“The bearer of the political interests,”

According to the information from the National Bank of Ukraine published on its official website, the Ukrainian banking industry is recovering… Thus, the last month the banks earned 487 million hryvnias. It is the first positive result over the last eight (!) months. In general, the NBU estimated that the general loss of the Ukrainian banks during the period of January-October 2011 is 5.2 billion hryvnias.

When analyzing this situation, the international financial experts predict that the banks with the international capital are likely to exit from the Ukrainian market. This opinion has been recently voiced by the Regional Coordinator of the World Bank projects in the financial and private sectors of Ukraine, Belarus and Moldova Marius Vismantas. The senior banker of the EBRD Oleksandr Pavlov emphasized that the Western banks’ strategies are getting more balanced. According to the independent bank expert Yaroslav Kolesnyk, one of the main reasons why the Western banks are disappointed in Ukraine is that their expectations concerning the business organization, excessive risks and profit earning have not justified.

The bankers agree that the risks exist and they are high. In particular, the chairman of the board of Raiffaizen Bank Aval Volodymyr Lavrenchuk shares the forecasts of the flight of the international capital from the Ukrainian market. “Yes, I agree that, probably, several banks, and not only international ones, will exit from the Ukrainian market. However, I do not agree with the abovementioned reasons since I believe that the main reasons for this strategy have the Ukrainian origin: significant losses because of the high level of credit non-repayment and the structure of public offices and judicial settings, unfavorable for the debts collection,” he told The Day. However, Lavrenchuk assures that Raiffaizen Bank Aval is not going to change its strategy.

Meanwhile, not all of the international banks are “dissatisfied” with their work in Ukraine. Thus, the Russian bankers seem to feel in their element. Otherwise, how can one explain the fact that all the Russian state banks are present in the Ukrainian market? Besides, Gazprombank, owned by the Russian gas monopolist has recently declared its intention to enter our market.

According to the open sources, at the beginning of 2011 the part of the Russian capital in the Ukrainian banking industry was 9.85 percent. Nearly all of the large credits in Ukraine are given by the banks with the Russian capital and VTB is “appointed” to supervise the Russian projects in Ukraine. The Russian banks have higher crediting possibilities than the other banks and their credit interest rates are lower.

When assessing the competitors on the market the bankers do not deny that there are the signs of redistribution of the spheres of influence. “The changes are happening,” Lavrenchuk confirmed to The Day. However, in his opinion it is too early to say that “one or another group prevails.” “The market is growing slowly and will remain the same in 2012: the Ukrainian banks of various origins (state, private Ukrainian, international and Russian banks) have potent players to compete and this industry is limited,” Lavrenchuk remarked.

The danger of the Russian capital growth is that, to some extent, it is the bearer of the Russian interests that might differ from the Ukrainian ones. The Day asked the experts how the activation of the Russian capital in the Ukrainian market should be evaluated whereas the European investments are being reduced.

COMMENTARIES

“THE MOST SERIOUS RISK FOR US IS THE NEW USSR”

Arsenii YATSENIUK, MP, leader of the party “Front Zmin”:

“The western banks now make nearly a quarter of the Ukrainian banking capital. However, separate banks – I cannot tell the names – are reducing their activity in Ukraine. They sign agreements of credit repayments for the half of credit cost with their debtors! The credit interest rates are written off. It really looks like a flight: they are trying to take with them at least something.

“Why is it happening? First of all, our country does not have corresponding standards important for the Western business starting with the absence of the justice standards. The main standard, the one of the inviolability of the private property is absent. In general, it is related to the absence of liberties, democracy and justice. The economy concerned, it results in the absence of private property right and its guarantees.

“Another problem is the situation in the world. Previously there were the waves of the crisis and now I predict a tsunami that will have an economic, financial and, probably, military and political components.

“All of this makes the international banks decide to cut the funding and exit the risk zones. Ukraine is a zone of risk for the international banks. The one of low profits and high risks. A couple of years ago it was a zone of high profits and high risks but today it has become the one of low profit and high risks.

