Interview with Alexander Golovko, Director of the SME Banking Department at PASHA Bank.
- Mr. Golovko, it's been just over a year since the pandemic swept our country. Could you tell our readers about the way pandemic has affected the Bank's SME customers during this period? Which areas of business have been most affected by this situation?
- 2020 year undoubtedly took most entrepreneurs and industries aback. Predictably, the large corporate business was the most resilient to the new economic challenges. While the small & medium business suffered the most. The COVID-19 affected largely such industries like tourism & hotel business, transport, catering, retail trade & services. These are business activities where we observed more than 50% drop in revenue. Meanwhile, I would like to distinguish the industries with business growth in 2020 despite the economic downturn. These are the communications and FMCG online commerce. In general, there was a tendency towards business digitalization as well. In 2020 we observed five-time increase in e-commerce acquiring activity.
Despite the pandemic, the year was successful for the Bank's SME segment due to our digitalization strategy, started back in 2018. The pandemic has only added value to our digital products and services, as clients got opportunity to interact with the Bank remotely, with no need to visit branches. This relates to both non-credit (daily banking) and lending products. In 2020, we tripled the number of active SME customers.
- PASHA Bank was one of the first banks to respond to the pandemic's impact. What is the local SME support package the Bank has implemented in this regard?
- Since the very beginning of the lockdown, the Bank has launched a comprehensive preparation for the work within the new economic realities, and to support our customers. Here are some of the first implemented initiatives: loan restructurings offers, "repayment holidays", cancelling the penalties for overdue, the revision (reduction or cancellation) of tariffs for key banking products and services, the launch of a useful and up-to-date information portal regarding work during pandemic conditions.
Bank understood the importance of access of clients to financing in a down economy. Therefore, we not only did not suspend financing, as working capital financing have been proceeded with no restrictions, but also launched 2 fully digital and collateral-free loan products: a standard online business loan and an online business loan under support program of the Entrepreneurship Development Fund of the Republic of Azerbaijan. The supply chain financing (factoring) was also active. The volume of provided supply chain financing in 2020 was at the level of pre-crisis 2019 year (around 100 M AZN).
-The quarantine headlined the remote banking services. What is the online products line the SME customers can have applying to PASHA Bank?
-All the main business banking products are digital: from daily banking, non-credit products and services to the business financing offerings. The customer will only need a computer or smartphone and internet access to receive banking products and services. For example, an entrepreneur or company will need 5-10 minutes to complete the online onboarding procedure and become the Bank's customer. Then, the same quick and easy way, the customer can apply and receive salary product, POS-terminal or an electronic cash register for retail, order cash and other products and services, including non-banking, value added services aimed to support clients’ business. Filling out an application for an online business loan will take up to 20-30 minutes. Then the customer will need to wait a few hours more to get a decision on the loan. Overall, our clients can get financing in the amount of up to 250,000 AZN within 1 day passing easy digital journey.
-In early July 2020, the government launched a preferential lending program for pandemic-affected business sectors to support entrepreneurship. PASHA Bank acts as an agent bank for the Entrepreneurship Development Fund. Could you tell us about the program terms and the way PASHA Bank implements it?
-It is beyond argument that the Entrepreneurship Development Fund program has become an important project to support business. PASHA Bank was the first bank joined the Fund's program and started financing customers. At the time of the EDF program start, we already had an non collateral online business loan. No wonder, we joined the program implementing similar digital client experience in the Fund's product also. Today, the product keeps working successfully and amounts to around 50% of the total digital loan portfolio. The product is popular due to its low price (7.5% annual interest), simple and fast decision-making (within 1 day), and no need for collateral. Under this product, the customers can get financing of up to 200000 AZN for a period of up to 36 months with a grace period for principal repayment.
-As you mentioned earlier, the bank launched a new online business loan product last May. What is the maximum loan the Bank can provide and applied rate for the development and support of business? What are the guarantees the Bank needs? Could you outline your loan rates — from lowest to highest?
-Today, the Bank's SME product line includes 3 fully digital loan products. In January 2021, we launched the 3rd digital loan product – Online Credit Line for SMEs. The credit line has a flexible repayment option and revolving limit. That is, customers can take out and repay the credit funds as they need, paying interests only for the actual use of the credit funds. It is a convenient financing facility for the current operational expenses of a business.
Under online business loan and credit line, customers can get up to 250000 AZN. Loan purpose is a major driver in the understanding of the financing cost. As a rule, for working capital, operational expenses, we provide financing for a period of up to 1 year, offering our customers an interest rate starting from 11%. The interest rate will start from 15.5% if the customer needs a loan for a period of more than 1 year, e.g. for the launch of new business sites, directions, or the capital investments. The higher price in this case is due to higher-priced cash funds for the Bank and the maturity risk of long-term financing. But in general, we have market price for digital loans providing unique value for customers in convenience, simplicity, quickness and no requirements for collateral. As for guarantees, the approach is standard here: we need the guarantee of the business shareholders, if the customer is a legal entity. At the same time, all 3 loans are non collateral.
