Upon results of 2012 CREDIT EUROPE BANK has managed to show the growth of two major parameters: the bank's assets grew by 20%, and the net profit amounted to RUR 2.8 billion. Along-side, the level of the overdue debts of the lending entity made less than 3%. Haluk AYDINOGLU, the president of CREDIT EUROPE BANK, told in his interview to NBJ about the ways the bank managed to achieve such outstanding performance.

NBJ: In 2012 the assets of CREDIT EUROPE BANK grew by 20.2%. How did you manage to achieve such a significant growth of the business volume?

H. AYDINOGLU: In 2012 the highest growth rates were shown by car-lending and cash-lending. I must admit that car-lending is one of key priorities for the business of CREDIT EUROPE BANK. As of today our share in that market's segment is more than 5%. The 2012 increase of the granted loans' amounts was due to the following two factors: the strong links with all the basic Russian car dealers and the growth of production and sale of cars as a whole.

As for the cash lending, naturally a great role there is played by the bank's having a large, verified and loyal client base. Presently the number of our customers - individuals reaches three million people. Evidently we make all the possible efforts to enhance their service quality. Thus, in 2012 we launched a big call-centre in Kazan, being capable of receiving and processing all the applications of our customers as well as to give replies to their questions. We have all the grounds to suppose that in 2013 the cash lending will be a demanded service, and the share of that area will continue growing in the aggregate loan's portfolio of the bank.

NBJ: CREDIT EUROPE BANK's net profit in 2012 made RUR 2.8 billion according to IFRS. Are you happy with this figure?

H. AYDINOGLU: It is a good result, however I have to emphasize a very important thing. We do not chase high shortterm parameters, our priority objective is to ensure the stable growth of profit, and not a showing of record-breaking values. We achieve decent results of profit not owing to the performance of risky high-marginal operations. It can be easily seen if one looks at the level of rates by various credit products of the bank. As I have noted above, we have a verified and loyal clientele base, therefore we are able to offer, at the cost of the accurate expenditure management, the credit resources at the prices as affordable for the borrowers. The CREDIT EUROPE BANK's position is that good faith borrowers do not have to pay for the "bad" ones through payment of high interest rates under the loans.

NBJ: Resulting from 2012 your bank's capital adequacy level reached 23.3%. Meanwhile, the Bank of Russia requires that this parameter shall be at least 10%. Why do you prefer leaving a large safety cushion?

H. AYDINOGLU: There are three reasons for that. The first reason lies in the fact that 10% is a minimal requirement, the compliance of which is persisted by the market regulator. Still the recent large-scale crises, as well as apparently the local shocks have pictures­quely shown that the minimal level is not always adequate from the point of view of the bank's further existence.

The second reason is the change of the regulations to calculate the tier 2 level capital in 2012: now the raised subordinated loans will not be accounted for when calculating the capital. Actually, all the large banks that have raised such borrowings increase the amounts of their "safety cushions". We have decided to act the same way.

The third one, being perhaps the most significant reason, is that a large capital "cushion" is essential as we plan to have further development of the bank's business, to enhance the turnovers, to increase our loan portfolio. Probably such a large capital will be called by us only after the forthcoming couple of years. However, from the point of view of the long-term strategy, the formation of a huge "safety cushion" is definitely the right solution.

NBJ: The amount of the CREDIT EUROPE BANK's overdue debt made only 2.8% upon results of 2012. How does the bank focusing on the development of retail manage to show such low parameter of the overdue debt? Is it due to the efficient risk management?

H. AYDINOGLU: I would like to emphasize that we treat the risk management not as only the management of credit risks. The bank pays special attention to monitoring and management of other risks that are inherent to banking: currency and operating risks.

If we speak about the credit risk management, you are right: it is not easy for the bank focusing on the development of retail business to maintain the overdue debt parameter of at least 3%. As you may see from our example it is possible. What are our actions for this purpose? In the course of our conversation I have partially answered this question: we abstain from making of risky transactions irrespectively of the high margin they promise to us. It is beneficial for us to attract customers on a long-term basis, meaning that we have to offer the banking services to them, including as regards the lending, at the reasonable prices that they can afford. Naturally, we pay attention to the fact that our potential and existing customers would have a good credit history, permanent job and a high payment discipline. I must admit that a share of non-paying borrowers in our almost three million clientele base is very small. Thus, it is possible for us to maintain the overdue debt level at such a manageable level of less than 3%.

NBJ: Nevertheless, no matter how perfect the risk management is, still there should be problems with non-performing loans in this or that case. How does the bank prefer dealing with them?

H. AYDINOGLU: For it is of high importance to maintain the customers' loyal attitude to us. So we try to give them a helping hand at the first attributes of problems they may have on serving the loans. It is another reason in the list enabling us to keep the general level of non-performing loans at a very low extent.

NBJ: Can you please tell us about the major funding sources of the bank?

H. AYDINOGLU: We pay special attention to such factor as the diversification of the passive base. It is no longer a secret that bank exposes itself to a high risk if it raises the funding from a single major source, whether deposits from people, or borrowings at the foreign capital markets of at the domestic inter-bank market. We live in a troubled peri­od when any source that seems today as an inexhaustible one might be closed down tomorrow. Then not only the business development plans of this or that bank, but also the existence of the financial-lending entity will be questioned.

CREDIT EUROPE BANK has been operating at the Russian market for over 15 years, we have come through several crises and of course we have drawn the morals of the experience. In terms of the experience we tend to fund the activity of the bank out of the maximal number of sources: we raise the funds as deposits from individuals and legal entities, at auctions being held by the Central Bank, as the syndicated loans, Eurobonds, borrowings from international institutions, parent company, etc. Alongside none of the sources is seen by us as the major one (a source, no availability of which may cause the termination of the bank's activity). For example, the share of deposits from individuals is within 25% in our liabilities.

Our mission is to make the bank non-vulnerable to the two major risks: liquidity deficiency risk and capital risk. We can achieve the above only through diversification of the passive base both in view of sources to replenish it, and in view of the maturities of the funds raised.