Sense Bank (formerly Alfa-Bank) Chairwoman of the Board: "Our shareholders had no plans to hide behind anyone"
Alla Komisarenko on the possible nationalization of the bank, negotiations with the EU, work during the war, the worst losses, and plans for the future
In early January 2023, a piece of notable news for the Ukrainian financial market was the statement by Kateryna Rozhkova, First Deputy Governor of the National Bank of Ukraine, that Sense Bank (formerly Alfa-Bank) was doing well. It raised doubts about the NBU's unequivocal course to nationalize the financial institution, which had been actively discussed the previous fall.
The bank, indeed, has sufficient liquidity in its accounts. As of January 1, 2023, it had UAH 5 billion in cash, UAH 3.6 billion in government bonds, UAH 7.9 billion in certificates of deposit, and UAH 6.2 billion in accounts of Ukrainian and foreign banks. In 2022, the bank reduced its assets and liabilities, with hryvnia funds of legal entities falling by 63%. Nevertheless, Sense complies with all the National Bank's standards.
Although russia's aggression against Ukraine began in the spring of 2014, legally and financially, the authorities had no reason to make direct claims against Alfa-Bank. The financial institution’s main shareholder is Luxembourg-based ABH Financial Limited. It controls several financial companies, as well as businesses in retail, telecommunications, etc., plus Alfa Group's assets in Europe, Asia, and Africa.
The ultimate beneficiaries of ABH Financial Limited are Mikhail Fridman, Peter Aven, and Andrei Kosogov – the world's most prominent businessmen with Ukrainian, Israeli, Latvian, and russian roots. After russia's full-scale invasion of Ukraine on February 24, 2022, Western regulators imposed a series of sanctions against them. The purpose of these restrictive measures is to put pressure on influential russian businessmen to force the russian authorities to stop the aggression.
However, at the same time, the US Department of the Treasury and the British Foreign Office announced that an exception had been made for Ukraine's Alfa-Bank. It was not subject to international sanctions. It was due to "the importance of this financial institution for the Ukrainian economy." The NBU appointed an independent manager of the bank, Simeon Dyankov, former Minister of Finance of Bulgaria and Chairman of the Supervisory Board of the EBRD.
By the fall of 2022, Mikhail Fridman proposed to recapitalize the bank by $1 billion, which would be used for the post-war economic recovery of Ukraine. Rumours about the allegedly impending nationalization of the bank emerged, peaking in December 2022. One of the most popular queries tagged "Alfa" on Ukrainian Google today is: "What will happen to Ukrainian Alfa-Bank?"
Mind found out the answer to this question from the original source in an interview with Alla Komisarenko, the Chairwoman of the Board of Sense Bank.
– Recently, First Deputy Governor of the NBU Kateryna Rozhkova said that there are no questions about your bank's solvency. Earlier, she said that the nationalization of a bank can only be discussed if there are questions about its solvency. Does this mean that nationalization is cancelled?
– I can't comment on the statements of the NBU management, especially in terms of whether the nationalization is "cancelled".
The nationalization of Sense Bank has not been scheduled, at least not officially. In October 2022, the Parliament adopted the Law "On Peculiarities of Withdrawal of a Systemically Important Bank from the Market under Martial Law" (2643-IX). This law applied to all systemically important banks. Its provisions apply in case of violation of standards, including liquidity.
– However, there were many reports that the law was written and adapted specifically for you.
– This law applies to all non-state systemically important banks that may lose liquidity during a period of war and panic among customers. It allows the National Bank and the Ministry of Finance to nationalize such banks to protect the financial system from a "domino effect."
The bankruptcy of any large bank could have an extremely negative impact on the financial system and the economy in general. The law is designed to offset this effect.
– Against the backdrop of the war, governments can, under certain conditions, gain power in almost any private organization. Are we talking about this in particular?
– No, such powers are granted by the Law on the Legal Regime of Martial Law, according to which local military administrations can decide to confiscate any tangible and intangible assets with subsequent compensation.
Nationalization is a different story. The purpose of nationalization is to preserve the financial institution and the funds of individuals and legal entities in it. This is a process and a result where customers will barely notice the difference.
The Law "On Peculiarities of Withdrawal of a Systemically Important Bank from the Market under Martial Law", referring to the Law "On Banks and Banking Activities", relates to the liquidity of banks and their inability to fulfil their obligations. In such a situation, the state, represented by the Ministry of Finance, can buy a bank from the Deposit Guarantee Fund for 1 hryvnia.
