First Ukrainian International Bank, owned by the richest citizen of Ukraine Rinat Akhmetov is a sort of "black sheep" among other oligarchic financial institutions. Unlike the banks of Ihor Kolomoisky, Kostiantyn Zhevago, Viktor Pinchuk or Dmytro Firtash, FUIB has neither billion-dollar stabilization loans fr om the NBU, nor problems with the capital. And this is despite the fact that the core business of the bank was concentrated in the territory of the now occupied Donbas. For the third year the bank of Mr. Akhmetov is managed by Serhiy Chernenko. It must be mentioned, that earlier FUIB was a famous record holder in terms of the top management change frequency among the largest banks. For the past 10 years the bank was "run" by five managers. Nevertheless, Mr. Chernenko, who has been working at the bank since 1997, feels quite confident and regularly communicates directly with the owner of the financial institution.
- How well is FUIB capitalized? What was the value of the N2 norm as at April 1?
- The value of N2 was at the level of 12.72%. We did not break the norm. Although in general the issue of capital adequacy is very ambiguous. If you look today, you will see one picture; if you look in the long term, taking into account any events, there will be another picture. I want to note that we went through the whole last year and the beginning of this year and maintained adequate capitalization.
- It is now hard to find a major bank, especially with the national capital, which has not announced about plans to increase capital. Are you planning something?
- The National Bank has already announced a new program of stress-testing, but the exact criteria for the assessment are not yet known. Accordingly, we will make some decision on the capital increase after the results of the stress test.
- It means that there is no question of capitalization on the agenda yet?
- Not yet. In the past year, we have increased the bank's capital, in particular by extending subordinated debts. In addition, in the first quarter, we completed the process of amalgamation of FUIB with the retail bank "Renaissance Credit". This allowed us to increase the capital by 300 million UAH, which equals about 10% of the total capital of FUIB.
- And still, how is it that your business was concentrated in the Donbas, and you managed without any special injections not to violate the norms? Is everything all right with your reserves? Are they adequate for the portfolio quality?
- More recently, we have passed an annual audit, which was carried out by a company of the "big four". This audit confirmed the correctness of our financial statements. By the way, historically FUIB is the first bank in Ukraine, which in its time has been audited according to international standards. We do not have problems with the capital. The reason is that before the crisis, the bank was the overcapitalized, what, by the way, in peace time was a particular problem for us. The fact is that when there is an excess of capital, the rate of its return (RoE) is automatically decreased. However, as we see, this excess is very useful in a crisis. In addition, we have been very cautious in lending in foreign currency after 2009; the borrowers had sufficient margin of safety. Therefore, the problem with the corporate portfolio began only at the end of 2014. Surprisingly, the majority of our borrowers have fulfilled their obligations regularly throughout the year. I cannot say the same cannot about the retail loan portfolio.
- How many branches does the bank have now?
- We had about 160 branches. Because of the events in the Crimea and in the East, we have lost about 40, but by amalgamating with the bank "Renaissance Credit", we actually compensated for the lost locations. In the near future, we plan to reformat the branches of "Renaissance Credit" specializing in the issuance of cash loans into universal bank branches.
- What are the pros and cons of the bank's belonging to a large financial-industrial group?
- The main advantage is that being in a group it is easier to communicate with the management of other large companies of the group for cooperation and implementation of joint projects. In addition, the group has many counterparties, which we also consider as potential customers, we are able to learn each other better.
As for the cons, it is certainly the fact that we cannot lend to companies of the group. For us, this segment of the market is excluded in terms of active lending. It has always caused dissatisfaction within the group, as these companies would like to see us as the partner bank, which not only serves the ongoing activities, but also provides loans. But we have quite a serious constraint on lending to insiders.
- At the end of the last year, FUIB restructured the issuance of eurobonds. Are you satisfied with the conditions?
- Yes, we came to the end of the period for repayment of $252 million. We paid about 22%, and the rest we have to repay over 4 years, with the beginning of payments in 1.5 years in equal installments, with the remaining interest rate at 11%. It is a schedule, comfortable enough for us.
- What do you think, can Ukreximbank restructure their debt successfully? Or will there be any complexities?
