The nationalisation of Sense Bank began as expected – with a charade in the financial institution's management. Three weeks after his appointment, Dmytro Kuzmin resigned as chairman of the bank's board, and deputy chairwoman Olena Zubchenko will now be the acting chairman. A new competition will be held to elect a permanent chairman of the board.
In this current piece, we compare the bank’s certain balance indicators that the previous managers of the financial institution presented before its nationalisation (as of 1st July 2023) and a few weeks later (as of 1st August 2023). The balance report for the second file is submitted to the National Bank of Ukraine on the 11th day after the end of the month. As a reminder, temporary administration was introduced to the nationalised Sense Bank on 21st July 2023.
First and foremost, all officials of the bank (board members, supervisory board, and credit committees) bear full criminal and financial liability if the bank is rendered insolvent, according to current law.
Second, reserves for active operations (accounting operations) are formed within six days after the end of the reporting period based on the analysis of receipts for each risk-bearing asset (operation). This is the primary function of the credit committee.
It’s clear that the new team of the board will never shoulder their predecessors' sins and will establish reserves, taking into account the worst-case scenario of servicing the bank's debts by its clients. However, there's one hitch.
The tax base is decreased in the case of unjustified overestimation of the reserve level (bank expenses), which is a violation of tax legislation – with all the consequences for the officials.
The financial result is 2.17 billion UAH As of July 1, 2023, and it's 5.36 billion UAH as of August 1, 2023, .
In other words, the profit increased by 3.19 billion UAH within a month, consequently affecting the taxable base. To put it plainly, this is quite unexpected, given that the bank reported losses of 6.97 billion UAH for the year 2022.
As of July 1, 2023, the volume of the credit portfolio for legal entities was 31.14 billion UAH, with formed reserves of 4.72 billion UAH. As of August 1, the portfolio volume was 30.76 billion UAH, forming the reserves of 5.04 billion UAH. The credit portfolio decreased by 1.3%, while the reserves for this portfolio increased by 6.7%.
The transition can be considered to have occurred smoothly: for some loans, the principal decreased, and for some, additional reserves were formed.
This makes sense, as the war goes on and there is a possibility that the quality of collateral for some borrowers may deteriorate or that debt servicing may be delayed.
As of July 1, 2023, the volume of the individual credit portfolio was 24.66 billion UAH, with 13.9 billion UAH of formed reserves. As of August 1, 2023, the portfolio volume had reached 24.5 billion UAH, with 13.65 billion UAH of formed reserves. The portfolio decreased by 0.6%, and the reserves decreased by 1.7%.
This portfolio hasn't changed significantly over the month, but it draws attention due to the relatively low quality of the very portfolio. This is evident as the percentage income from individual credit loans significantly decreased within the month, potentially indicating substantial write-offs of non-performing loans to off-balance-sheet accounts.
There's a notable increase of 2.893 billion in the "other income" category in the income and expense structure. It is possible that the bank's income in this period included funds of previous shareholders, which were accounted for under the item "subordinated debt" (deposit for a term of at least 5 years) – UAH 2,032 million. An assumption could be made that certain shareholder deposits were included in the bank's income.
Furthermore, there was a reduction in Reserves for Investment Securities by almost 505 million UAH. Different management teams might have fundamentally different approaches to evaluating the portfolio of government securities under this category.
Other balance sheet items have undergone relatively average changes.
Yes, for a bank whose market share in terms of net assets as of August 1, 2023 accounts for 3%, customer loans – 6%, government securities – 1%, liabilities – 2.8%, including funds from individuals – 4.4%, the new team has not identified significant deficiencies in business operations over this short period.
Experience shows that borrowers usually test the new team's ability to avoid debt servicing after temporary administration was introduced.
Hence, one month is insufficient for final conclusions, but for now, it can be said that the previous team did business without major violations.
Regarding the main categories of income and expenses, except for those mentioned in this section, significant changes have not been identified.
The dismissal of the CEO within such a short period, however, does not instil overall optimism.