Nowhere it is said that this is the law on Sense Bank. Although, you are right. Only the lazy would not say that the law is about us. However, in difficult times, any bank can face a payment crisis. There are 14 systemically important banks in the country, and all of them are facing varying degrees of difficulties.
– If there are no claims to the bank's solvency, why is there a fuss about the possible nationalization of Sense Bank soon?
– Sanctions against the bank's ultimate shareholders were the main reason. Moreover, this fact was fuelled by fake reports of various sizes by the "bank’s haters club" who want to push the bank to nationalization by all their means.
I think we will somehow find out who has been behind these messages, which boil down to the fact that "a russian bank cannot operate in Ukraine." Forgetting that the bank is Ukrainian and has never belonged to the aggressor state, unlike the banks that have been withdrawn from the market at the beginning of the war (it is about the "subsidiaries" of the russian state-run banks – Ukrainian Sberbank and VTB, and Prominvestbank, acquired by VEB of russia, which have been withdrawn from the market after the start of russian aggression in Donbas – Mind). The bank's shareholders are European companies that are not subject to sanctions.
– What countries are your ultimate beneficiaries citizens of?
– This information is available in open sources. Mikhail Fridman is a citizen of Israel, Pyotr Aven is a citizen of Latvia, and Andrei Kosogov is a citizen of russia.
Mikhail Fridman is a native of Lviv, German Khan of Kyiv, and Andrei Kosogov of Slovyansk. Their businesses have done and are doing a lot for Ukraine (not only paying taxes by the largest enterprises, but also organizing the famous jazz festival in Ukraine – Leopolis Jazz Fest), as well as supporting the army, providing jobs and salaries to thousands of families.
– Among the bank's top managers were russian citizens.
– They all left the bank. Today, there are no russian or belarusian citizens on the Supervisory Board or the Board.
– However, in 2022, the bank's shareholders were subject to international sanctions, which led the NBU to even freeze Alfa Insurance's operations for a year until the shareholders' reputational issues were resolved. Then why are exceptions being made for a Ukrainian bank?
– The bank operates in strict compliance with the requirements of Ukrainian legislation and the NBU. Of course, the National Bank immediately reacted to the inclusion of the shareholders in the sanctions lists, removing them from voting and managing the bank.
In April 2022, the NBU-appointed trustee Simeon Dyankov took over the management of the shares of the sanctioned shareholders. The appointment of a trustee is a means of influence. There are no exceptions. There are some peculiarities because banks are critical infrastructure that requires separate regulation. For example, we have more than 3 million individual customers, more than 50,000 legal entities, and 80,000 private entrepreneurs.
– Could you please open up the process of negotiations with the NBU? How are communications with them, as well as with London, Washington, and Brussels, being built? After all, it was the West that announced that the Ukrainian bank was not subject to sanctions.
– That's right. The bank has not been subject to any sanctions imposed by the EU, the US, or other countries. This once again confirms that it is an independent legal entity registered and operating under the laws of Ukraine and has nothing to do with a russian bank except for its name in the past.
At the very beginning of the war, when it became clear that the loan portfolio was at risk of deterioration, which would have a negative impact on capital adequacy, and that the country would be in dire need of financial support from banks, the bank's management board approached the Supervisory Board with an initiative to offer shareholders the option of additional capitalization of the financial institution.
The Supervisory Board and the trustee supported this initiative and received permission from the NBU to negotiate with shareholders on this issue. It is when Roman Shpek and Simeon Dyankov began their extensive work with the regulatory authorities of the EU member states and the UK, as well as the European Commission.
The process of unblocking funds for the bank's recapitalization is very difficult and time-consuming, but we are moving forward. We are actively corresponding with EU regulators, answering questions, and providing documents. It is difficult to predict the outcome, as there are no precedents for unblocking funds in the EU and the UK to capitalize a bank in Ukraine. However, we believe and work.
– Has Sense Bank been taken out of Alfa Group's international structure?
– From the very beginning, there was no parent bank and no subsidiary banks in the group's structure. There were separate legal entities. We have never been a subsidiary of the russian Alfa Bank. Legally and in fact, we always were a Ukrainian bank, so the sanctions against Alfa did not affect us, as I mentioned earlier. Our ultimate shareholder is Luxembourg-based ABH Holdings SA (ABHH) which has never been under sanctions.
