Mind nominations 2022: Сompanies and persons that impressed during the year. Banking
Who proved themselves the best in this breakneck war year or vice versa
Mind is taking stock of the year, marking out persons and structures in each sector of the national economy that have distinguished themselves especially strikingly after 24.02 – even if not always successfully – or encountered unprecedented challenges, even general crisis adjusted. The list is not any rating, though it reflects the opinion of the industry specific part of our team about what were the most important things that occurred in the operation of this or that industry.
"Victim of the Year" is a company/brand that suffered irreparable damage due to the war.
"Unbreakable of the Year" is a company/brand significant for the industry and suffered huge losses due to the war, but managed to resume and continue its work.
"Deal of the Year" is the most meaningful deal for the country/industry, the largest in size and/or impact, becoming even more important given the war and future reconstruction of the country.
"Positive Surprise of the Year" is a company/brand/person who, against the backdrop of armed aggression, managed to become a leader/increase profits/take a proactive position, becoming a surprise for the industry/professional community/markets and contributing to additional stability of the industry/country.
"Disappointment of the Year" is a company/brand/person who, against the backdrop of armed aggression, having huge resources, failed to properly dispose of them or took a destructive position.
"Unlucky of the Year" is a company/brand/person who had invested heavily in a project/asset/niche on the eve of the war, but the war destroyed it radically or the initiative lost its relevance for many years.
"Failure of the Year" are structures, individuals, and institutions that made the most unsuccessful/controversial/inappropriate decisions in wartime.
"War's beneficiary" is a company/brand/person who gained more profit than losses in the face of armed aggression.
Since the operations format and the intensity of events differ considerably in various fields, there can be from four to seven nominees in each industry.
The next section of Mind Nominations 2022 project is the banking sector.
After the events of February 24, there were fears that many banks would not withstand the shock of war and the financial sector would "crumble away." But fortunately, this did not happen. The Ukrainian banking system proved to be surprisingly resilient.
For 11 months of 2022, the number of banks operating in Ukraine decreased from 71 to 67 financial institutions, that is, by only four units. This included two russian banks, Sberbank and Prominvestbank, which had long been candidates for withdrawal. But in fact, the NBU has declared only two banks insolvent since the beginning of 2022: Megabank and Sich Bank. These are small players, very insignificant within the entire banking system.
Banks manage to show positive dynamics even during the war, although not by all indicators.
Banks' assets in January – November 2022 increased by more than 9%, and the financial result for 10 months of 2022 amounted to UAH 11 billion. This is 5.3 times less than in the same period in 2021, but for comparison: in the post-revolutionary year of 2014, banks' losses reached UAH 53 billion.
Further, banks have increased their deposit portfolios over 11 months: the volume of private deposits increased by 22.4%, and corporate clients' funds by 10.5%. That is, the trust of depositors was not lost.
During the year, financial institutions were able to level the return on assets and capital, which at the beginning of May shrunk to the lowest levels in the last five years: minus 1.11% and minus 9.47% respectively. But by December, the return on assets in the banking sector increased to 1.02%, and the return on equity to 9.33%.
The secret of such enviable resilience is simple: banks have already been hardened to some extent by stressful events. This includes 2014–2015, when the NBU was carrying on a thorough "cleaning" of the system, and then the COVID-19 pandemic that caused an economic crisis in 2020–2021.
In addition, the National Bank did not leave market players face to face with their problems. Only during the first month of the war – from February 24 to March 23 – the NBU provided refinancing for a total of UAH 74.3 billion to the banking sector. Although the banking community raised some questions about the form of such support, the list of its recipients and the system of monitoring the use of the funds, everyone considered this assistance justified and timely.
At the same time, the NBU professes the "not-the-moment" principle and turns a blind eye to some violations of standards committed by banks during the martial law and does not punish them.
However, the impact of the war on the banking market should not be underestimated. And 2023 will be no less difficult than 2022. Banks are going to feel the consequences of the accumulated non-performing loans (NPLs) to the full, the level of which increased by 5.5 percentage points to 35.5% from January to November. No wonder the National Bank warned that credit risk is the main threat to the permanency of the banking system. And banks are seriously preparing to clean up their loan portfolios, forming great reserves for NPLs – their volume reached UAH 113 billion by early November. And the more reserves, the lower the profit. Especially given that the issuance of new loans has virtually ceased, except for funding through government programmes, such as 5-7-9.
The ruining of the energy system of Ukraine had a negative effect on the banking sector, and during the first month of the war alone – from February 24 to March 23 – the NBU provided refinancing to the banking sector for a total of UAH 74.3 billion. Difficulties arise with customer service, technical failures and other troubles. In addition, financial institutions are forced to spend money to ensure the energy independence of their branches and to strengthen general security. According to the NBU, power outages increased banks' operating expense by UAH 300 million. Therefore, the regulator puts pressure on bankers, obliging them to strengthen the transactions security and ensure the operation of at least 35% of branches in case of blackout.
