Kyrylo Shevchenko, CEO of Ukrgasbank
The state of Ukraine and the World Bank make the perfect partners for the shareholders of our financial institution
23.11.2017 18:00

On November 14, 2017, the Ministry of Finance of Ukraine, Ukrgasbank, and IFC (International Finance Corporation, a part of the World Bank Group) signed a memorandum on cooperation in attracting investments from IFC, receiving consulting services for the development of the bank, and increasing its investment attractiveness. The act of signing the document and subsequent comments made by high officials were received by the public as a message about the de facto privatization of one of the five state-owned banks in Ukraine. However, as Ukrinform found out in an interview with the chairman of the board of Ukrgasbank, Kyrylo Shevchenko, a respected international investor only assessed the dynamics of the development of the Ukrainian bank and expressed the intention to become its shareholder. It is a common international practice to conclude an agreement of intent which ensures transparency of serious financial decisions.

Ukrinform:

Explain the essence of the signed memorandum, which, for some reason, gave the wrong impression of the active preparations for the privatization of the bank. The official website of the bank mentions “deepening partnership that will contribute to the enhancing investment attractiveness of Ukrgasbank.” What exactly is this document about?

Kyrylo Shevchenko:

A tripartite memorandum between the state of Ukraine, the state bank Ukrgasbank and IFC, as part of the World Bank Group, is a remarkable document. First of all, the act of signing this agreement means that the key financial organization of the world, which includes 189 member countries, together with our main shareholder, the state, is interested in becoming our partner. Such partnership opens great opportunities for the development of the bank and its transformation into a modern financial institution. Secondly, the memorandum showed that the financial performance of Ukrgasbank fully satisfies IFC and meets its highest criteria for selecting potential partners. Thirdly, this is a significant step in the global sense, as it is a positive signal for both domestic and foreign investors in Ukraine. I am proud that we managed to convince the world’s financial elite that cooperation with the Ukrainian state bank has lots of perspectives. In September this year, IFC has already provided Ukrgasbank with finding under the Global Trade Finance Program amounting to USD 20 million. These significant resources are required for the implementation of our joint plans.

As for specific provisions that provided grounds for discussing privatization, I will read the relevant section of the memorandum: "... IFC will consider investments through debt financing and/or pre-privatization quasi-capital, or investments in capital (as a minority shareholder) through an increase of authorized capital, purchase of shares or combination of these actions.” It means that so far it's only the intention of the World Bank Group to acquire a share in the capital of Ukrgasbank as a minority shareholder (editorial note: according to the law, minority shareholders have the right to own no more than 25%). And the way these provisions will be implemented will depend on several factors, including the results of due diligence, the availability of the relevant consent of IFC management and the Board of Directors, as well as some other factors.

In fact, it does not matter how the Corporation will become a shareholder of Ukrgasbank or what percentage it will purchase. The fact of its presence in the Ukrainian financial market will signify a completely different level of interaction between our state and international financial institutions. Thanks to this cooperation, our bank will get access to cheap and significant financial resources and progressive management practices. Just imagine: the state and the World Bank will be co-owners of our bank. It is impossible to think of a more reliable partnership for our financial institution.

Ukrinform:

What do the state and the bank need to do so that the World Bank could implement its intention to become a shareholder of Ukrgasbank?

Kyrylo Shevchenko:

In order for IFC to consider the possibility of investing in Ukrgasbank, the Ministry of Finance should encourage amending certain financial legislation. Ukraine has to implement a legal mechanism that would provide a possibility to repurchase the bank's shares from IFC if, due to some internal or external circumstances, the plans of the government or investor change and it would be impossible to privatize the bank.

On our side, we need to deal with our own banking business, which is to implement the adopted development strategy of Ukrgasbank and become a locomotive of positive changes in the domestic banking sector and the economy as a whole. We have already done a lot in this direction. In particular, we brought our corporate governance structure to European standards and hired four independent foreign representatives to work at our Supervisory Board. You can assess the effectiveness of this management system by our financial results. Since the beginning of this year, the net profit of Ukrgasbank amounted to almost UAH 400 million, which is 50% more than was approved by the bank's Supervisory Board and planned in the budget. In addition, the establishment of the independent Supervisory Board was one of the key factors that supported the decision of the World Bank Group to cooperate with our bank.