There are always complexities. But I think they will manage it. For example, we held a lot of negotiations with investors. It is probably impossible to say that it was easy, but we succeeded.
- Do you think you would be able to do that now, after the default of "Metinvest"?
- During the debt restructuring, we were asked a lot of questions about DTEK and Metinvest. However, our business model is built in such a way that we are quite independent. The situation in these companies had no effect on FUIB as we have no loans to "Metinvest." Moreover, from my point of view, the term "default" is somewhat exaggerated in this case. The company just entered a phase of discussion about the restructuring of its liabilities. "Metinvest" is not different from many other companies in the Ukraine.
- Do you provide loans to corporate clients?
- No, we do not lend to new customers, but we continue working with existing borrowers under previously open lines of credit. With regard to new transactions in circumstances wh ere there is no "planning horizon", it would be wrong to give any pledges. In addition, the situation should stabilize in terms of liquidity. For example, we do not exclude the possible recurrence of panic. And for this case we are keeping a liquidity cushion.
- What do you hold the liquidity in?
- On correspondent accounts, including those in the NBU, in operations with government bonds, we buy certificates of deposit of the National Bank. They have attractive terms of placement. This is a nice simple instrument with guaranteed liquidity...
- And with a good yield. National Bank pays on the deposit certificates 26-27% per annum, while the average rate on time deposits of the population equals 20-21% per annum. It is hard to imagine that in such circumstances, banks have an incentive to even look in the direction of lending to the real economy. Is it so?
- The question is not simply to earn situationally. Bankers are interested in guaranteed earning in the long term. It is not serious to say that banks will rebuild the business model, turning away from lending, because right now there is such a situation. How long will it last? Well, for some three months. And then what? Customer relations are built not for one day, but for years. As soon as certainty and the planning horizon appear, we will return again to the active lending.
- And what about the retail lending? Was it also winded down?
- No, we provide loans, although we have revised our policy into the direction of tightening, and reduced the number of sales channels. If you do not take into account the ATO zone, our products remain profitable even in the current economic situation. In general, the consumer lending market has narrowed down considerably. The demand is there, but the number of players has dropped significantly. I think that even though we have reduced the volumes we remain one of the largest operators.
- If we talk about priorities. Which proportion of "Retail/Corporate" do you seek? 50/50?
- 60 to 40 or vice versa, which is essentially the same. The crisis has shown that the bank must be balanced. If you do focus on just one type of activity, the bank will lose its stability. For example, the strong positions in the corporate business helped us to survive the panic among retail clients. If you look at statistics, out of the top 10 banks, only two increased account balances of corporate clients. FUIB is one of them.
- Are these market attractions?
- Absolutely. The idle balances of the enterprises of the group remained at the same level. For me it is a quality criteria of our business model.
- Can corporate business be successful without active lending?
- Our customers live in the same country that we live in, and they adequately perceive the situation. They do not have the planning horizon to convince us to give them a loan. At the same time, the business is always in need of payment and cash settlement as well as other services. And this is what the bank can offer them today. However, if we talk about the long term, there can be no successful model either in retail or in the corporate sector without lending.
- In recent years, the hryvnia strengthened significantly in relation to hard currencies. What is the reason?
- First and foremost, this is due to stabilization measures taken by the National Bank to balance supply and demand. An important factor is getting support from the IMF. Previously the National Bank sold the currency to NJSC "NaftoGas" directly, but recently, the monopolist bought foreign currency in the market, as did the others. It means we can talk about achieving balance.
- And is it possible to buy foreign currency cash at FUIB's branches?
- Yes, you can go down now and buy. There are no problems with the sale now. Over the month and a half the population has been selling more dollars than it has bought.
- Many banks, including some major banks, do not sell foreign currency at all.
- We are selling it, but people are not buying. In general, we try to work with the foreign currency brought by the clients. There were periods when we reinforced cash desks by means of buying from the interbank as well. Now we do not do that, because such operations are not possible due to the limitations of the NBU. Nevertheless, we would like to buy the currency, because the margin is attractive allowing us to earn.
Full text of interview please find in magazine Business (No. 18-19), May 11, 2015
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