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Thursday, February 22, 2018

The withdrawal of Russian banks from Ukraine disadvantageous to both countries

Russian banks have again attacked Ukrainian nationalists. Sberbank had to suspend the work of one of the offices in Kiev, and this is not the only trouble that are suffering in Ukraine the Russian financial institutions. Not least the huge losses that they have to endure. And yet the Ukraine, and Russian banks would be difficult to do without each other, and with good reason.

Ukrainian radicals, members of the nationalist party “national building”, on Monday held a picket of the five branches of Russian banks in Kiev, transfers “112 Ukraine” with reference to the press service of the Kiev police.

“Russian banks unable to acquire the Ukrainian assets, which are likely to go under the hammer to repay credit debt”

“Today, around 8.30 am in a call center of Shevchenkovsky police Department received a report that a group of unknown men arrived at the premises of the banks located in different locations, and trying to get inside. In addition, they pour paint and glue posters on the walls of financial institutions”, – have informed in police of Ukraine. In the “National body” explained that organized pickets outside the offices of the most famous Russian banks on the territory of Ukraine: Sberbank, Alfa-Bank, BM Bank, VTB Bank and Prominvestbank.

On the page of the party “national body” in Facebook has published a video, which shows how a group of people gathered near the Central office of the savings Bank (“daughter” of Sberbank of Russia) in the Ukrainian capital and distributing leaflets calling on depositors to withdraw money from Russian banks. Part of the participants in the demonstration dressed in quilted jackets, and in their hands – the balalaika and machines. The participants also demanded of the President of Ukraine Petro Poroshenko to close the Russian banks.

In the end, Sberbank has temporarily closed one of the offices in Kyiv because of the protests. “In connection with the passing of street protests to ensure the safety of the building the Bank temporarily suspended the work of the Kiev branch number five,” – said the representative of the RNS credit institution. According to him, now (for dinner) the offer is completed, so the additional office is back to regular operation mode.

Meanwhile, the organizer of the picket threatened that “action will have a permanent character” in the future will be organized around all of the branches of Russian banks across the country.

This is not the first attempt to “Patriotic” citizens of Ukraine to close down the offices of Russian banks. In February last year, for example, the action “memory of the Maidan” in Kiev ended with the nationalists ransacked offices of the Russian banks.

Why Russian banks after such a relationship continue to work in Ukraine? The more that the Ukrainian “daughter” bring some losses to the Russian parent companies.

For example, the Ukrainian subsidiary Prominvestbank is a small asset of a huge group VEB. And in 2014, and in 2015 the Ukrainian banking assets have become a source of losses for the group. And in 2015 Prominvestbank became the main generator of loss for the entire group VEB. The share of the Ukrainian Bank in the loss of the group increased from 8% to as much as 61%, according ZN.ua. This shows how the group was not profitable to keep the business in Ukraine.

The Ukrainian authorities are only too happy to Russian banks. Kiev even made concessions for “unpatriotic” of Russian banks. In the fall, for example, Kiev has eased sanctions against them.

The answer is obvious. The presence of Russian banking capital is beneficial and that and the other side.

First, Kiev financiers realize what a disaster threatens a sharp withdrawal of Russian financial capital from the Ukrainian market. Stop already one of Sberbank in Ukraine, which serves over million private and corporate customers and is a backbone, cause serious problems in the financial sector of Ukraine and problems of clients, says Georgy Vashchenko of IR “freedom Finance”.

According to various estimates, currently the total capital of the Ukrainian subsidiaries of six Russian banks ranges from 27% to 40% of the Ukrainian market, or more than $ 40 billion in total capital of the system is 150 billion, RIA “Novosti”. In terms of capital six Russian banks will soon occupy one third of the Ukrainian banking market.

In the Ukraine continue to work “daughter” of Russian banks – Sberbank, “Alfa-Bank”, Prominvestbank, Ukrsotsbank (in the process of buying structures “Alfa group”, VTB and “BM Bank”).

In addition, if Russian banks are expelled from the country, then Ukraine will lose a regular cash infusions from them in the form of recapitalization. Only in 2015, according to RIA “Novosti”, the Russian banks have ensured the inflow of almost half of foreign investments to Ukraine. So, VTB capitalize 18.7 billion ($850 million at the exchange rate of that year), Prominvestbank – by 6 billion hryvnia ($270 million), Sberbank – 4.7 billion hryvnias ($210 million). For comparison: in the same year, all other Western banks increased the capital of its Ukrainian “daughters” only 14 billion hryvnia, or $ 630 million.

