Only giants stand a chance
The expansion process launched by foreign banks on the Ukrainian market will help them play it safe against bankruptcy. In order to prevent a run on the banks, the government will be forced to resort to bailout policies, KW’s Tetyana Ochymovska believes.
As foreign banks continue exodus from the Ukrainian market that started in 2012, the share of the banks with western capital in Ukraine, according to assessments of financial experts, could drop from the current 39.5% to 10% over the next several years, thus returning to the indicator in early 2000.
“In 2013-2014 the daughter companies of Greek and Cypriot banks (the latter most definitely will) may pull out of Ukraine due to the difficult state of the banking sector at home. We are aware of plans for the sale of certain other banks, though their names have not been publicly disclosed,” says partner of the Corporate Finance Department at Deloitte.
Non-residents are planning to pull out not only due to problems in their native countries (European banks strongly need capital in order to meet the requirements of Basel III), but also due to the reality of the current situation in Ukraine. “Among other reasons, there is a continuous stagnation of the domestic economy and a complicated operating environment: insufficient level of protection of creditors’ rights, imperfection of the domestic judicial system, specifics of the mentality of borrowers and the prohibition of currency lending,” says Assistant Executive Director of the Independent Banking Association of Ukraine (IBAU) Olena Yefremova.
Meanwhile, insurance companies are being quite patient. Over the period of the crisis, only three western insurers pulled out of Ukraine, an the share of foreign capital on the domestic insurance market remains unchanged. As of the start of 2013, there were 112 foreign insurance companies on the market (a total of 414 insurance companies are registered in Ukraine), according to the League of Insurance Organizations of Ukraine (LIOU).
“Western shareholders of insurance companies are suffering losses estimated not in the hundreds of millions, but US $1-2 mn per year at worst. That’s peanuts for large financial groups. Leaving the market would be much more costly. The negative reaction of private investors and the decline in the value of shares could inflict much greater damage on the reputation and financial condition of a company than losses from operations in Ukraine,” says General Director of Allianz Ukraine insurance company Garry Andreasian.
And that leaves some space for optimism.