Although Raiffeisen Bank has had success in Ukraine, the Austrian company still wants to unload its subsidiary in the nation and exit the market. Its 2013 net profit of $88.5 million and developed retail banking system are evidently not enough to convince the parent company to stay put.
The impending exit has dampened the mood of customers and investors alike whose pessimism only increased with the news of yet another Western bank leaving. Not surprisingly, foreign direct investments to Ukraine last year shrank to a paltry $2.9 billion, down 31 percent from the previous year.
Official confirmation of the move came on Feb. 10, when Raiffeisen Bank International chief executive officer Karl Sevelda told Austrian newspaper Die Press that the bank had selected a number of interested parties to conduct due diligence of its Ukrainian unit, which does business as Raiffeisen Bank Aval.
A key reason to sell relates to the European Central Bank’s financial health measures of raising capital requirements, meaning that Raiffeisen and others have had to keep more money at home. On top of that, the bank has to reimburse $2.4 billion to Austria’s central bank for the bailout package it received during the financial crisis of 2008-2009.
Closer to Ukraine, risks have increased in the sector with huge profits being offset by bad loans in portfolios, Kinto asset management company’s head of research Volodymyr Ovcharenko told the Kyiv Post. A highly unstable currency market has only compounded the macroeconomic situation making it difficult forbanks to make money on additional loan issuances.
“The chief executives of all Western banks in Ukraine complain about the local court system as sometimes it is really difficult to get the loans repaid,” ICU investment boutique analyst Mykhaylo Demkiv added.
German Deutsche Bank and Swiss UBS have been helping Raiffeisen to find a bidder since 2013. Alfa Bank, one of the biggest Russian commercial banks, and multimillionaire Mykola Lagun’s Delta Bank, a major player on Ukraine’s banking market, are among the potential candidates for acquiring Raiffeisen Bank Aval. Its head Volodymyr Lavrenchuk told the Kyiv Post that he is not negotiating with potential buyers.
The price tag is the main issue.
Raiffeisen acquired a 93 percent stake in Bank Aval for $1 billion in 2005. It currently has 96.4 percent of the shares, with the remaining 3.6 percent free-floating on the Ukrainian Exchange. Analysts stress Raiffeisen doesn’t want to let go of its subsidiary at less than the original price. The selling position contrasts with other Western banks that have exited the local market at all costs, such as Italy’s Intesa San Paolo banking group. It sold its Pravex Bank to billionaire Dmytro Firtash in January for $101 million after acquiring it for $690 million in 2008.
But the asking price depends on the size of its assets and quality of its loan portfolio. Raiffeisen Bank Aval had assets worth $5.27 billion at the end of 2013, according to the entity’s balance sheet based on Ukrainian financial reporting standards. It is the fourth biggest bank in the country, according to the Association of Ukrainian Banks’ data. Raiffeisen Bank Aval’s loan portfolio reached $3.27 billion last year, 9 percent of which were bad loans, according to local standards, but more than 30 percent in terms of international standards.
Some 8 percent of its 200,000 corporate clients are large companies engaged in agriculture, retail, telecommunication and transportation. Market researcher GFK-Ukraine says that the bank services 32 percent of Ukrainian corporate clients.
Since 2009, more than 15 Western banks have left the Ukrainian market. The local banking system was considered more stable when more global banking brands conducted business here. They brought high standards of risk management, audit, corporate culture and client approach to the Ukrainian banking sector. Moreover, they have access to much cheaper European capital through their parent banks, which also makes loans for their Ukrainian clients slightly cheaper.
“Due to the unattractive investment climate, the trend of foreign capital leaving the Ukrainian banking sector will continue,” Raiffeisen Bank Aval’s CEO Volodymyr Lavrenchuk foresees.
Big global corporate clients are inclined to receive services in Ukraine from the same banks they deal with in more developed countries. This may become an impetus for other Western banks still doing business in Ukraine, like Unicredit, BNP Paribas, Credit Agricole, to stay and weather the storm, experts noted.
Kyiv Post associate business editor Ivan Verstyuk can be reached at [email protected]
