CEO of PJSC "Ukrsotsbank", UniCredit Banktm : "When the "scheme" bank busts, I get a moral satisfaction, as this means that we are managing our business in a right way…"
Borys, the structure you are in charge of, is for sure interesting to the market and to our readers, bit what is more interesting, is your competent opinion concerning the current economic situation in the state and in the banking system.
Which are your forecasts for 2013 concerning macroeconomic situation in the state, is there a risk of default?
There will be no default in 2013, there are no reasons for that. I assume there will not be achieved any agreements with the IMF, the pressure from Russia is possible, similar to the claims of Ukraine’s 7 billion USD debt for the received gas. Such claims make more difficult the process of attracting foreign loans, as any creditor takes into account the existing debts of the borrower when taking a decision. Ukraine can defend its interests over this issue in the Stockholm Court as previously has been done by a number of European companies, to which Russia finally decreased the prices for gas.
Which structural reforms of the government are more likely this year?
We need to launch reforms, provided in the frames of IMF cooperation. In general, these reforms are useful first of all for Ukraine. And if IMF makes sure that Ukraine’s government takes constructive measures for solution of existing problems, it may make concessions; this structure is a flexible enough.
The most likely there will be an increase of gas tariffs with introducing a compensation system for low-income population, which was not done previously due to political considerations. Besides the “inter-elective” 2013 is the most fortunate for this reform.
According to currency rate liberalization it should be noted that the index of currency deficit in our country is rather subjective, as it is distorted by such phenomena as pseudo-import and purchase of currency by people. And before letting the exchange rate to free floating we should put everything in order, and then the UAH will even be reinforcing. We can also announce a corridor in the range of 8,0-8,3 or to make a currency basket by the example of Russia. After NBU renewed an obligatory sell of 50% of currency proceeds, the interbank market is fully balanced$ and NBU has not been initiating any interventions. So the beginning for this process has been launched.
Concerning other reforms, this would be clear after the new government makes its program public.
Perspectives of Ukraine’s entering the Customs Union, does this correspond to the process of Euro integration?
As I consider, we can simultaneously be in the Customs Union and adjust relations with the EU. Russia is our important strategic partner and at the same time it is fundamental to move towards the EU. For example, in order to solve such a critical problem of infrastructure modernization. When entering the EU it is possible to solve it by the example of Poland, Czech, Slovakia, where all the basic highways were newly built for 5-8 years in the frames of EU projects. The EU can provide a tough control of a purpose usage of funds and an honest tender.
Prime Minister Azarov last December announced the intentions to create a Ukrainian Bank for Reconstruction and Development this year. How will its functions differ from the founded in 2004 “UBRD” with the participation of State Investment Company, created by the Cabinet of Ministers’ Decree?
Creating the bank for reconstruction does not yet solve the problems, and it is pretty likely that the new structure will not differ from the previously created one. The issue is in the funding of projects, but in the current budget there was not provided a sufficient funding. And if there is a possibility of attracting external investments, we can command them without a special structure, if only there are such investments.
The most remarkable events at Ukraine’s banking market in 2012 and perspectives for 2013?
The banking market in 2012 continued its work of correcting the mistakes and clearing of loan portfolio. In general the business interest to banking system has significantly decreased due to its low profitability. We will still have to work hard at existing problems of reforming the legal system of creditors’ rights protection. And such a phenomenon as corruption is an insurmountable barrier for creditors and investors as a bright specific of our mentality.
Will the NBU regulation change, at your opinion, towards softening of monetary policy?
Monetary policy must be tough, as in our country every free UAH note goes for USD purchase. Actually the toughness of current NBU policy is in not printing the money, though we had already faced the “printing” scenario in 1990ies with 300% inflation per year. And the claims about the lack of money for support of the Ukrainian industry are, as I believe, groundless, as nowadays we do not see any queues of clients, desiring to get a loan.
Is the current level of forex/gold reserves applicable for the state, including consideration of planned redemptions of IMF debts?
With the planned IMF payments in the amount of 9 billion USD the level of forex/gold reserves in the amount of 24 billion USD is not critical for our country. In 2004 the level of reserves constituted 12,8 billion USD and at the year end results decreased to 3,5 billion USD. But by 2008 we managed to grow the volumes of forex/gold reserves to 37 billion USD having a negative payment balance. The main thing is firmness and consistency of authorities. Then taking into account money flows in US Dollars we would be able to serve IMF loans and to grow reserves.
In 2012 the list of busted banks increased. Do you forecast new bankruptcies this year, how will it influence the banking system?
The bankruptcies should be. The strict procedure of payments through the Fund of Deposits Guarantee considerably decreases the negative outcome for people. And if previously the bank was leaving the market during years, nowadays this happens quickly and organized. And I do not see here any threats for the banking sector in a whole. Of course, corporate business is poorly protected, but we have to think before entrusting your money to the bank with overrated policies. The sooner the depositors and business understands this, the sooner the inevitable transformation of banking market will happen. This process assists the normal work of banks, which follow market discipline and stick to a weighed policy of risk management, but in the result receive less income. When the “scheme” bank busts, I get a moral satisfaction, as this means that we are managing our business in a right way.
The main results of International Association of Ukrainian Banks work (IAUB), the Council of which is charged by you?
First of all, we have a tuned process of rule-making coordination. We renewed the dialogue with regulator, which had been lost. The committees on banking sectors are working efficiently, correlating with the appropriate departments in NBU. At the draft stage there is a discussion of documents held, in the process of which we introduce a consolidated position of banking market. The advantage of our association over the rest is that we take a politically neutral, objective position and act in the interests of banking system.
