Under the previous legislation the activates of foreign banks were limited. They could not open their branches in throughout Ukraine and provide services to private clients. These banks were just able to open their representative offices in the country. The new legislation removes all restrictions on foreign banks' activities.
All foreign banks' subsidiaries to be regulated on the same basis as Ukrainian banks with no exceptions.
According to the amendments passed all foreign banks' subsidiaries will be regulated on the same basis as Ukrainian banks with no exceptions. It is supposed that corresponding amendments will be added to the commercial law to fortify these standings. At the same time the new legislation places several conditions that determine the subsidiaries' activity in Ukraine.
According to IntelliNews, in general, the bank should be registered in a country that is not included in FATF blacklist and is regulated according Basel banking regulation principles. Besides, the banks' regulative capital should not be less then EUR 150mn and the minimal level of subsidiary's capital should amount to EUR 5mn.
Of course, the foreign bank should apply to the Ukrainian regulatory authorities to receive for its subsidiary the right to provide retail services in Ukraine. At the final stage a subsidiary should be granted a common banking license. After that national bank of Ukraine adds the subsidiary to the list of banks that are allowed to operate in Ukraine.
It is expected 8 biggest Ukrainian banks to be sold to international groups.
The new legislation will step in effect since the date of its publication (the exact date is not unveiled, but we suppose that the publication of law will happen by the end of September).
Approval of the amendments to the banking legislation is a final step that opens the way to the radical changes in domestic banking system. The rise of foreign banks interest in the Ukrainian banking system influences MPs in passing amendments to the current banking legislation.
President of Ukrsotsbank Boris Timonkin expects that of 8 out 11 biggest local banks will be purchased by foreign banks in nearest future. Timonkin informed that present owners of big Ukrainian banks started to make enquiries regarding prices they can for their stakes. "Today we speak today about the monitoring process not about real sales deals", Ukrsotsbank president notes in his written statement on July 5.
Although we doubt that 8 biggest Ukrainian banks will be sold to international banking groups in nearest year or so, we should underline a current trend characterized by increased interest to big local banks from foreign financial institutions. At present owners of 2 largest Ukrainian banks by their net assets are negotiating with international banks the future sale of their stakes. If the Ukrsotsbank (ranks 1st by the net assets) still keeps in secret the name of its bidder, Aval bank (with the 2nd largest bank by its net assets volume) unveils the name of its future buyer.
Aval bank and Ukrsotsbank are first big Ukrainian banks to be sold.
According to the insider information (though not confirmed by the official side) Russian Alfa-bank is stated as a potential buyer of Ukrsotsbank. However, on June 21 Ukrsotsbank's president Boris Timonkin informed that the bank may be sold to a Ukrainian investor. At the same time Timonking confirmed that the sale of the bank would take place until the end of the summer. To remind you, Ukrsotsbank's net assets amounted to USD 1.75bn, own capital totaled USD 183mn and credit portfolio made up USD 958mn as per June 1, 2005.
Aval bank makes it clear that its future owner is Raiffeisen International (Austria). In mid of June 2005 Raiffeisen group finished Aval bank's due diligence. According to honorary president of Aval bank Fedor Shyg Raiffeisen still did not make the final decision on whether to buy it or not.
Although Shyp does not exclude that Aval can be purchased by Raiffeisenbank-Ukraine (RBU) by the end of summer. RBU is a subsidiary of Raiffeisen International. RBU intends to buy 88% stake in Aval. Its own capital amounted to USD 250mn , as on Apr 1, 2005.
In beginning of 2005 Scandinavian SEB banking groupacquires Ukrainian Agio bank for USD 30mn.
The recent meeting of Ukrainian president Victor Yuschenko with CEOs of Raiffeisen International that took place in Kyiv on July 6 confirms the possibility of forthcoming Aval bank sale.
It seems that Aval will become the first Ukrainian big bank to be owned by an international banking group. The fact the sides still did not unveil the details of the deal can be regarded as attempt to keep the purchasing price in secret until the last minute. In fact this deal will determine the preliminary price for big Ukrainian banks and can influence the plans of another bidders.
