Kyrylo Shevchenko shared his opinion about the future of public financial institutions

First deputy chairman of the board at Ukrgasbank has been interviewed by Forbes. The banker gave insights on his vision of the future of national banks and answered questions related to the conflict situation that has arisen as the result of his activities and the possible appointment as the head of the board of the recently nationalized bank.

Kyrylo Shevchenko’s first acquaintance with Ukrgasbank took place in 2009 when he became the first deputy chairman of the board of this particular credit establishment. Before that time, Shevchenko had already managed to acquire some financial and managerial experience in the Finance and Credit Bank, where he began his career as the head of the department and eventually obtained the position of the first deputy chairman of the board.

From December 2006 until May 2009, Shevchenko was in charge of the State Mortgage Institution, and in September 2009, went to Ukrgasbank for the first time, where he worked for the period of 8 months. After a 4-year break, in the course of which he was engaged in the development of his own bank (Terra-Bank) and had an opportunity to work as an adviser at Oschadbank, the manager again makes a return to Ukrgasbank, where, as a matter of fact, his job consisted of implementing anti-crisis projects. It worth noting that different financial specialists consider the nationalization of Ukrgasbank as one of the most successful projects, especially when compared to such commercially unfeasible banks as Rodovid and Kyiv.

According to Shevchenko, in 2014, he came back to the financial institution to create a solid financial organization that will accumulate assets of the bankrupt banks. The banker explained to journalists the reasons why this national institution had to take such measures and shared his vision regarding the implementation of strategies and scenarios of bank’s future development.

First of all, the journalists inquired about the necessity to reform the government-owned banks, as insisted by various foreign creditors, including the IMF. The media representatives turned Shevchenko’s attention to the fact that, so far, Ukraine conducts the policy of further recapitalization of credit institutions at the expense of the state budget and asked his opinion on whether the chosen strategy of nationalization and entry of the government into insolvent organizations can be considered viable. The journalists pointed out that such an approach signifies the consolidation of the government’s role in the domestic banking industry.

In response, the banker said that the reformation of state-owned banks is not an easy task, especially given the current changes; therefore, the most appropriate way would be to make separate decisions regarding each organization. Shevchenko reminded that two financial institutions that are essentially “owned by the state” are Oschadbank and Ukreximbank, the organizations that were created at the expense of budgetary funds, as it is specified in the current law “On Banks and Banking Activity”. As for other credit institutions, including Ukrgasbank and Rodovid, they became state-owned out of pure necessity. According to Shevchenko, the decision to capitalize such banks as Rodovid, Kiev, and Ukrgazbank, which found themselves in a difficult situation, was justified because it allowed halting the wave of bankruptcies; the banker also pointed out that, in fact, this recapitalization saved the Ukrainian banking system.

When talking about why from all troubled credit institutions that have been recapitalized, only “Ukrgasbank” can be considered as more or less successful, Kyrylo Shevchenko mentioned scandals related to the activities of the management of Rodovid and Kyiv. One can find plenty of information in the press regarding the initiation of criminal cases against the managers of these organizations. As for Ukrgasbank, firstly, it was great luck that this bank was under less political pressure, and secondly, the team of professional managers was hired immediately after the nationalization of the institution.

Speaking about the possible continuation of the process of recapitalization of problematic banks, Shevchenko confidently stated that it is inevitable. According to the banker, the role of the government in the Ukrainian banking system will continue to increase. Kyrylo Shevchenko reckons that the consolidation of business and capital through mergers and acquisitions using M&A and P&A mechanisms is one of the most likely projects in this process.

It should not be forgotten that currently domestic banks are unable to show the natural growth, as the economy is in the deep crisis that results in the fact that the income flow and, accordingly, household deposits are not increasing. Banks are experiencing all negative consequences of the unfavorable and rapidly changing environment and one by one find themselves in the category of the insolvent. The purchase of assets by the government-owned banks along with mergers and acquisitions are some of the best ways to resolve the current situation. An important advantage of such schemes lies in their ability to not only protect the interests of investors, who can expect to get reimbursed for the state-guaranteed amounts but also the interests of creditors as well as depositors, the clients of the problematic financial institution that is being salvaged.

