Who is the “daughter” of Russian banks will be able to sell the business in Ukraine

Thursday, March 23, on the situation of Russian banks in Ukraine in favor of the Bank of Russia. “CBR interprets sanctions as Ukraine emergency, will allow Russian banks to over three years to create reserves for the Ukrainian “daughters” — told “Interfax” a source close to the regulator. The representative of the press service of the regulator has confirmed such plans.

Statement of the Central Bank — a response to sanctions against Ukrainian banks with Russian state capital imposed by Ukrainian authorities on March 23. Listed banks are prohibited from any financial transactions in favour of the parent structures. Talking about the Ukrainian savings Bank and VS Bank (controlled by Russian Sberbank), VTB Bank and BM Bank (owned by the Russian VTB) and Prominvestbank (Ukrainian “daughter” of VEB).

The result of the imposed sanctions Sberbank, as recently announced by its head Herman Gref, considers “the most rapid” options to leave the Ukrainian market. The Russian head of VTB Andrey Kostin said what to sell the Bank in Ukraine is “complicated”. The most optimistic sentiment was expressed by the head of Vnesheconombank Sergey Gorkov: “the stage advanced. I think next week will discuss the final proposals that we’re going out.”

However, given the three-year announced on Thursday the Russian Central Bank the period of potential benefits, the quick release of “dochek” Russian state-owned banks from the Ukrainian market awaits the Bank of Russia.

asked Russian and Ukrainian experts to evaluate the scenario output and potential buyers.

Possible scenarios

In the current environment any support for a subsidiary Bank is a non-refundable contribution, therefore, the desire of Russian bankers to come out quickly from the Ukrainian market is quite clear, says the managing Director on Bank ratings Agency “Expert RA” Stanislav Volkov. In his opinion, the most obvious buyers of Ukrainian banks that best understand the market they work in.

However, continues Volkov, Ukrainian banks will be difficult for them to pay a substantial amount, so the most probable scenario with a delay. “This is a purely Ukrainian buyer in the lack of sufficient funds, is likely to be just a while the nominal holder until you find a real he says. Thus, nobody will irritate the presence of Russian capital in the Ukrainian banking business.” However, in this case, you will need approval at a political level, adds wolves.

In the future, much will depend on whether the return of interest European banks to the Ukrainian market, he said: “If in a year or six months, it will happen, Russian assets can be sold to foreigners”.

A similar version sticks to the younger Vice-President Moody’s Lev Dorf. “You have to understand that the “daughter” of Sberbank in Ukraine is quite a large Bank and ranked sixth in terms of assets. Given the fact that the share of state-owned banks and banks with foreign capital together account for 86% of all assets of the banking system of Ukraine, it is unlikely that a small private Ukrainian banks will show interest in such a huge asset in a situation when many of them are still unprofitable and are in need of recapitalization, he said. — To consolidate state-owned banks also impractical, since after the nationalization of PrivatBank’s share of the state in the banking sector increased significantly and reached 52 percent.” Buying could be of interest to foreign investors, but it all depends on the price and quality of the asset, says Dorf. The level of problem assets subsidiaries of Russian state-owned banks, particularly Sberbank and VEB, it is assessed as sufficiently high due to the fact that a considerable part of loans were issued in foreign currency to enterprises operating on the territory of Luhansk and Donetsk regions. In connection with the devaluation of the hryvnia and the difficult economic situation in these regions a large part of the portfolio was problematic, he explained.

There is another point of view: sales may be made through intermediaries, but not Ukrainian, and foreign.

“In Ukraine no one oligarch free couple of hundreds of millions of dollars that can be spent on banks whose capitalization is dropped (this applies to the entire banking system of Ukraine) and which at any moment is very sensitive to information flows, — says head of the expert analytical Council of the Ukrainian analytical center Boris Kushniruk. — No one in their right mind will buy a Russian Bank even with a 50 percent discount.”

He believes that a quick sale, if it takes place, is likely to mean not a deal as such, but conveyance of property with closed to the General public arrangements”. According to Kushniruk, banks with Russian capital are to consider options when you can re-register the right of ownership structure on the West or Asian, which in reality will have closed, unknown to the public agreement about who is the real beneficiary.

This position does not agree with the head of the Commission in banking analysis of Ukrainian society of financial analysts Vitaly Shapran: “I would not consider the option of a nominal holding, because if the market is considered the nominal holder, the situation will not change: the blockade, riots, paint — to do business in such conditions it is difficult and sometimes impossible, especially retail”.

Borys Kushniruk does not exclude direct interest of foreigners: the assets of the Russian banks is impaired, so its value in the coming years is unlikely to grow significantly, he said.

However, some experts do not believe that the transaction will take place. “A few years ago Sberbank in Ukraine, perhaps it could be interesting transnational banks, but in the current circumstances, foreign investors also should review their risks on the Ukrainian market. The obvious potential buyer I do not see. Most likely, it makes sense to think about how to repatriate funds from the country subject to sanctions, such as the use of potential cash flows in the direction of Ukraine for the netting of assets placed in Ukrainian “daughter,” says Kushniruk.

Who’s harder to leave

According to Boris Kushniruk, the highest internal risks — Sberbank, both now and as a result of a potential transaction. “Sberbank has positioned itself as a major Russian Bank, with which the people of the Soviet time. Therefore in Ukraine a large number of people keep their money there. As soon as Sberbank in Ukraine will be sold, its positioning may not be the same. Will require a complete re-branding of the Bank, regardless of who it will be sold. Specifically for Sberbank it will be a significant problem, which can reduce its cost”, — the expert believes.

VTB the situation a little easier, he continues. “In the eyes of the Ukrainian population, he had no tight connection to Russia, is the Bank for business associated with industry, products for individuals are not determinative, as the savings Bank, and therefore withdrawal from the market will be much easier, and repositioning,” — said the expert.

The main problem Prominvestbank’s loss-making business, the reputational risk it — least of all, summarizes Kushniruk. According to the NBU, the net loss of Prominvestbank by the end of 2016 amounted to UAH 4.2 bn (of 8.82 billion rubles on January 1, 2017), the savings Bank — UAH 2.8 bn (5.88 billion RUB), VS Bank — 63.6 million UAH (133,6 million rubles.), VTB 6.3 billion UAH (to 13.23 billion RUB), BM-Bank — UAH 1.8 billion (3.78 billion rubles).

In this part of the external risks can be reduced in the near future. “The national Bank of Ukraine requests of militiamen to respond to the continued blockage of the Ukrainian banks with Russian state capital, which is carried out “aggressive group of people” — quoted in Thursday evening “Interfax” Deputy head of the NBU Ekaterina Rozhkova. — We must ensure the possibility of a civilized way of Ukrainian banks with Russian state capital from our market.”