Delo.UA sought an interview with Serhiy Chernenko for over a year. He took up the position of FUIB's chairman of the Board instead of Kostiantyn Waysman in October 2012; but he has been working on the banking market and, in particular, in FUIB, for even longer − since 1997. The interview turned out to be too voluminous so we decided to divide it into two parts (the second will be published tomorrow, on the second of September). In the first part of the conversation FUIB's chairman of the Board told, how he sees the future of the Ukrainian banking system, about the consequences the war in the East could have for the bank and about the attitude to a series of innovations for the market on the part of the government and the NBU.
A concept of the reform of the banking system up to 2020 was presented in the NBU. How do you assess it?
All started with skepticism, because you always want to solve an urgent problem first and then to move forward. We were in a situation with ongoing unresolved issues, with the uncertainty of the economic policy, including the work with the IMF, with the uncertainty about the exchange rate; and then the plan for up to 2020 is suddenly announced. This caused a certain irony in a number of my colleagues.
But it is pleasant that the work was done in a quality manner, although there are a lot of debatable points. This is a good example of what we expect not only from the National Bank, but also from the Ministry of Economic Affairs, and from many specialized departments. After all, last year we asked "Ukrzaliznytsia" ["Ukrainian Railway"] (FUIB's client - editor's note): "guys, do you have any long-term plan? How can you look at a company, whose financial plan is calculated only for one year, and at the same time it has a serious need for capital investments?". Until we begin to form some kind of a horizon, where we have to move on, we will be bogged down in the current problems, constantly bumping into new ones.
What provisions of the new concept are the most controversial, in your opinion?
The document is extensive, but there is no implementation plan in there. The strategy is worth nothing if there is no plan for its implementation.
Do not you regard the norm for a minimum level of authorized capital for banks that is equal to 500 million as radical?
In our country, the number of banks per capita exceeds the normal level. From the standpoint of concentration of banking assets, the basis of the banking system is formed by 20-30 banks. All the rest are niche banks, the number of which is not so big, or banks that have been used in the financial schemes, in fact, fictitious banks. Basically, it is impossible to provide a quality service or offer some new services without having a good exchange balance and the possibility to invest in technologies; accordingly, it is impossible to earn in the traditional way.
In such circumstances, the question of non-traditional methods of earnings arises. All of this overloads our banking system.
However, there are some nuances in this issue. All over the world the so-called Internet banks are developing very actively. They actually require a little less capital. But in general, I personally support the initiative, because the banking system has to enlarge.
Will this lead to the consolidation in the banking sector or to the cut-off and exit of a large number of banks from the market?
Now this leads primarily to the fact that small banks that did not make trend and made no difference, but created certain risks, are eliminated. I believe that we can expect the consolidation of the banking system in a natural way by means of a union, or as a result of an exit of weak players and non-traditional banking institutions from the market.
Our banking system is still in the formative stage. In many Western markets, which we call mature, approximately five banks, or maximum ten, have overwhelming market positions. Because banking business is the business, in which the scale matters. When having from one to three million individuals customers, it becomes possible to use more sophisticated instruments both in the management, and in your products.
Are you ready to consider in the future the question of taking over the "Renaissance Capital" bank?
Actually the "Renaissance Capital" bank is a unique platform for us for the loan generation. They have a strong corporate culture aimed at the efficiency of sales. We have kept that platform aside on purpose, in order not to destroy it. The dominant idea In FUIB is provision of services. But provision of services and orientation towards sales conflict with each other to some extent.
"Renaissance Capital" is currently already integrated into our activities. We do not conceal that the funding of "Renaissance Capital" is performed through the purchase of a portfolio that we generate. Plus we try to increase the synergistic effect in all directions: in the risk management, in IT, procurements, in operating activities. The existence of common platforms and shared knowledge enables us to be more efficient as a whole. Therefore, in my opinion, the question of whether to merge or not to merge with the "Renaissance Capital" does not change anything in our model that currently exists.
Does the future belong to the universal banks or to those that specialize in a particular sector?
Both types of banks have future. You either need to have a high level of professionalism in some narrow specialization, or to be a universal bank and occupy a significant market share.
Do you follow both paths?
Yes at this stage we do, but it does not mean that we can not change the path. If we see that in this market there is no longer the dynamics of consumer crediting that was in the past, we'll probably go for even closer integration, up to readiness for amalgamation.
How do you feel about the idea of creating a mega-regulator?
The concept has not been unraveled in terms of content, so it is difficult to assess it. On the other hand, the number of tasks that faces the National Commission on Financial Cervices and the National Bank requires full concentration and commitment from each of these bodies. The question of how the creation of the mega-regulator may allow one to be effective with the reforms in all directions is still open for me.