Finally, if to expel Russian banks, Ukraine will have to pay a lot of money to its own nationals for their loss of deposits. But in the Fund of guaranteed deposits of natural persons long been no money to pay even its current customers (depositors of banks, which deprived of the license). There is a long time to go to the expense budget. Considering the share of Russian banks in the Ukrainian market, the hole from their departure formed a huge. And close it will have the expense of public money. It will be a serious blow to the finances of Ukraine, which, to put it mildly, a little.

In General, if the Bank is having problems, then automatically all of its clients – and it’s not only Ukrainian, but Ukrainian companies – lose money. That is, following the Bank like a house of cards, may go bankrupt many Ukrainian legal entities.

However, Russian banks will have benefits from the fact that they continue to work in Ukraine.

In the beginning of the conflict between the two countries to go before, but then few could have foreseen such a sad outcome. Now leave the market too late, according to financial experts. Care with the least losses is to sell the Bank to another owner. “But to sell the Bank now no one, except it unprofitable. Due to the fall of the hryvnia value of all banks in Ukraine has devalued several times,” says Vashchenko.

“If it would have been quite hopeless asset, the savings Bank would have already turned all their directions, but this is not happening”, – agrees Dmitry Lukashov from IFC Markets.

Banks with Russian capital, as credited, and continue to invest in Ukrainian enterprises. Volumes, of course, are not the same. Some Ukrainian experts do not exclude that some of these companies belongs to the Ukrainians, who are now in power. In any case, Russian banks have provided support to the Ukrainian customers.

But most importantly, banks hope to recover their past and future loans, if not directly in cash, through the sale of property of debtors.

A recent example from Odessa. Local economic court of appeal ruled Monday the decision to give the savings Bank the property of the “Odessa loaf”. The latter is not repaid on loan to a Russian Bank. At the time, the savings Bank gave a loan to the company for the purchase of certain assets in the Crimea.

About a year ago the Economic court of Odessa region satisfied the claim of Sberbank for the football club “Chernomorets”, which belongs to the Deputy Leonid Klimov. Club back in 2011, took in the savings Bank a loan of 1 billion hryvnia to complete construction of the stadium in Shevchenko’s Park, but gave only a small part. As collateral was the property of the Ukrainian oligarch Klimova – or rather, shopping centers and a chain of hotels in Odessa. These assets and needs to go to Sberbank.

Thus, the Russian banks can acquire the Ukrainian assets, which are likely to go under the hammer to repay the credit debt. In the current economic conditions, the sale of Ukrainian assets, of course, not too profitable business. But thus the Russian banks at least something to return. Although some Ukrainian experts are trying to give this as a way of spreading Russia’s political influence, a way to buy Ukrainian industrial and energy assets. In fact, for tidbits in Ukraine there is a struggle between his own.

Finally, thanks to the Russian banks it is possible to continue the trade relations between the two countries. Despite the European integration with the EU and sanctions from the Ukraine, Russia remains a significant trading partner for the country. That is the Russian business continues to buy Ukrainian goods, equipment, and Vice versa. To carry out economic activities through the Ukrainian banks it would be much more difficult or impossible.

In addition, according to the financial data, at least the savings Bank the situation has not deteriorated as sharply as before. The Bank’s capital for the first nine months of 2016 rose from 2.2 to 3.6 billion UAH, and the net loss decreased from 3.5 to 2.9 billion UAH, says Vashchenko.

Overall last year, almost all banks with a Russian presence in Ukraine worked at a loss. However, the savings Bank, the situation looks better. In the third quarter of 2016, the savings Bank was observed even profit in $ 3 million while the Bank received a loss of 41 million dollars, VTB – minus $ 26 million, “Alfa-Bank” – a loss of 69 million dollars, says Lukashov.

Meanwhile, in the autumn of Sberbank said that he understands the need to reduce costs and replace the physical presence in Ukraine in the online offices. “I think we have a clear understanding that we “cut the Costa” (cost – eng. “the losses”) and replace our physical presence in effective online offices”, – said Deputy Chairman of Sberbank Svetlana Sagaidak, speaking about the Bank’s operations in Ukraine.

However, in this case, we are not talking about reducing presence in Ukraine, says Vashchenko. Most likely, the Bank intends to reduce costs for retail services by reducing the number of branches, but to keep the business by developing online services and automate business processes. In fact, the Bank is going to do the same.

“Transition to the strategy of the creation of online platforms is cheaper and more reliable in terms of security. To maintain a presence in this market is one of the strategic objectives of the Bank”, – said Lukashenko.


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