Where others see risk, others see opportunity.
Banks throughout Europe are hurting as credit bubbles inflated over years continue to pop. Ukraine’s ailing banking sector has more than its share of non-performing loans. But as some foreign investors try to cut losses and move out, others see it as the perfect time to buy.
News broke this month that German banking giant Commerzbank was seeking to dump Ukraine-based Forum just a few years after acquiring it for $650 million and investing more than $1 billion.
Officials at the bank have refused to comment on what they describe as market speculation, but Smart Holding, owned by recently-naturalized Ukrainian billionaire Vadym Novinsky, announced on June 7 that it was in talks with Commerzbank to purchase its Ukrainian subsidiary.
Investment bank Dragon Capital said Commerzbank would incur significant losses on the prospective sale, as the bank had invested close to 10 times book value of $135 million.
This would weigh heavy on the decision to sell the bank, though turbulence in the European banking sector could push Commerzbank to go ahead with the sale.
A wave of downgrades of major banks has swept through Europe. Over the past month, rating agency Moody’s has downgraded three Austrian, seven German and 16 Spanish banks. Markets got an even bigger scare when rival agency Fitch sliced an unprecedented three notches – A to BBB – from Spain’s rating. A 100 billion euro bailout, announced June 9, has since assuaged fears.
Credit rating agencies cited the ongoing debt crisis in Europe, poor capitalization and the possibility of growth risks. Worries also surfaced about the possibility of a bank run, after Greeks pulled 700 million euros from their deposits on a single day.
Exposure to volatile East European economies also contributed to the rating agencies’ concerns. Moody’s cut the rating of Erste Group Bank by two notches, from A3 to A1, while Raiffeisen Bank International and UniCredit Bank Austria (owner of Ukrsotsbank) both lost a notch.
Moody’s also reduced ratings on the local units of Raiffeisen Bank International in Ukraine: Raiffeisen Bank Aval and Raiffeisen Leasing Aval. According to a research note by Kyiv-based investment bank ICU, “there could be further cuts ahead.”
Commenting on the Europe-wide downgrades, ICU warned the biggest threat was the possibility that a parent company’s credit downgrade could reduce financial support for subsidiaries in the case of further turbulence.
Back in December 2011, Austria’s bank regulator told banks not to support East European subsidiaries should they need recapitalization.
In order to boost confidence in the sector, Ukraine’s state fund which guarantees bank loans announced it was considering to double the guaranteed threshold from 150,000 hryvnias ($12,000). Only 0.8 percent of account holders have enough savings to potentially be affected, but they account for over a third of Ukraine’s 330 billion plus deposits.
But where others see only risk others smell opportunity. In recent weeks Poland’s Getin Holding joined Smart Holding in announcing plans to expand their domestic banking operations.
Majority-owned by Poland’s fourth richest man Leszek Czarnecki, Getin Holding is a Warsaw Stock Exchange-listed financial services group, mainly active in banking and insurance.
The company first entered the Ukrainian market with the purchase of an 82-percent stake in Prykarpatia Bank, later renamed as Idea Bank.
The retail bank is ranked 22nd in Ukraine by size of assets.
Getin management board president Rafal Juszczak said the financial holding plans to acquire another retail bank in Ukraine, which would then merge with Idea Bank.
“It’s a buyer’s market,” said Anastasia Tuyukova, analyst at Kyiv-based investment bank Dragon Capital. “It is possible for institutions with capital to find good assets,” she added.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].
