks in the country. So we constantly ask ourselves, what makes us different from everyone else? Yes, we are hard-working and we are honest, but I hope other banks are the same, working for the benefit of the banking sector. We needed to develop ways to increase the value of our assets. The solution was the digitalization of all operations and the desire for full integration.
This applies not only to financial services for small businesses, corporations and retail clients, but also to the provision of investment and insurance services, brokerage services and everything that we mean by the list of financial services. We have created an e-commerce platform where everything is at the customer's fingertips. We help businesses grow by operating in a holistic ecosystem. We may not have been the first to create a marketplace, but we function as a fully-fledged universal bank and also enjoy the benefits of mobile solutions.
Our mid-term goal is to fully develop the digital ecosystem and go international. This goal requires large investments, so we plan to enter the international capital markets. The reputation and business model of Jusan Bank, built on the successful integration of the two banks and the development of an integrated ecosystem, should be attractive to new investors.
We plan to grow further by exporting our unique business model to serve people in other CIS markets and beyond. Please stay with us and your money will always be safe.