CEO of JSB “Ukrgasbank” speaks on how losses became profits, why it is profitable to invest in small business and how Green Banking strategy helps the bank development.
DS: It is the first time the state bank entered the top-5 of the most stable Ukrainian banks, all “neighbors” being the leading European banks. Ukrgasbank is one of the four biggest banks in terms of assets by now; its net gain amounted to UAH 538 million for 10 months of 2018. Are you satisfied with these indices?
Kyrylo Shevchenko: I am glad that we have managed to achieve great results, and that we are competing decently with the Ukrainian subsidiaries of the most honored European banks, especially considering recent events. In 2015, Ukrgasbank took the 17th place in terms of assets, with less than 2% of market share. Now we are No 4 with a market share of about 6%. In 2015, Ukrgasbank became the only bank that made profit: the year started with a loss of UAH 2.8 billion, we gained a profit of more than UAH 250 million at the end of the year. In 2016, Ukrgasbank became a leader after the approval of the Green Banking strategy. Our “green” portfolio increase has already reached more than UAH 7.8 billion since the beginning of 2018. We keep on moving forward in this direction and making every effort to strengthen our positions. It’s precisely on this basis, without any doubt, Ukrgasbank has achieved impressive results.
DS: How did you manage to increase profits?
Kyrylo Shevchenko: We get the highest profit from business, both big and medium, as well as small. There’s positive dynamics in individual portfolios’ indices as our client base is enlarging. For instance, the client base has grown bigger by 50% in a retail business in 2018, and includes 1.3 million Ukrainians now. Over a short time span, we have presented unique programs, built new partnerships with people and, I hope, we are strengthening confidence in the banking system. We have elaborated special partnership programs with reliable companies, thus offering loyal home and car loan interest rates. We are constantly improving programs, and conducting promotions; we have transparent conditions and loyal rates: from 7% annual interest on housing and from 0.01% on cars so that every Ukrainian could afford living in his/her own comfortable house, driving his/her own car and modernizing life with eco-crediting.
DS: Almost 100% of Ukrgasbank’s capital belongs to the state. How does this affect the bank’s performance? In your opinion, which steps the state should take first to prevent another crisis?
Kyrylo Shevchenko: Ukrgasbank isn’t merely a state bank — it has been on the list of the state-owned objects of strategic importance for the economy and security of Ukraine since 2015. Ukrgasbank hasn’t required any additional capitalization for three years in a row (from 2015), which means we didn’t take state money. However, there’s no doubt that Ukrgasbank is owned by the state — this is an additional guarantee for the Ukrainians. The state will never leave its citizens to the mercy of fate. Therefore, each client shouldn’t worry about his/her Ukrgasbank deposits and our operational and financial reliability.
As for the domestic policy, the banking system always suffers first when dramatic political events occur in our country. Of course, crisis-2008 is different from crisis-2014, and the latter differs from the challenges of 2018, but our response is much better now. The main task is to avoid panic among the population — we’ve already known how informational attacks can artificially create and mitigate such mood.
Much depends on the regulator as well, namely the National Bank, — its speed of reaction to the external challenges and competent interaction with banks. It’s worth saying that the NBU authority is up to the mark. I’ve participated recently in an operational meeting with the head of the country’s 40 biggest banks, which aim was to prepare the banking sector for working in the extreme conditions.
Thus, the National Bank doesn’t see any risks for the smooth banking sector operation, even when martial law is in effect. The liquidity of the banking sector is about UAH 75 billion, Ukrainian gold and foreign exchange reserves are equal to $16.7 billion and sufficient to meet both the obligations of Ukraine and current operations of the government and the National Bank. Therefore, the regulator has no reason to take administrative measures in monetary and foreign exchange markets.
An operational review of the current situation on the banking market, conducted during the meeting, showed the correctness of the government’s and regulator’s approach for moving the nonviable financial institutions away from the market. All Ukrainian banks show sufficient capital adequacy, compliance with current regulations and are able to maintain stability of the state’s financial system at a high level.
