News

8 july 2008

Bumper crop in the field of finance

It is intrinsic of investors to keep looking for ways to profit. Ukrainian banking system is one of the most prospective and swiftly growing in East and Central European market to serve that purpose. It represents 175 active banks with net assets of USD120 bn as at 01.01.2008, the growth being 176% YOY, compared to 44% in Russia and 32% in Kazakhstan.

Ukrainian banking assets increased tenfold over the past five years of dynamic growth of economy and swift capitalization. These were due to the radical change in Ukrainian consumer sentiment, with 2007 being the watershed in retail lending. The loans issued to Ukrainian residents in the past year increased by 98%, to be utilized mostly for purchase of real estate, cars and durables. The lending spree is based on the speed-up growth of nominal revenues of individuals that increased over the past five years by more than 2.5 times. By all accounts, this trend will continue in the mid term, building up a firm platform for further steep development of Ukrainian banking business against the backdrop of the national economy growth (5-6% annually).

In fact, a few years ago Ukrainian banking system per se had to put up with the reality of being compared to a mid-sized Polish bank, whereas today it is in the Top Five in ECE. And most likely one of the top three regional leaders, either Poland, Czech Republic or Hungary, will be outperformed in the coming year.

Ukrainian banking business is not homogeneous, with both stagnating and aggressively growing banks on the list. It’s worth analyzing such a livewire as OJSB UKRGASBANK in this context. In 2007 its net assets increased by 131% mostly due to the boosted lending policies. According to the National Bank of Ukraine the overall banking system loan portfolio grew by 80% over the past year, compared to UKRGASBANK 125% growth, whereas its corporate loans grew by 126% and retail loans – by 141%.

In 2007 Ukrainian banks intensified their equity increase, which let them significantly shore up liquidity. On the average, this metric grew by 64% in the system. At the same time, UKRGASBANK’s share capital was increased by 95%. The trend is expected to continue in the coming year. Authorized funds of Ukrainian banks will keep growing materially, albeit the banking capital growth will most likely slow down in 2008.

Regional distribution network dynamic growth is the most important indicator of the banking system development. Ukrainian banks accounted for the total of 22 924 points-of-sale as at 01.01.2008. Its absolute gain accounted for 2 473 POS or 12%, whereas UKRGASBANK expanded its network by 43% and accounts for more than 300 POS, exclusively focusing on financial services. The Bank plans to increase the number to 415 by year end.

The revenues of the banking system in 2007 accounted for the total of UAH7,1 bn with 75% of it due to interest income, 18% to fees and commissions and 4.6% to trading operations. UKRGASBANK’s profit makeup is somewhat different. Its interest income accounts for 49%, 25% – due to fees and commissions, and share of trading operations represents 12%. Focusing on fee income and trading proceeds is a competitive tool to significantly strengthen one’s positions, which implies that banks pursuing these goals will benefit.

The Bank has a positive track record on the international scale. Although the volume of borrowings in capital markets increased due to active trade finance business and attracted syndicated loan facilities in 2007, UKRGASBANK is immune to current foreign capital markets crunch, since its share in Bank’s liabilities is limited to 4%.

UKRGASBANK gained a valuable experience and implemented the best corporate governance practices after successful completion in 2007 of Corporate Government Program, supervised by IFC. As a result, two Independent Directors were appointed to the Supervisory Board and two new Committees were created:  Internal Audit Committee and Corporate governance and appointments Committee, headed by Independent Directors. The fact proves that the Bank keeps pursuing the policy of transparency and openness. Aiming to promote the export activity of its customers, UKRGASBANK in 2007 joined the World Bank Export Development Program EDP-2. Moreover, the Bank obtained international ratings from Fitch and Moody’s.

The crop in the field of Ukrainian banking is ripe. Reapers are wanted.