The journalists noted that similar schemes had already been planned for certain banks, for instance, the VAB Bank and the Forum bank, but so far, there have been no transfers of their assets. The TOP manager of Ukrgasbank admitted that these projects are difficult to implement without special laws, these processes are very time-consuming. Shevchenko gave an example: the “roadmap” for one problematic institution has already been compiled but, taking into account the current legislation, it is simply impossible to redeem or transfer the assets to the receiving bank in less than three months. Nevertheless, various scenarios of recapitalization have already been elaborated for some banks, and the legal instruments for their implementation are already in place; this concerns, for example, the already mentioned VIA Bank that has already been placed at the disposal of the Deposit Guarantee Fund.

The banker was asked to explain why, when it comes to the aforementioned recapitalization schemes related to the transfer of assets to national banks, it is not Oschadbank or Ukreximbank but Ukrgasbank that usually gets cited as the host organization.

Kyrylo Shevchenko admitted that he fully agrees that the acquisition of assets should be carried out on the basis of his credit institution. He explained that his opinion is based on the peculiarities of the decision-making mechanism in various governmental organizations. The financier reminded that the supervisory board at Oschadbank and Ukreximbank consists of 15 representatives of various government departments (5 people from the Cabinet of Ministers, 5 from the Verkhovna Rada and 5 from the presidential administration), while Ukrgasbank is in the area of responsibility the Ministry of Finance; this explains the difference in the decision-making processes.

While justifying its position regarding why Ukrgasbank should become the basis for the acquisitions, the first deputy chairman of Ukrgasbank also highlighted some other features of his organization. He reminded that at the time of nationalization of Ukrgasbank, which took place in 2009, its charter capital was 700 million UAH, which, in recalculation at the rate of 8 UAH per 1 USD, could be estimated at around 100 million USD. At that time, Ukrgasbank was among the top 20 banks, according to the domestic rating. Five years have passed since that time and the financial institution has obtained the status and image of the government-owned institutions, around 10 billion UAH was allocated for it from the state budget, but, as before, the organization holds the place in the middle of the second twenty.

Kyrylo Shevchenko thinks that his bank has to elaborate its own mission, an individual concept of development. He provided the example of other government-owned financial institutions, namely Oschadbank and Ukreximbank. The first one has the largest regional network and boasts the largest number of customers. Currently, when this structure undergoes the process of modernization, its managers have a clear understanding of goals that have been set and use all the competitive advantages to develop the renovated Oschadbank. Ukreximbank, the second large credit establishment, is the leader in the field of servicing of external lines, export-import financing, European investments, bond lines, etc. The management of Ukreximbank also clearly knows its niches and understands what needs to be developed and how it should be done.

It is important for Ukrgasbank to find and develop its own concept. The merger of problematic banks and assets can become a new idea for development. The Deposit Guarantee Fund can apply the following mechanisms towards the banks that are leaving the market: the sale of assets, the creation of a transition bank, the search for investors or even liquidation. The last option, which is the cessation of activity, is applied quite often, but this procedure has certain consequences which come in the form of payments that are usually carried out at the expense of the state budget. However, any problematic bank has some “healthy” assets that automatically become toxic after the financial institution is recognized as insolvent and the provisional administration is instituted at this organization. Instead, these assets can be transferred to the balance of the government-owned credit organization that will take the matter of bringing the borrowers to justice into its own hands (using its own mechanisms that may include the participation of the prosecutor). Such an approach will allow achieving better results in comparison with the scheme that involves the introduction of temporary administration at the bank.

The journalists reminded the banker that similar schemes had already been applied in other credit institutions, and they asked him to share his considerations regarding risk assessment. In particular, the bitter experience with Delta Bank was mentioned in the course of conversation with Kyrylo Shevchenko. At one time, Mykola Lagun, the head of the board and the largest shareholder, has been buying the debt portfolios of other financial institutions which eventually became one of the reasons for the collapse of the Delta Bank. In case Ukrgasbank also decides to absorb the assets of problematic organizations, what protection mechanism would the banker be able to offer?

Shevchenko explained that additional capitalization, the amount of which should be equal to the difference between the price of assets and the price of liabilities, will allow getting the additional insurance against such risks. At the same time, he insists that the low level of customer confidence is the main reason for the negative situation that has formed in the banking sector of Ukraine. If the National Bank hadlifted all deposit restrictions, many depositors would have withdrawn all funds from their accounts and, in accordance with the domino principle, the collapse of the entire banking system was to be expected. Shevchenko has once again put an emphasis on the fact the government made a timely interference and saved Ukrgasbank, Rodovid and Kyiv, the negative trend was brought to a halt. Certainly, there were no military action in Ukraine at that time, compared to the current situation, but the times were also tough because it was the period of the global financial crisis. Now, despite all the difficulties and problems in the economy, saving banks still remains a possible and necessary measure since 2 or 3 operations will help to dispel the fears of customers and restore the confidence of depositors.