Under National Bank's new initiative called Power Banking, more than 1,000 bank branches across Ukraine (which makes about 20% of the entire banking branch network) are already able to work regardless of the availability of electricity. As a result, the administrative expenses of banks in January – November 2022 increased by 6.6%, to UAH 73 billion, compared to 11 months of 2021.
The task becomes easier because long before the full-scale war, all branches of Ukrainian banks, where safe deposit boxes were located, have been energy autonomous. This was the demand by the Security Service of Ukraine: to protect institutions from emergency situations in case of power outages in order to maintain the stable operation of security systems: alarms, video surveillance, etc.
In 2023, the NBU will gradually strengthen supervision of the banking sector. The NBU has planned to conduct asset quality assessment and stress testing of banks. In the result of these inspections some unpleasant surprises may be for market participants – even bankruptcies. The NBU itself, though, is unceasingly assuring that everything is under control, the system is not seriously threatened, and a massive bank collapse should not be expected.
The following section of the Mind Nominations 2022 project is Banking System.
"Unlucky of the Year"
Ex-Head of the NBU Kyrylo Shevchenko – he resigned, claiming political pressure, and got a criminal proceeding in addition
Kyrylo Shevchenko resigned from the position of the NBU Governor in early October, although the possible change of the National Bank's head had been discussed for at least six months before the X Day. The main unspoken reason was called to be not the "warmest" relations between the chief banker and the Presidential Office.
On October 4, Shevchenko said that he asked President Volodymyr Zelensky to sign his resignation. The decision to leave such a responsible position in the midst of the war seemed strange to say the least, since the personality of the NBU Governor and the decisions he makes directly affect the banking system and the economy as a whole.
Kyrylo Shevchenko motivated his step by health problems. However, immediately after the Verkhovna Rada approved his resignation on October 6, the National Anti-Corruption Bureau and the Specialized Anti-Corruption Prosecutor's Office served Shevchenko with charges. He was accused of embezzling more than UAH 200 million during the period when he chaired the state-owned Ukrgasbank (2015–2020).
After that, the ex-head of the banking regulator announced almost two years of political pressure, as he was not "...a convenient NBU head." Of course, Kyrylo Shevchenko rejected any accusations and claimed that all operations conducted by Ukrgasbank under his leadership were confirmed by international auditors.
The sad story of the former head of the NBU did not end there. In early November, Kyrylo Shevchenko was put on the international wanted list, and in December, the High Anti-Corruption Court (VAKS) arrested him in absentia. Shevchenko himself left Ukraine after his resignation and has not returned yet. According to investigative reports, he is now in Vienna.
Kyrylo Shevchenko served as Governor of the National Bank from July 2020 to October 2022. In his place, the parliament appointed Andriy Pyshny, who headed the state-owned Oschadbank for more than six years, as the head of the NBU.
"Failure of the Year"
Sich Bank – it bankrupted because its management refused to repay debts to the NBU
On August 9, the National Bank reported that the ranks of insolvent financial institutions were joined by the Sich Bank. This is a small bank, which did not set any remarkable tone on the market. The size of its assets before bankruptcy (as of August 1) amounted to about UAH 4 billion (0.3% of the assets of the entire banking system), and the amount of individuals' funds in the bank barely exceeded UAH 1.2 billion. Given the fact that under martial law all private deposits are secured by the state guarantee, depositors had nothing to worry about.
The main intrigue was the real reason why the bank collapsed, because there were no objective grounds for its bankruptcy.
As it turned out, the management of Sich refused to repay the interest on the NBU's refinancing loan. They refused deliberately; but it is unclear why, especially given that the bank did have money. According to the National Bank, the amount of the next payment was UAH 68 million, while Sich had free funds in the amount of UAH 750 million.
And yet, the bank's management confronted the NBU. The regulator got angry and demanded from the financial institution to return the entire UAH 3 billion of the loan. Sich could not meet this requirement, paying with its license.
The Deposit Guarantee Fund started paying out to Sich Bank's depositors in the autumn. According to the Fund, the bank's customers received most of their funds during October – almost UAH 938 million.
Sich Bank was established in 2011. In 2019, four individuals – residents of Ukraine became its new owners. Then the NBU officially announced that the real beneficiary (owner) of the bank was Denys Gorbunenko. He was a shareholder of Rodovid Bank until the very crisis of 2008, and back earlier he used to work in INCO Bank which also went bankrupt.
Denys Gorbunenko is a person close to fugitive Ukrainian businessman Dmytro Firtash..
Read also: Those who stand. Bank Ranking – 2022
"Surprise of the Year"
Oschadbank – it managed to strengthen among the most productive banks, despite the war, crisis and fierce competition in the market
For a long time, the state-owned Oschadbank was associated with the legacy of the USSR. Unobtrusive (and not very polite) service, damp branches with the interior from 1970-1980s and endless queues to cashiers and tellers.
Andriy Pyshny, who is now heading the NBU, thoroughly undertook to change Oschadbank's image. During his tenure, Oschad began to collaborate closely with the EBRD, and decided to develop a mobile app and update its branches. And in 2022, despite all the events and circumstances, the bank managed to become even more customer-oriented.