The United States and the United Kingdom have clearly stated that we are not subject to sanctions.
– Do you have large problem borrowers or other organizations that are interested in the bank's withdrawal from the market?
– Regardless of the bank's status, we will have to pay off our debts. Our bank has a reputation as a strong player in the NPL (non-performing loans) market. At the same time, we have managed to negotiate and restructure debts with almost all clients. Of course, there are some unique cases. However, I want to believe that all branches of government in Ukraine are interested in protecting the rights of banks as lenders to prevent evasion by unscrupulous borrowers, as depositors suffer from this first and foremost.
There is one borrower who uses his connections in law enforcement to put pressure on the bank. It is an old loan from Ukrsotsbank.
– There are 5–6 institutions in the financial market – banks and insurers that have been owned by russian citizens for more than a decade. And by coincidence, on the eve of the war, they were re-registered to citizens of Ukraine, Armenia, and other countries. The NBU probably knows who we are talking about. The question arises: why haven't Mikhail Fridman, Peter Aven, and other shareholders of the bank done so?
– It is difficult to say what knowledge the companies that have changed owners on the eve of the war had. February 24 came as a shock to the bank's shareholders.
The shareholders are representatives of international business. They had no plans to hide behind anyone. The structure of the holding is quite complex but transparent. The change of shareholders is possible only in case of a real sale of the bank.
– Tell us about your plans for 2023.
– We are currently approving plans every quarter, as everything is changing rapidly. Budgeting is also done quarterly.
We are not changing our strategy. We want to remain a universal bank, retaining all businesses – corporate, small, and medium-sized. And of course, retail business. We continue developing our digital platform.
We are optimizing our work as much as possible in order not to lose control of the bank and create value for the client.
– Are you considering moving the bank to the medium-sized group?
– No, we are not. We want to remain a large, systemically important bank that has an impact on the Ukrainian economy.
The strategy of the bank's transition to the medium-sized group is a purposeful reduction of assets and liabilities.
– However, this is already happening. For example, the curtailment of assets – a 42% reduction in the hryvnia assets of legal entities over the year...
– It is not purposeful, but a natural process. The reduction of our assets and liabilities is proportional. I emphasize that repayment of loans is good in times of war, and the reduction of liabilities reflects this repayment. After all, when a company repays a loan to a bank, it does so from its account in Sense Bank. We have always had a reputation as a bank that works quite efficiently with its loan portfolio.
The goal for 2022 was to maintain operational stability. We have achieved it. We are also operationally profitable before provisioning and have more than UAH 5 billion of profit in the first 11 months of 2022. After provisions are created, we are, of course, at a loss.
We need to pay tribute to our customers. We went through the crises of 2008 and 2014. Previously, crises were an excuse not to pay on loans. There was an opinion that "only cowards pay." During the war, our clients proved to be different: the servicing percentage of our corporate portfolio was almost 90%. People value their credit history and reputation so much that they are looking for any opportunity to repay their debts.
The situation was different for individuals, as many people left and lost their sources of income. We offered restructuring, deferred interest, and people are behaving very disciplined. The level of arrears is not growing.
– Over the year, legal entities' funds fell by almost 63%. Which clients stay with you and which ones leave?
– The reasons for the reduction include military actions, the reaction to the news of sanctions against shareholders, and the general trend of legal entities moving to state-owned banks. There are legal entities that are actively leaving private banks, not only Sense Bank, for state-owned ones. This is, unfortunately, a normal practice.
We have clients who have not panicked, who are ready to hear our explanations, and who know our position and our strengths. We are grateful to them for that. Such communication continues now. The ability to analyse information and cut off fakes and paid-for materials is an important skill.
Right now, we are talking to you, and I know that someone is offering the media money for publishing another story that denigrates the bank's activities. The very fact that there are interested parties who spend their free money not on helping the army, but on paid-for articles against the bank, raises the question for any normal person: what is the motive of these customers?
– Today, almost all the bank's assets – UAH 72 billion are concentrated in Kyiv, and only UAH 1 billion of assets are in the regions, of which UAH 245 million are in Lviv. What is the reason for this business structure?
– It's a little bit different. 80% of our business is in the five largest regions: Kyiv, Odesa, Kharkiv, Lviv, and Dnipro. Corporate business loans are serviced in the head office, but this does not mean that the businesses are also in Kyiv.
