Russian state-owned banks want to leave the Ukrainian market. VTB announced its intentions publicly while two other subsidiaries in Ukraine – Prominvestbank and Sberbank – are still waiting. Experts believe that the inevitable withdrawal of the Russians from the Ukrainian market will not bring significant problems.
Head of the Russian state bank VTB Andrei Kostin has publicly announced the possible sale of the business in Ukraine, referring to the absence of promising economic opportunities in our country. The bank had previously said that it would not leave Ukraine and even planned to carry out additional capitalization. Apparently, the wind is now blowing in the opposite direction.
The subsidiary of VTB Bank in Ukraine hastened to assure that regardless of scenarios it will ensure strict implementation of all the requirements of the Ukrainian regulator and fulfillment of all obligations to its clients. In its address to the customers the bank philosophically noted that the option of being sold to the investors is "valid for any business in any country, "as if apologizing for the shareholders’ decision, and recalled that over the past two years, it has invested more than $ 1.3 billion in Ukraine.
In addition to VTB, two other subsidiary banks operate here that are owned by the Russian government, which in recent years have been consistent in trying to destroy the Ukrainian state and seize the Ukrainian land.
The subsidiary of the Russian Vnesheconombank – Prominvestbank – has not yet commented on the prospects of its operations in Ukraine, neither publicly nor upon UNIAN’s request. The Ukrainian subsidiary of Sberbank of Russia insists that any information on the upcoming sale is nothing but a rumor. “Sberbank continues to pursue its plans in Ukraine. We do not confirm rumors about the sale," said the bank’s press service.
However, Russian media reported citing their sources that all three representatives of the Russian state-owned banking sector are in a search of a buyer for their assets in Ukraine – VTB, Sberbank, and Vnesheconombank. In addition to purely economic reasons, the Russians are concerned that "the issue of the presence of Russian banks in Ukraine is extremely politicized."
The economic reasons for leaving the Russians are more than obvious. Last year, the trio of banks, or rather, the Russian government, has reported a total of UAH 31.2 billion in loss, which exceeds 40% of the entire loss of the Ukrainian banking system. In the first quarter of this year, VTB Bank saw a UAH 4.6 billion loss, Prominvestbank reported a UAH 2.4 billion loss, and Sberbank had a UAH 53 million profit.
In addition to the billions of hryvnias in losses, Russian banks have faced the largest outflow of deposits in the banking system. According to the National Bank of Ukraine, despite a formal increase in the share of Russian banks in the Ukrainian market after the cleansing, the share of individual deposits in these banks from the beginning of 2014 to 2016 declined from 9.3% to 5.8% and of the deposits of legal entities – from 8.3% to 3 3%.
There are also certain problems with the repayment of loans, and therefore the Ukrainian regulator, following the results of stress tests, ordered all three banks to hold additional capitalization. The amount of the required capital is not disclosed, but, according to the Russian Ministry of Finance, it amounts to about $1 billion, or similar to the amount of recapitalization held a year earlier.
Given these circumstances, it is understood that the initiator of Crimea’s annexation and the chief warmonger in the Ukrainian Donbas, Russian President Vladimir Putin, who one and a half years ago declared that “Russian banks would not leave Ukraine so as not to derail the country’s banking system” has now apparently hinted at the need to call it quits.
Withdrawal or flight
According to estimates of the experts interviewed by UNIAN, we are likely to witness the withdrawal of the Russian state players from the Ukrainian market in the near future, and this exodus will be completely painless.
In particular, as noted by chairman of the board of the Independent Association of Banks of Ukraine Roman Shpek, plenty of banks in Ukraine have now been put up for sale, but no one speaks publicly about it because there are almost no buyers in the market.
Among the reasons for the withdrawal of Russian public financial institutions, the banker has named a significant outflow of customer funds in 2014-2015 that forced them to also significantly reduce the crediting business.
"The presence of the Russian state-owned banks in the [Ukrainian] market has actually declined significantly, and this trend will further be increasing. Let’s take a much-discussed situation with Prominvestbank. In early 2013, the bank was in TOP 5 banks in Ukraine. And now, it’s not even in the TOP 10. This trend will continue in the future," Shpek says.