First, the bank's branches continued to work properly even in the first days and weeks after February 24 – where it was safe for employees and customers.
Second, it was in the eve of 2022 when the bank launched a new Mobile Savings application that had been developed for two years. The service received enhanced functionality, it can be used to make payments both inside and outside the bank, pay for goods and services, open deposits – all this was very handy when visiting branches became risky.
Third, Oschadbank received a carte blanche of sorts from the Cabinet of Ministers to participate in business support programmes funded by the state budget. In particular, it is Oschadbank that is involved in vetting applications for grants under the eRobota (“e-Work”) programme for starting up businesses, developing processing businesses, planting gardens and building greenhouses. The bank ranks second in terms of the volume of soft loans issued to businesses under the 5-7-9 programme as well.
So even in the midst of a full-scale war, Oschadbank's business runs very well. Its net profit for 11 months of 2022 reached almost UAH 1.1 billion and the bank is among the top five in terms of asset growth. Furthermore, Oschadbank is second after PrivatBank in terms of fee income: the bank earned UAH 7.4 billion on fees for 11 months.
"Unbreakable of the Year"
PrivatBank is as before, the largest and most profitable bank in Ukraine, and one of the most autonomous
Moving under the government's wing in 2014 did not become a sentence for PrivatBank, although such forecasts were the basic ones. Seven years later, Privat remains the country's largest bank by almost all indicators. Although to its lot fell no less, and perhaps even more, than to others' because of the war.
For example, from April to October 2022 (the NBU does not publish data for January – March – Mind), PrivatBank reduced the number of its branches by 390. Some were closed, some remained in the occupied areas or were destroyed during the hostilities. Thus, its network has decreased by 23%. As of October 1, there were almost 1,300 branches operating.
As of now, the number of functional ATMs is about 5,000. Their total number, according to the information on the bank's website, is about 7,300. That is, only 68% of all ATMs actually work.
Along with this, PrivatBank continues to wage court battles with former shareholders – Igor Kolomoisky and Gennady Bogoliubov, from whom it inherited UAH 200 billion of bad loans. And this portfolio does not decrease much: its size as of October 1, 2022 exceeded UAH 186 billion.
Not all courts are successful. In November, for example, the Supreme Court deprived the bank of the right of ownership of the metropolitan Myr Hotel ruling in favour of companies associated with Gennady Bogoliubov, a former shareholder of the bank . The second main bank's ex-shareholder, Igor Kolomoisky, has been still trying to challenge the nationalisation of the bank and return it to his ownership through the court.
However, the financial performance of PrivatBank looks more than optimistic. Its assets for the first 11 months of 2022 increased by 16.7%, the loan portfolio by 2%, and private deposits by 36%. The bank's net profit for January – November was the largest among other market players – UAH 17.8 billion.
And PrivatBank, despite the blackouts, maintains the self-sufficient operation of almost 150 branches, calling them symbolically "invincibility branches."
"Disappointment of the Year"
Alfa Bank was renamed Sense Bank, trying to save its image, but the "russian trail" and sanctions against the owners ruined everything
Clouds over Sense Bank (the name of Alfa-Bank since December 1) began to gather almost immediately following the introduction of martial law. As early as on February 28, the European Union announced personal sanctions against the bank's two main stakeholders, Mikhail Fridman and Pyotr Aven.
Read also: Gentle nationalization: How Alfa-Bank shareholders are trying to make Sense of it
And by autumn, the law No. 2643-IX on the withdrawal of systematically important banks from the financial market appeared, providing for their redemption by the state for 1 UAH. MPs from the Servant of the People party did not hide that the law was passed specifically for Alfa-Bank.
Realising that he could lose his asset at any moment, Mikhail Fridman tried to recapitalise the bank by $1 billion and agree with the Ukrainian authorities that this money would be spent on financing the national economy, including through joint projects with the Cabinet of Ministers. Meanwhile, Friedman personally informed the NBU Governor Andriy Pyshny that he was ready to give the bank to the state free of charge.
However, Friedman failed to get reciprocity with the government. Moreover, in early December, there were rumours in the Western media that the businessman was detained in London. His official representatives deny this information.
At the bottom line, the former Alfa-Bank is in a very delicate situation. Today's shareholders will most likely unable to sell it to new owners with a "clean" biography. Sanctions, arrests and tarnished reputation are not conducive to such a deal. The chances for obtaining immunity against nationalisation through cash injections into the bank and attempts to establish a dialogue with the authorities are also low.
So far, Sense Bank looks like a suitcase without a handle. Hard to bear but difficult to throw. After all, the bank is systematically important: it occupies more than 1.1% of the assets in the banking system and concentrates more than 42 billion UAH of the population's funds. It's too big to fall, in short. However, the same was said of Privat before it was nationalised.
Read also: Mind nominations 2022: Companies and persons, who impressed during the year.
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