NB: What category of customers does Citigroup target in Kazakhstan?

Citigroup:   Our customers here could be divided in three groups. First of all, there are the largest Kazakhtsani corporates and banks, with which we have fruitful and commercially viable relationships with. We – both as Citibank Kazakhstan JSC and, to a much larger extent, as Citigroup - provide them with a broad range of service; this category of customers accounts for the largest volume of transactions and our revenue (as the Pareto rule goes: 20% of customers give 80% of profit). The second group of customers consists of the subsidiaries of our global clients. The third group consist of local companies, with whom we have good relationship, but no credit business. The range of services provide to the customers from the second and third groups largely represented by, what we call, commercial, or traditional, banking.
          We do not operate a wide branch network that could help us accept hard copy documents with the same day value. However, thanks to an Internet-based Citi-direct system we can service any customer and act as there main clearing bank, regardless there location.

NB:  Do you have any plans to expand in the retail market?

Citigroup:   Generally, Citigroup is not a retail market player in Kazakhstan, there are only several exceptions to this. For example, we provide payroll services for individuals as a supplement to the services that we provide to their employer, our corporate customer. Citibank Kazakhstan JSC is a unit of Citigroup’s Corporate and Investment Bank, unlike in Russia, where Citigroup’s Global Consumer Group (run’s all the retail business) is present alongside with our Corporate and Investment Bank unit.
          We do not have any specific plans for development of retail banking in Kazakhstan. Furthermore, we would need to see at least two factors come together in order for us to start thinking “retail”. First, the availability of the target group (say, middle class) and its reaching a certain size, growth pace and maturity. Second, quality and diversity of the banking services. At the moment, we do not see a combination of factors necessary for launching retail in the country.

NB:  Citigroup is a leader in arranging Global loans for Kazakhstani debtors. How do you assess the latest trends in this segment?

Citigroup:   In the last 2-3 years all the Emerging markets specialists have understood that Kazakhstan became a serious market. There is already a critical mass of clients with a solid future outlook; many international banks are determined to support them for the years to come. Our view is clear: Kazakhstan has joined the group of markets where most of the top regional and global players want to do business.
          The competition here grows fast, and it’s no longer essential to have a full subsidiary in Kazakhstan in order to, say, arrange a Eurobonds issue for a local customer. Today there are about ten International banks that are very active and focused in providing Kazakhstani financial institutions with debt capital markets services, however only three of these international banks have physical presence in the country. And this has become quite a norm: for instance, Citigroup renders corporate and investment banking services to customers in 150 countries, while it has offices only in 102 countries.
          Our estimate is that there are about 30 corporates and banks in Kazakhstan that have ever raised financing in the world capital markets with the help of international banks. In the medium-term, this number will be increasing by at least five brand new borrowers a year. We don’t get a feeling that there is a whole new layer new of new borrowers that has been so far unknown to the market. And, most likely, the borrowers that utilize global debt markets will keep on being dominated by commodities exporters, banks, retail-oriented companies (telecoms, food processing, etc.), and public sector companies, including municipalities.

NB:  There have been a number of Global markets transactions where the CIS players (Kazakhstani or Russian investment firms or brokers) acted a co-arrangers alongside with the International majors. An important advantage of this cooperation is cost reduction for the issuer. What do you think about this?

Citigroup:   It is not always that such transactions become cheaper for the customer as a result of this cooperation, especially that conceivable it should be somewhat easier to negotiate pricing with one bank than with a group of banks. And, please remember that the cost of raising debt internationally comprises not only the arrangement fee, but also the interest rate.
          Probably, the main reason that is driving these joint transactions is the benefit of a higher international recognition for the local firms, as global markets transactions tend to receive quite a wide coverage (e.g., you may read about many of them in the Financial Times). On the other hand, an expertise of a local service provider may be useful for both international bank and customers.

NB:  Don’t you beware of competition?

Citigroup:   For Citigroup as a whole, this market is very competitive, so we take intense competition as granted. Today in this respect Kazakhstan resembles more seasoned markets, Eastern Europe for example, where the feeling is that market simply does not have enough room for everybody.
          As to the local competition, we can not rule out further consolidation of local banks, especially smaller ones. There have been much talk in regard to international or regional players acquiring stakes in local banks in the near future, but we haven’t yet seen closed transactions yet.