DS: You mentioned partnership with the International Finance Corporation (IFC) in facilitating the SMEs financing. How active was providing the credits to entrepreneurs in 2018? What were the results? Do you predict a significant development of small and medium enterprises in Ukraine?
Kyrylo Shevchenko: We not only predict, but also contribute to this process as much as possible! Indeed, partnership with the International Finance Corporation has significantly simplified the conditions for lending to SMEs, and the cost of financing for some of our programs is 8–9% per annum (without hidden fees). We’ve managed to double the loan portfolio of the small and medium-sized businesses this year, which amounts to UAH 4.3 billion now. I’d like to note that we started developing the SME segment with a new team in 2015. Thus, this is a huge achievement for us.
Having studied the specifics and problems of business during this time, we offer relevant products that promote growth of small and medium-sized enterprises. In addition to the partnership with the IFC, we continue our cooperation with the German-Ukrainian Fund, USAID, European Investment Bank, there are programs with the Republic of Belarus, Global SME Trade Finance Program; our partners are the state and local authorities, European and international holding companies, developers, etc. Special conditions have been elaborated in such programs for financing both investment expenses and circulating capital, which allows us to offer better conditions to our clients than other banks do.
In addition, we’ve realized the need to change the very approach to the SME sector. The traditional paradigm follows this classic formula: an entrepreneur contacts a bank, gets fund there, increases his production, and pays off the debt by profit increase. This is an acceptable approach, but not in crisis times. Unfortunately, the economic situation in Ukraine is far from being bright now. Therefore, we’ve prepared a fundamentally new business solution — ECO that combines both environmental friendliness and cost-effectiveness.
An entrepreneur, turning to Ukrgasbank, receives not just “a piece of good advice”, but a practical recommendation on how to modernize his/her enterprise via bank loans, make it up-to-date and, the most important thing, power efficient. Proceeding from today’s energy prices, an entrepreneur may pay off the debt not by profit increase, but by energy-saving, getting all the profit and minimizing the harmful effects on the environment at the same time.
That’s how we created a new program supporting the domestic entrepreneurs — “ECO-BOOM: Ukrainian future business.” We sincerely believe that this is exactly how the Ukrainian entrepreneur should look like in future — effective, “clean”, and modern. I’m pleased to note that we weren’t mistaken in choosing such a vision as the number of requests for this type of financial services is only growing. Due to this fact, there is a stable enlargement of the SMB client base of Ukrgasbank, which has about 57 thousand entrepreneurs in total now. We’re confidently approaching our goal — to become the bank No 1 for small and medium businesses.
DS: You were one of the few bankers in the governmental delegation which presented the Ukrainian pavilion at the recent Shanghai Economic Forum. According to your impressions, is China interested in investing in Ukraine? Are there any prospects for Ukrgasbank in this partnership?
Kyrylo Shevchenko: Unfortunately, today the amount of Chinese direct investments in Ukraine is far from desirable because of many reasons. At the same time, Ukraine’s proximity to the EU market is sufficient enough for a number of Chinese companies to take a decisive step and start developing their business in Ukraine. We reached an agreement on implementation of a new project — construction of the Dniester hydroelectric pumped storage power plant which is estimated at half a billion dollars.
Cooperation in the field of green lending and environmental protection, development of alternative energy sources and the financing of small and medium businesses were discussed with the deputy general director of Chinese export insurance credit company Huang Zhejiang. There’s hope that we’ll expand the cooperation with Chinese enterprises in this field through trade financing, export crediting, etc. in a short-term perspective. Moreover, governments are negotiating to build a plant for manufacturing solar panels in the Rivne region. Joint business forums, exchange of specialists and experience, investment support are part of the plan.
DS: Ukrgasbank was the first bank that introduced an innovative Green Banking strategy in Ukraine. What results have been achieved?