What about the protection of creditors' rights?
Creditor is not protected in our country. Unfortunately, corruption, lack of transparency of the judicial system and the executive bodies are still at a level exceeding the normal level for conducting activities. We must be ready for fairly aggressive actions on the part of our borrowers, which can seriously complicate the work, if they are willing and have the opportunity to use the corruption channels.
The last few decisions of the Verkhovna Rada have surprised the banking sector a lot. One of them is a moratorium on the alienation of the collateral. How do you assess this decision and do not you consider it to be populist?
We have all faced a very difficult situation. Everything that is happening in the country, it is tremendous stress: devaluation, military activities, annexation, panic, political turmoil. And all this caused problems, which, from my point of view, are of a temporary nature.
The period, for which the moratorium was imposed, is quite reasonable, and it is socially responsible from the standpoint of both the state and the bank. Of course, there is a certain amount of populism and a discussion on the topic of what "banks are obliged to do" exists in the society.
Yes, banks are obliged to understand the problems of their clients; we can not be apart from the society. But, at the same time, the right balance is important: the state has to take on something in the form of social assistance; a client sometimes has to take on the load; and something has to be taken on by the bank. But by shifting all the problems onto the bank, we can make the situation even worse. The banks are a circulatory system of the country, and if we disrupt it, the working capacity of all other bodies simply will not matter anymore.
A scandal concerning applications for restructuring has recently arisen in one of the banks. This bank demanded making a payment of 200 UAH only for the submission of applications, including from the residents of eastern Ukraine. How expensive are such services in your company?
In our bank they are free of charge. I know that such practice exists; banks are trying to make money on each operation. Perhaps it is quite justifiable for a different kind of conditions or other kinds of situations, because any work means labor input. But in this case it is not very ethical.
We understand that people in the East are under greater stress; not everyone can leave, and those who have left, have lost their jobs for this period of time and have additional difficulties with finances. We are ready to offer them a three-month vacation without waiting for the delay on their part. All they need to do is simply to come to the bank.
The situation in the East is getting protracted. At the same time, FUIB has a rather large loan portfolio of enterprises in the Eastern Ukraine. How did it affect the bank?
The main problem at the moment is the quality of the consumer portfolio of individuals. Incomings of salary are irregular, as is the delivery of cash in order for people to receive this salary. All of this led to the fact that people started to have problems with debt service.
We also have separate problems related to the fact that a number of enterprises temporarily stopped and asked for a vacation for as long as they have difficulties with conducting operating activities. But, in general, there are so far no problems with the viability of any enterprise. Everything will depend on how long this situation continues.
Can you estimate the share of the portfolio of the eastern region in the overall structure and by individuals, and legal entities?
With respect to the portfolio of individuals, 25% of it was generated in this region, in the Donetsk and the Luhansk regions. But not the whole Donetsk and Luhansk regions are beyond the control zone of the Ukrainian government. After all, a significant part has already been liberated.
In addition, about a quarter of the loan portfolio of legal entities accounts for enterprises that are currently experiencing some stress. But those are strong, large industrial enterprises, whose economic potential and market positions are good. I'm sure that the situation will stabilize after the liberation of these territories from terrorists.
How much are banks currently interested in working in the securities market, and how active are you in this segment?
The securities market is in a very listless state. We have a portfolio of securities of the Ukrainian government. We use them primarily as a source of secondary liquidity. It is an instrument that allows us to fairly quickly convert securities into money.
The National Bank constantly carries out tenders using securities collateral, for the provision of short-term resources (up to three months). We have formed a significant portfolio of securities − $150 million of domestic government bond, denominated in dollars, and about 600 million denominated in UAH. It is also our secondary liquidity cushion.
For us, this market is both a platform for active earnings, and instrument that allows us to optimize the liquidity management in terms of efficiency.
What do you think will happen to the interest rates in the bond market?
They are now at their peak. I expect that as the situation in the country stabilizes, first of all, the military phase in the East ends, the government will start to pay attention to reforms more actively. Then the rates should decrease. Their level is currently not economically justified for conducting business.
What do you think about the policy of inflation targeting? Will it lead to a short-term increase in the interest rates?
The increase is unlikely to happen, most likely, we will see a rise in inflation, which will catch up with rate, which exists at the moment. The interest rates in fact currently already represent the rate of inflation, which was targeted.
Actually, the policy of pegging rates to the inflation is very correct. When the rate of return depends on the inflation, the market will start to work according to transparent economic rules. We have seen earlier that the refinancing rate of the National Bank has not been changing no matter what was happening in the market, no matter what rates were there, no matter what the inflation was. This speaks of weakness and inability to handle it.
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