According to a senior analyst at Dragon Capital Anastasia Tuyukova, the initial decision to continue the banking business in Ukraine after the start of the Russian military aggression in 2014 was purely political. "As early as 2014, when a massive outflow of deposits was recorded, it was clear to the banks that it was impractical to stay from a business perspective. Now, obviously, there has been a shift in the political position of the Russian leadership," she says.
The expert believes that the three Russian state-owned banks want to leave the Ukrainian market. And, despite the fact that the share of these banks in the assets of the Ukrainian banking system accounted for 10% at the end of 2015, Tuyukova predicts that their withdrawal should not come as a shock to the country’s financial system.
"Over the past two years, one-third of Ukrainian banks, or about 70 institutions with a share of more than 25% of assets, has left the market, including the banks from the TOP 10. Moreover, the change of ownership will allow Russian banks to remove the political factor and return to normal operations. The share of these three banks by individual deposits is less than that by the assets, accounting for 6%, or UAH 23 billion, which is relatively not much," she said.
As for the possible sale price, the expert believes it will be symbolic or close to zero. Moreover, there will be no return of loans received earlier from the parent structures due to the poor asset quality of these banks.
"One of the reasons is the political factor, as borrowers are just not willing to return the money to the aggressor state. All three banks have a significant proportion of individually impaired and past due loans, according to the reports compiled by international standards as of the end of 2015: 67% in Sberbank, 95% in VTB, and 85% in PIB. Moreover, the level of reserves cover is not high - from 41% in Sberbank to 55-57% in VTB and PIBA, which suggests the need for additional reserve cover of such loans and a potentially significant negative capital of the bank, reducing its attractiveness for investors," Tuyukova added.
Despite such a low attractiveness of assets for investors, the director of the analytical department at Alpari Oleksandr Razuvaev predicts that the Russians will not be hasty in selling their subsidiary banks in Ukraine for nothing, as the Russian government is interested squeezing the most out of the potential deals.
"In the past year, it was very difficult to find a buyer for these assets. But now, the situation has improved. From the perspective of expediency, the moment is chosen quite well: the financial results of subsidiaries of the Russian state-owned banks in the first quarter showed a significant improvement, as well as all Ukrainian financial sector as a whole," the expert says.
The big question is who can become a buyer of Russian banks as large investors are mostly taking a wait. This year, only one investor expressed interest in bank assets – the owner of Alfa Bank, ABH Holdings S.A., which has signed an agreement with the Italian banking group UniCreditGroup on a purchase of 100% shares in Ukrsotsbank. This investor can really become a new owner of the Russian state-owned assets if it’s not scared off with the risk.
A ghost of sanctions
Although the situation on the market is indeed better than last year, Russians have not so much time for bargaining. Vandals are becoming increasingly aggressive toward Russian subsidiary banks. It is very difficult to explain to those angered people who have lost their loved ones because of the “Russian Spring” that it’s also Ukrainians who work in those branches. Windows of one of the Russian subsidiary banks boarded up with plywood on the day of the march of Azov regiment through Kyiv streets is an eloquent sign of such anxiety.
In addition to vandalism, the Russians certainly are anxious about new sanctions against its assets. The first wave of Ukrainian sanctions in the framework of a decision of the National Security and Defense Council approved with a decree of Ukrainian President Petro Poroshenko in September 2015 concerned about 400 individuals and 90 entities involved in the annexation of Crimea and aggression in Donbas.
Among these sanctions is the blocking of assets, suspension of performance of economic and financial obligations, a ban on the establishment of business contacts, as well as a suspension of capital withdrawal from Ukraine. Once put in this list, one can be left with nothing.
After the decision of the NSDC, the National Bank required banks to provide information whether the persons from the list had opened bank accounts, determined the order of implementation of the sanctions by banks and of monitoring such implementation. Subsequently, in April this year, the regulator reported that the banking system has enforced all restrictions under the NSDC decision. That is, the Russian state-owned banks evaded it. But is that for long?
"[If] there is a decision of the NSDC on sanctions against those banks, we will implement it," said NBU Governor Valeriya Gontareva when addressing the Verkhovna Rada. According to the regulator, in order to limit operations of banks with the Russian capital in Ukraine, the political will is needed: either the parliament should adopt a corresponding law or the NSDC should take a new decision.
Hypothetically, both ways are possible. This is probably what the Russian government thought about more than once. So we are waiting for a big sale in the banking market, get in line!
Olha Hordienko (UNIAN)