Kyrylo Shevchenko: We continue pursuing the Green Banking strategy and are actively working in three main directions: financing the renewable energy projects, energy-saving technologies and projects related to environmental protection. Without any exaggeration, the results are impressive: we’ve become a leader in financial support for the exploiting of new power capacities in Ukraine since 2017. According to the National Commission, which regulates energy and public services, every fourth megawatt received at the “green” tariff in Ukraine was financed with the help of Ukrgasbank. At the same time, the bank financed a third of the new projects of alternative energy sources in 2017 and more than 60% of all new renewable energy capacities this year.
In total, we’ve implemented 140 large-scale projects together with the IFC, among them: 103 solar, 6 wind and 9 biogas power plants, 18 small hydropower plants and 4 biomass power plants. Total amount of clean electricity for all projects is more than 1,350 gigawatt-hours per year, which is enough to meet the electricity need of 350 thousand household
What we’re doing now is beneficial as it benefits everyone in our country, and, of course, we are contributing to the future of the planet by implementing the principles of the Paris Agreement, dealing with greenhouse-gas-emissions mitigation.
It’s amazing that Ukrainians are actively involved in installing their own alternative energy sources. Moreover, installation of energy-saving equipment, solar panels, construction of the smart houses can be attributed to a rising trend. Ukrgasbank was the first bank in our country that introduced a loan program for installation of the turnkey solar stations under the “Eco-Energy” program. Six thousand Ukrainian families have established private SES by now.
Not only the desire of families to be more energy-independent is the stimulus for transition to “green” energy, but also understanding that this is a significant investment in a healthier future for our country. Due to the progressive Ukrainians and socially responsible businesses that got eco-loans from Ukrgasbank, we’ve already managed to achieve savings of UAH 738 million and a reduction of CO2 emissions into the atmosphere by almost 974 thousand tons.
DS: Ukrgasbank has changed a lot in recent years, and I guess that many people would like to work in such a successful and dynamic bank. Who can join your team — experienced bankers or young and ambitious college graduates?
Kyrylo Shevchenko: We are ready to cooperate with those who truly share our vision, ideas and life principles, be it a student or a banker with experience, it doesn’t matter at all. The main thing is that the person should love his/her work, be as dedicated as possible as it is the only way to achieve great results. Our team employs about 4 thousand specialists now. Ukrgasbank highly appreciates each of them, thus belonging to the top-3 Ukrainian employers in “Banks and Finances” field (rating held in the ten most important sectors of the economy that make up the gross domestic product).
We constantly review students’ CVs and invite young people for internships. Many employers underestimate young people, mentioning their lack of experience, but they don’t take into account a significant amount of benefits. Such employees are always active and open-minded. Training allows them to fully meet our need. But the most crucial factor is that they are used to thinking outside the box and looking at things from another viewpoint. Today’s youth is more socially responsible, so the Green Banking strategy evokes a keen interest and promotes decision-making. They offer new ideas that can change the world. Our task is to grant them an opportunity to realize those ideas!
I’d like to emphasize that we create an atmosphere in which every employee can take initiative and realize his/her potential. It doesn’t matter whether it is a new employee without work experience, or a colleague who has been working hard with us for many years. Everyone has opportunities for rapid career growth and professional self-development.
At the same time, each employee belongs to a single team. The brightest ideas come to life exclusively through joint efforts; business development is impossible under other conditions.
We create all the necessary conditions in Ukrgasbank for both employees and our customers. As an indicator, the number of our customers is constantly increasing. The bank client base has increased by almost 80 thousand people in November of this year. 3200 Ukrainians have become our clients daily during the last quarter. Special service rates, profitable and transparent financing conditions, the best products and favorable tariffs, loyalty programs and an individual approach to the financial issues contribute to the high rates of attracting the new customers. This wouldn’t have been possible without a team of qualified experts.