“So, a part of the Western banks are going to exit from the Ukrainian market. Thus this sector becomes empty but it cannot remain so for a long time.

“And here the Russian capital comes. It feels more comfortable in Ukraine than the Western one. There is one reason for this. The management conditions here are still better than in Russia. Besides, the Russian government is willing to ‘help the fraternal Ukrainian people.’

“One should understand the nature of the Russian capital. It is not quite a business. There is the Russian state that manages the capital. There is no separate capital there since there is no classical concept of ‘private property.’ It exists de jure but de facto it means the state property. There is the state that practically owns the state property: they give it and take it back when they want. That is why the ‘Russian private ca-pital’ does not exist. In fact, it is the capital owned by the Kremlin.

“The business is secondary for their geopolitics. There is no credit from the IMF. But there are the credits of VTB, Gazprom and the agreements to pay for the Russian gas in rubles.

“If the Western banks consider Ukraine to be a zone of low profits and high risks, the Russian banks do not take any risks on the Ukrainian market. It is a purposeful Russian state policy. The policy of the Ukrainian government completely matches it: giving away everything step by step.

“As for the risks, the most serious risk for us is the new USSR. Vladimir Putin calls it the Eurasian Union. But whatever we call it, it is a political union around the Russian oil and gas deposits, around Russia as the source of raw materials. So, it is a raw materials union.

“How stable is it? Now when the world crisis is spreading there is nothing stable in the world at all. However, raw materials unions are the worst option to choose in the period of general instability since they are based on the raw materials prices. They experience the most catastrophic fluctuations in the time of the world crises.”

“THE PERFORMANCE OF THE EUROPEAN BANKS’ SUBSIDIARIES IN UKRAINE IS MUCH HIGHER THAN THE ONE OF THEIR PARENT COMPANIES”

Roman SHPEK, senior adviser to the president of Alfa-Bank (Ukraine):

“The banks with the international capital make over 40 percent of the Ukrainian banking industry. According to the ‘Organization for the European Cooperation and Development’ and the World Bank, the business climate in Ukraine is not positive. Really, there are a lot of complaints about the regulatory bodies, tax administration, non-transparent decisions and unpredictable legislation. The fact that the go-vernment slowed down the reforms and suspended its cooperation with the IMF also affected the rating.

“However, I would like to emphasize that the performance of the European banks’ subsidiaries in Ukraine is much higher than the one of their parent companies. That is why I do not completely share the opinion that if the European banks exit from the Ukrainian market it will happen only because of the problems within Ukraine. Of course, the problems in Ukraine will only speed up such decisions and the Western banks that have a lot of problems in the Eurozone will decide to reduce their activity and geography. Briefly, they will use the package of means to reduce the banking expenditures.

“Today a range of the European banks started cutting the costs in order to reduce their losses. This is related to the closing of some activities, for example, the investment activity of one of the largest Swiss banks. So, the European banks have the limited possibility to help their subsidiaries outside the EU. However, the cost optimization will also apply to the banks within the EU. Certainly, a question of activity reduction in Ukraine or somewhere else may arise. Of course, if a French, German, Italian or any other bank faces the question of cost optimization they will first of all do it outside the EU.

“However, I am sure that there will be no ideological decisions in this process, the decisions will be economic. So, if the Europeans see that their Ukrainian branch is profitable and is able to independently solve its liquidity problems, of course, it will stay in the market. However, if due to the Ukrainian peculiarities, business climate, judicial system and corruption they will have to give the financial support they just will not be able to do it.

“Besides, we should consider one more thing: when selling a Ukrainian subsidiary any European bank would like to consider it a branding step, however, such sales are in the past. So, if they cannot efficiently sell their branch they will try to avoid taking hasty steps not to affect their parent companies.

“The Ukrainian banking industry has always been highly competitive: there are over 170 banks registered in it. Of course, the structures having access to cheaper resources feel better. Obviously, the Russian state banks have a number of advantages (that the European banks had in 2005-07) and the results of their activity is the evidence of this. In the globalized world the competitive advantage will belong to the banks offering high-quality services at lower cost.”