To remind you it the beginning of 2005 Scandinavian SEB banking group through its subsidiary Vilniaus Bankas bought Ukrainian Agio bank. Gitanas Nauseda Vilniaus Bankas CEO unveiled lately to IntelliNews that the price paid for the banks was USD 30thsd. This sum cannot be regarded as a tentative price for big Ukrainian banks, we assure.
Polish banks increase their activities in Ukraine.
Interest from international banks to Ukrainian banks already formed a trend.In mid June this year PKO Bank Polski S.A. continued acquisition of Kredit Bank's (KB) shares. On Aug 24, 2004 PKO Bank Polski S.A. bought KB's 66.65% stake from another Polish bank, Kredyt Bank S.A. EBRD owns 28.2% in KB. The remaining 5.1% stake is dispersed between 8thsd minority shareholders.
PKO is interested to increase its stake in the bank to 95%-100%.
Besides PKO Bank Polski S.A. intends to give KB a USD 7mn subordinated loan for 8 years. KB (until 2001 Western-Ukrainian commercial bank) was founded in 1990 and is the largest bank in the Western part of Ukraine. KB's net assets made up USD 300.4mn, while the credit portfolio amounted to USD 215.5mn on Apr 1, 2005. KB's net profit in Q1/05 was USD 306thsd.
Another Polish bank Pecao informed about its plans to increase activities in Ukraine. In particular the bank intends to enlarge its credit portfolio from EUR 30mn to EUR 100-120mn. Besides, after merger of German HVB with Italian Uni Credit (owner of Pecao 57%), it is supposed that Ukrainian assets of both banks would be combined.
Belgium Dexia Bank intends to enter Ukrainian market.
Also Belgium Dexia Bank intends to enter Ukraine market, the Association of Ukrainian banks informed (AUB) on June 8, 2005. The exact date of its entrance in the Ukrainian market will soon be disclosed. Dexia Bank was founded in 1860 as Gemeentekrediet Bank of Belgium. It was aimed to support investment activity in big cities.
The bank merged with Credit Locale de France in 1996, creating Belgium-France banking Dexia Group.
Latvian Parex Banka also plans to intensify its activities in Ukraine and will use for this purpose a part of its issued EUR 100mn Eurobonds, Valery Kargin, the president of the bank informed on June 6. The Eurobonds were issued in May 2005. The organizers of the issue were JP Morgan and Credit Suisse First Boston. The bonds have 3-year maturity and 4.75% interest yield.
At present Parex Banka has its representative office in Kyiv and plans to open another one in Dnepropetrovsk. Besides, affiliated with the Parex Group asset-managing company Parex Asset Management has domestic subsidiary, Parex Asset Management Ukraine.
S&P confirms recovery of Ukrainian banking system.
At last we should take into consideration the recent report of Standard & Poor's, issued on June 23. According to it the Ukrainian banking system recovered completely, S&P forecasts the fast growing of banks' assets during the coming year. S&P also predicts the rise of competition the sector.
The agency notes that National Bank's (NBU) steps taken at the end of last year helped to avoid mass cash withdrawals (caused by political situation).
These measures supported banks' liquidity and averted mass defaults of Ukrainian financial institutions. "Nevertheless, a number of important factors driving the future financial stability of individual banks and the industry as a whole still remain uncertain," S&P credit analyst Irina Penkina comments. "These primarily include the effects of the re-privatization process and the economic reforms of domestic corporates and financial-industrial groups, as well as the evolution of the banks' regulatory regime".
We expect large number of bank purchases in 2006.
Based on S&P's recommendations and because of the amendments to banking legislation passed we can state that favorable conditions for foreign banks' entrance into Ukrainian financial market were created.
Clearly it is a decision of a bank whether or not to enter Ukrainian market. However, state authorities significantly improved the regulations for their efficient operations in the country.
We expect large amount of bank purchases deals in the 2006. By then it will be possible to estimate the political risks due to next year's parliamentary elections.
This news was monitored by the ArtUkraine Monitoring Service for The Action Ukraine Report.
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