Ukrinform:

According to the NBU, in April 2016 the bank had UAH 48 billion in assets and held the 7th position in the annual ranking of banks. Today it holds the fourth position and has assets of UAH 65 billion. Indeed, no other bank has shown such impressive performance trends, especially in the post-crisis years. But what are the reasons for such growth? Does it carry the risks of worsening the quality of the bank’s loan portfolio? We all remember the story of the rapid development of mortgage lending system in Ukraine before the global financial crisis, which, as it turned out, was far from ideal in the context of risk management.

Kyrylo Shevchenko:

The Bank acted strictly within the framework of the credit policy approved by the Supervisory Board for 2016-2017. Its actions were based on a moderate risking, sensible approach to the selection of borrowers and detailed studying of their creditworthiness. We focused on investing in green energy. Thanks to the support of IFC, over the past two years, we have managed to develop a comprehensive examination of environmentally-friendly projects. At the same time, Ukrgasbank dynamically worked on the settlement of the troubled debts that emerged before 2014. As a result, during the last year and a half, the level of non-performing loans decreased from 39.3% to 19.5%.

As a matter of fact, the growth of our loan portfolio is not related to retail lending. The level of individual indebtedness for the last year and a half has not changed much (UAH 5.6 million as of April 2016 against UAH 5.5 million as of September 2017). These figures indicate that we have drawn the right conclusions from the experience of the previous financial crises and strengthened our risk management performance. And thanks to choosing the developing industry of Green banking, we were able to become one of the leaders of the banking sector.

I’d like to note that today Ukrgasbank offers credits both for individuals and businesses. Particularly, we started operating on the mortgage market, because we believe it has a great potential.

Ukrinform:

But still, why did you choose to put a stress on lending to Green projects? You have already given credits to energy efficiency projects for UAH 5 billion. What are the potential volumes of this niche in Ukraine? What is special about working in it?

Kyrylo Shevchenko:

Generally speaking, the main goal of creating any Green bank is to finance investment projects aimed at improving the environmental situation in the country. According to WHO, in 2016, Ukraine topped the list of countries in terms of the number of deaths from air pollution. And it's not surprising. From the Soviet Union, we inherited energy-consuming and environmentally harmful economy. At that time nobody worried about harmful emissions and pollution of the environment. Today, we are not happy with this situation. Ukraine urgently needs a transformation of the energy and industrial sectors through green technologies. That is why the decision to turn Ukrgasbank into a “green” bank was taken at the state level. Now there are three main areas of project funding: the environment protection, development of alternative energy, and introduction of energy efficiency technologies.

Around 60 large projects were implemented since the inception of cooperation between Ukrgasbank and IFC. There are 35 solar power stations, 4 wind power stations, 12 small hydropower stations and 8 thermoelectric power stations that work on biofuel among them. For example, we issued the credit to Zaporizhstal for installing new and modern equipment. It is expected to help reduce the number of harmful emissions in the region by 20%. Thanks to the green loans from Ukrgasbank, domestic enterprises managed to save UAH 685 million and reduced CO2 emissions for almost 717,000 tons.

According to the national commission, which regulates energy and public utilities, every fourth megawatt of the green tariff in Ukraine in 2017 was financed with the help of our bank. Today, the bank has another 40 environmentally-friendly projects worth EUR 261 million. According to our estimates, in order for the Ukrainian economy to reach the level of necessary energy efficiency and environmental protection adopted in the European Union, we need to invest at least USD 35 billion in the modernization of the whole production sector.

In the long run, the green model means that we have certain products in the line of Green crediting for clients of all categories (individuals, small, medium, and large business). For example, individuals are offered loans for installing solar panels and heat pumps, and small business owners can count on our help with purchasing energy efficient equipment. Moreover, thanks to our extensive experience in implementing energy efficiency projects, our employees have expertise and knowledge that allow them to provide appropriate technical and consulting assistance. And thanks to IFC resources, we can offer very attractive interest rates for such loans and the opportunity to purchase imported energy efficient technologies and equipment.

Ukrinform:

You also wanted to issue special “green” bonds to supplement the resource base for environmentally-friendly credits. What did you stop at?

Kyrylo Shevchenko:

As for now, we have no need to issue them, especially when there is an open funding line from IFC. But we do not forget about this tool. Since special verification is required for such bonds to be issued, we are actively consulting with the International Finance Corporation, which is the largest issuer of these securities.

Oksana Polishchuk, Kyiv

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