The representatives of the media also enquired when it would be possible to launch the process of transfer of assets from problematic banks and who makes such decisions. Shevchenko explained that the recapitalization procedure was established by the corresponding resolution of the Cabinet of Ministers. This document determines the parties that are involved in the decision-making process: the National Bank of Ukraine, the Deposit Guarantee Fund, the bank that acquires the assets, and the owner of the insolvent financial institution. In cases where it is impossible to reach the agreement with a shareholder, the decision can be carried out without him. The financier also told the journalists about his personal experience concerning this issue. In 2004, when Shevchenko worked at the Finance and Credit bank, the National Bank managed to satisfy all of the submitted refinancing requests. At the commission organized by NBU, the bankers had to provide the detailed presentation of the then current situation at their organizations and give compelling evidence in favor of refinancing. All debt obligations to the regulator, which consisted of short refinance for the period of up to 1.5 years, were fully met; only a few small credit organizations left the market. Currently, all participants in the recapitalization mechanism, both banks and the government, acquired certain experience but it has to be further improved.

While specifying the factors that complicate the conduct of recapitalization, the banker mentioned the minority shareholders. Judging from his own experience, Shevchenko said that it would be much easier to manage the process if the government obtained the full amount of the shares. The journalists objected to the financier and pointed out that minority shareholders in Ukraine are already in the situation where they have virtually no rights. This at least proves the fact that holders of a small number of shares cannot protect their interests and get answers to their inquiries regarding problematic institutions, either from the banks themselves, from the NBU, or from the Deposit Guarantee Fund. Kyrylo Shevchenko responded that shareholders should understand that capital investment is a risky commercial activity and, logically, such shareholders can hardly find fault with a bank that went bankrupt not without their participation, as well as from government or from the Deposit Guarantee Fund that is now administering the particular organization. At the same time, the banker reminded that in case the minority shareholders do not agree with the increase of bank’s capitalization, they can sell their stake at a price which had been set before the day of adoption of this decision; therefore, the government is a fairly reasonable owner, though not the most efficient one.

When asked whether the financier noticed any changes at Ukrgasbank since he worked there at the time of nationalization, Kyrylo Shevchenko replied that it would be inappropriate to make such comparisons. Back in 2009, the government had just brought the financial institution back to life, whilst now it is a modern organization that operates on a large scale. The only thing that Ukrgasbank requires right now is its own strategy.

In the course of the interview, the journalists could not help but ask Kyrylo Shevchenko about his opinion regarding the PR campaign that had been launched against him. The mass media contains a lot of provocative information regarding the activities of the bank’s TOP managers, namely him and Serhiy Mamedov.  

How can the financier himself explain the negative informational attacks? The head of Ukrgasbank drew the journalists’ attention to the fact that no accusations were made before his return to the bank and in the first months of his work. According to the banker, external attacks serve as an indication that he is moving in the right direction. Shevchenko is sure that all the processes associated with the institution should contribute to the bank’s work in accordance with a certain strategy, although its vision may differ from the one of the governing bodies. The methods employed to achieve the goals are a totally different matter.

As for the remark that the conflict around the bank could have been instigated by some third party that is interested in managing the financial institution (as some banking colleagues of Shevchenko assured), the banker replied that he has no idea what that party could be since Ukrgasbank is owned by the government. In the manager’s opinion, if Ukrgasbank does not elaborate its own development concept in the near future, without which it will not be able to play its role in governmental policies, the possibility of its merger with Oschadbank becomes quite realistic.

Speaking about the prospects of Ukrgasbank in the next five-year period, Kyrylo Shevchenko reminded that, in 2009, at the time of bank’s nationalization, the main purpose of recapitalization lied in the subsequent sale of its assets. However, the banker admits the lack of active interest in Ukrainian financial assets. The journalists pointed out that there are still potential investors in the market who are eyeing the financial resources that in times of the crisis can be bought at a low cost. Kyrylo Shevchenko insists that is the exact reason for consolidation of Ukrgasbank can be carried out through the mechanisms of P&A. The banker expressed his hope that, if these measures are carried out, then in 5 years time we will be able to find an investor who will buy the bank for a good price.

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