-Why should a company choose PASHA Bank to get a preferential loan? Do you have any competitive advantages?
-All digital products have a number of key value-based characteristics. We identified them at the stage of market analysis and product elaboration. They are the simplicity and quickness of receiving a loan, as well as the absence of collateral requirements. Regarding the Fund's product, the PASHA Bank stands out for 2 competitive strengths – simplicity and quickness. This is the reason why customers choose us. Filling out of the application is fully online and takes 20-30 minutes. The customer only needs to upload a few documents to the digital platform. The decision on the loan granting is providing within a few hours after the application filled-out.
-Which economy sector tends to apply for the Online Business Loan service, and which one for a preferential loan? What are the dynamics and sales indicators of this product today?
-Naturally, the online loan under the Fund is the most popular. But it has limitations on the type of industry, as it is intended to finance pandemic-affected businesses. These are retail and food services, hotel and tourism business, manufacturing and wholesale trade (excluding food, tobacco, beverages, and petroleum products), technical service of vehicles and transportation, as well as educational services. As for the standard online loan and credit line, the predominant industry we financed in 2020 is the trade and services sector. That is about 70% of the allocated funds within the digital lending. The 2nd place is taken by the production with 12% of the total volume.
The dynamics of digital lending development is good. We are growing by 10-15% every month. The maximum volume of monthly lending was more than 5 mln AZN in 2021. By the end of the year, we plan to reach 10-12 mln of lending volume per month. At the same time, the digital loan portfolio is expected to reach 30% of the total SME loan portfolio by the end of this year.
-Is it possible for a customer who has not received a preferential loan to apply for the Online Business Loan product under standard conditions?
-Yes, we have no restrictions on the number of requests or the number of loans disbursed. The only condition is the relevant to the clients request financial and operational state of the business, and no bad credit history.
-What is your opinion on the prospects for increasing demand for the Online Business Loan product? What are the preliminary forecasts for the latter half of the year?
-Digital loan products will be gradually replacing traditional banking products of SME financing. This is a common worldwide trend. We are glad that the Bank's team managed to offer this experience to business customers for the first time in Azerbaijan. The use of digital technologies, agile framework in product development, advanced analytics and data science tools gave us opportunity to create a product of a unique quality as compared to conventional corporate lending. The customer will need a computer or smartphone, internet access, several basic documents in electronic format and 20-30 minutes to submit a loan application. Within the next few hours, the customer gets a decision. This is a promising, growing, and large market. The number of loan requests increased by 60% compared to last year. By the end of this year, we plan to increase the digital lending portfolio by 3 times compared to 2020. In the 2nd half of the year, we are expecting an increase in the average monthly digital lending volume up to 8-10 mln AZN, and plan to provide our customers with around 80 mln AZN of financing in 2021 solely within the digital lending product line. The whole team is hardly working to improve digital lending experience of our customers and develop new value-based offers.
-What is the PASHA Bank's estimate on the prospects for the SME development in Azerbaijan amid post-pandemic? How will the demand for business lending change in the next year or two?
- 2021-2022 should be a period of economic and business recovery. In general, we have positive expectations for the business revival. About 60% of customers observed the revenue growth this year. At the same time, about 40% of our customers expect sales to reach the pre-crisis level at the very beginning of next year. Macroeconomic forecasts give us opportunity to assess positively the SME recovery and development and the demand for business financing. The real economy (excluding the oil sector) expects growth of around 3% per year in 2021-2023. First of all, active recovery is expected in trade and service sector, tourism industry, manufacturing, construction and transportation. The revival and development of the economy in Karabakh, the implementation of large-scale infrastructure projects will further support the business activity advancement in the regions and in the country as a whole.
-Besides the financial assistance, in this case, the SME entrepreneurs will need support in adapting to the new conditions as well. Can customers count on PASHA Bank's support, for example, in getting business consultation and other non-financial services?
- We are traditionally working in this direction in the larger SME segment – "medium-sized" business. The dedicated team of Relationship Managers provides our customers with professional advice and accompany them in both banking services and products, and non-banking business development issues. Since last year, we have been actively developing non-bank digital products and services (value added services) aimed to support and develop our customers’ businesses and also available to all customers via digital platform (Internet Bank). Certain products are already in production, and some products are still under development. Among the key digital products and services are legal and tax consulting, accounting, B2B platform, e-commerce service, as well as various products and services within the open banking concept (API).
More detailed about Online business loans https://bit.ly/enPBSME