The regulator does not always agree with our recommendations, for example concerning differentiated approach to the Guarantee Fund fees. As we think if the assets and liabilities of the bank are balanced over the terms and currencies, the risk for the bank and its depositors is minimal, and the higher rates should not be the basis of paying the higher fee to the Guarantee Fund. But this method, based on formal data and not foreseeing the expert appraisal, is easier to implement. At the same time, the regulator could just increase the rates of fees for all the banks, but did not do it in order to avoid panic moods among depositors.
Which corporate borrowers or sectors are perspective for your bank and for the banking market in a whole?
The most perspective is agriculture, as this sector develops dynamically and will be developing due to population growth. Large agro-business generally uses the services of several banks and gets large enough volumes of crediting. We credit them independently and participating in a consortium crediting, mainly these are loans to exporters in foreign currency.
The second sector – is information technologies. This sphere develops pretty fast, and it has tax benefits. The enterprises of metallurgy and machinery are also interesting facing problems with current prices for gas and thus they constantly need financing.
The other perspective is servicing sphere, taking into account we are in the normal market process and the consuming of services is growing. When we forward some processed for outsourcing, we save in the frames of own organization, and the mutual services increase the productivity of economy and incomes of the state from tax payments.
How can the corporate crediting be provided in the atmosphere of low liquidity of banking system?
We, as the majority of banks, faced the UAH deficit in the 4Q last year, this was a season peculiarity. We attracted resources at interbank market and sold USD from the position. Actually these are not liquidity problems, but problems with currency risk, as we may bear losses during rate fluctuation.
Together with that I do not support the initiative of a “light” NBU refinancing, as the received funds may be used for speculation at the currency market. As I noted before, we do not see any queues of corporate clients for loans, it is more like the banks are in a constant search for good corporate borrowers. Business sticks to wait-and-see attitude and does not risk to finance investment projects. That is why nowadays the most demanded are the short-term loans for working capital financing.
Do you expect the deposit rates decrease and revival of mortgage crediting?
The deposit rates will fall down. During several years this is a seasonal phenomenon for our economy: decrease of rates in the first and grow in the fourth quarter of the year. For example, our Assets and Liabilities Management Committee has already approved the rates decrease.
Mortgage loans for now are reasonably expensive, that is why they are demanded by clients, who 50-70% of own funs if the borrower plans to pay out the loan in 2-3 years, but not in 10-15.
Concerning the program of the State mortgage establishment, the success of this campaign depends on the volumes of financing from the state budget. Their projects are of a good enough quality and they have good portfolio. But as the budget is approved every year, there is no possibility to embed long term programs.
Will the fund companies become competitors to the banks and gain over depositors that form resource base of banking sector?
I am skeptical to the fund market, as this is a huge casino, just a game. When somebody made money at fund market, it means that somebody else lost. Because this market is not capable of production, it also creates capital movement. And when they say that the money will go to the fund market, I understand that they just transform into remains at fund companies’ accounts, opened in banks.
PJSC ”Ukrotsbank”, UniCredit Bank™, results and perspectives:
Financial result for 2012? The most profitable directions of business in 2012? Competitive advantages?
In 2012 we gained 8,07 million UAH of net income (according to national standards). The most profitable direction is traditionally corporate crediting, namely unsecured credit facilities for corporate clients in UAH, the rate under which reached 50% and we gained a lot in 3-4Q on this.
Our competitive advantages are that we, despite the banks, which continue to form reserves and clear portfolios, are already gaining on loans. We have a good portfolio, as our legal service worked hard on redemption of bad loans and we forwarded to collectors bad loans over card accounts. Of course in order to increase the quality of loan portfolio we had to restructure some loans. We go towards our clients, who face temporary difficulties in business. So far everything is the frames of rules, restructuring – is a normal process.
Global tasks for the next year? Do you plan any shrinking in retail segment?
The idea of selling the retail business is killing the bank. Today we credit in currency only exporters, the rest – in UAH. The main source of attracting UAH resources – is retail market and we successfully enough attract resources via our network. We optimized the structure and significantly decreased the self-cost of processes, we plan to open new modernized branches. We have also taken 14 % of car loan market last year. We did mortgage, but in lower volumes.
The global task for this year is merger with PJSC “UniCredit Bank”, this is the strategic goal of the Group. The process delays in connection with the fact that PJSC “Ukrsotsbank” and PJSC “UniCredit Bank” belong to different structures of the Group. But we have already found the necessary mechanism. Together with that we closely cooperate, the majority of specialists work for two banks, and today this is a normal reorganization process is the limits of a single structure.
How does the relationship with the parent bank work? Will the Group be able to further support the bank, taking into account financial possibilities and in correspondence with limitations of Europe’s central banks?
For the years of working in Ukraine, the Group representatives from Bulgaria, Poland, Italy, Austria, Germany has worked well together with the team of our bank and has learned the peculiarities of the market. Taking decisions and meeting of collective bodies are held peacefully, we managed to earn their trust, and they learned to listen to us.
Concerning the support of the parent bank, we are currently a self-sufficient structure. We return the attracted loans and do not attract the new ones. We do not divide profits and do not pay out the dividends, we forward everything to capital replenishment. The authorized capital in the amount of 1,8 billion and general in the amount of 7,7 billion with assets amount of 39 billion UAH is enough to perform all the standards and provide the bank’s activity. The asset, which constantly needs investments, but does not bring profit – is a charity, social project, but not business. But this is not about us, we are capable to generate profit and to pay out debts.