It took 14 years since independence for Ukraine’s banking industry to become attractive to foreign investors.
But after the Orange Revolution three prominent Austrian banks popped up in Ukraine one by one, supplemented by other European piers.
Raiffeisen Bank was the pioneer, taking over local Aval bank in 2005 for an estimated $1.03 billion.
It was followed by Erste Bank in 2006 and Unicredit Bank in 2008.
Although originally from Italy, Unicredit has a large share of operations in Austria, whose local branch started the Ukrainian business.
To outline the scope of the deals for Ukraine, it is enough to say that the three banks moved Austria into the fifth position in the ranking of Ukraine’s top foreign investors, bringing over $2 billion into the country.
The banks are large by Ukrainian standards, and brought with them the loyalty of Austrian firm who trust the home brand when doing business in Ukraine.
Artur Iliyav, member of Raiffeisen Bank Aval’s board, claims that most Austrian companies in Ukraine have picked his bank for the their financial needs.
But the initial optimism about Ukraine has waned, especially as Erste Bank announced last year that it was leaving the country. It was bought by local Fidobank in December for $83 million, booking a final $201 million loss on its unit.
Head of Risk Management of Erste Bank Ukraine, Milan Valasek names three reasons for leaving Ukraine, two of which lie outside the nation’s borders.
A weakened European economy destroyed the conditions for fast growth. Next came pressure from European regulators, which forced Erste Bank to review its relationships and policies with subsidiaries.
“Earlier we could protect our risks with assets, but now we have two choices: either to enlarge our assets or reduce our operations where possible,” Valasek says.
The final factor was Ukraine-specific, Valasek said. Unsurprisingly, that stands for a poor legal environment that makes lending risky.
“The legal system and courts in Ukraine work in the way to protect debtors, not the banks,” says Valasek. “Also, with a high level of corruption there is a lot of cheating coming from clients. And foreign banks can’t play it that way, can’t go for dishonest methods.”
Raiffeisen Bank Aval’s Iliyav agrees that the legal field remains a problem for foreign banks in Ukraine, to which he adds taxes, customs and slow reforms.
Valasek claims that for Erste Group leaving Ukraine was a strategic decision, not a life saving. Ukraine’s department is the only one out of group’s eight country branches that is being closed so far.
But Gregor Postl, commercial counselor at the Austrian embassy in Kyiv, thinks Erste Group was disappointed with low profits of the Ukrainian branch, which fell far below expectations. “I assume that Erste could consider coming back to Ukraine in some years,” Postl says.
But Valasek says Ukraine has much to do before Erste decides to come back.
At the same time, he admitted that Austria has always been watching Eastern Europe markets with interest and attention, and that he personally is optimistic about Ukraine’s economic perspectives.
“Erste has actually been to Ukraine before. Its first departments opened in some Western Ukrainian cities in the end of 19th century (when Western Ukraine was in Austro-Hungarian Empire), so there is a geopolitical tradition for our presence,” Valasek says.
Coming back is also a matter of price.
“Now, if anyone decides to enter the Ukrainian market, he can buy a bank for cheap,” Valasek says.
Postl says there are probably more banks that want to leave Ukraine than potential buyers, though. He thinks any foreign bank would pull out of Ukraine was it to receive a good enough offer.
“I mean, even if Raiffeisen and Unicredit are not considering quitting Ukraine, they may think twice if they get a really good price. They may think it’s better to take this money and invest somewhere else,” Postl says.
Postl says that despite a proliferation of banks in the streets of big cities, many people still don’t have a banking account in Ukraine.
But Iliyav doubts any new players will be tempted by the opportunities. He says consolidation of existing banks should be expected, with a greater share of assets concentrating in the market’s top five banks.
Both banks with Austrian connections that remain in Ukraine have a good chance to benefit from consolidation.
Raiffeisen is Ukraine’s fourth largest bank with Hr 47.6 billion in assets, and Unicredit’s subsidiary Ukrsotsbank, is number six with Hr 38.8 billion. Together, they control 7.7 percent of Ukraine’s banking market.
Kyiv Post staff writer Olga Rudenko can be reached at [email protected]