The same applies to retail business clients. Their main activities are in Sense SuperApp.
– What was the most important decision made in 2022?
– Abandoning the Alfa brand. We don't want to have anything to do with a brand that operates in an aggressor country. Even at the level of associations. We have done a large-scale and very difficult job. On December 1, we officially became Sense Bank. I am not aware of any other such precedents in Ukraine, although you know that many large companies continue operating in Russia and Ukraine under the same brand.
Read also: Gentle nationalization: How Alfa-Bank shareholders are trying to make Sense of it
We have not stopped for a single day, as the possibility of remote customer service is a priority. We made a conscious decision to further develop the Sense SuperApp digital platform. It allows customers, especially those who have left Ukraine, to have online access to all the bank's products, restructure their loans, open cards, manage accounts and deposits, and even buy securities.
Our main goal, of course, is to help bring Ukraine's victory closer. Many of our employees serve in the Ukrainian army, and we have many volunteers.
We have helped the Armed Forces of Ukraine to the tune of over UAH 150 million, not counting transfers from employees. In my office, the walls are covered with gratitude from the military, and there is a rug made of russian chevrons in front of the office entrance. You have to wipe your feet on it carefully.
– Where did you suffer the most from the hostilities?
– We have a large contact centre in Chernigiv. Heroic guys work there. In February and March, they communicated with customers under bombardment whenever they could get through.
Oleksandr Sementsov, Chernigiv
Erly April. He is looking for a signal for mobile internet in the field to do his job. Specifically, processing written requests to the ServiceDesk. While working, he twice explained to the military why he was in the field with a laptop.
There is a picture of our contact centre employee, on which he is walking into a field with a computer to find a place where the connection will allow him to talk to a customer.
Our branches in Mariupol and Chernigiv were completely destroyed. Four branches in Kharkiv, two each in Kyiv and Zaporizhzhia, as well as in Bucha, Irpin, Kramatorsk, Bakhmut, Chuguiv, Slovyansk, Berdiansk, Kherson, Severodonetsk, and Vugledar were damaged. We will rebuild all of them. After the liberation of Bucha and Kherson, we were among the first to open our departments.
The worst thing is the death of our colleagues who are defending Ukraine arms in hand.
– What do you consider the bank's competitive advantages?
– Highly professional team. People are the main value. And from the business point of view, we have a diversified loan portfolio, fairly diversified liabilities without high concentrations, and strong risk management, which has helped us to become financially stable.
We went through the year confident that our portfolios and services would allow us to save the bank. We comply with capital adequacy ratios and all the requirements of the NBU's regulations – capital adequacy, liquidity, etc. Likewise, we did not actually work with the public sector, which seriously reduced risks and liability outflows.
And, of course, the manufacturability of Sense SuperApp. We have both video identification and remote card opening. We were one of the first to offer the market military bonds, the purchase of foreign stocks, etc.
– In which international courts are your shareholders currently challenging the sanctions against them?
– As far as I know, in the EU and UK courts.
– What will the billion to be injected into the bank's capital be used for?
– As I said earlier, the shareholders' lawyers are working to unblock the funds to recapitalize the bank. We, as a bank, are answering the questions raised by the European Commission.
We are discussing what this billion will be used for. Tools to control the intended use of funds.
For capitalization purposes, we chose a capital instrument that essentially represents financial assistance to be provided by shareholders to the bank for 50 years. A capital instrument with write-off clauses allows banks to increase their tier 1 capital for a period of at least 50 years and does not provide for any early termination or repayment clause.
Our shareholders' lawyers and Simeon Dyankov are doing this work.
We understand the way this money will contribute to Ukraine's recovery. We have developed a whole programme of concessional lending to the Ukrainian economy. We estimate the capital multiplier to be 1 to 7, meaning that one hryvnia of capital can generate seven hryvnias of borrowed funds. These funds will be directed to rebuild the country.
– What industries are we talking about?
– Foremost, it is the restoration of infrastructure, as well as lending to heavy and light industry, agriculture, and programs for small and medium-sized businesses.
– We know that in early March 2022, the bank's shareholders condemned the war, calling it a tragedy. If the shareholders had remained silent, what would have happened to the Ukrainian bank?
– They could not have remained silent. It is not about Fridman. For him, the war is a personal tragedy, and Ukraine is his native country.
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