Arthur Iliyav is a top manager of the Ukrainian subsidiary in one of Austria’s largest banking groups.
As an Austrian citizen with Soviet roots, the deputy head of Raiffeisen Bank Aval brings keen insight into Ukraine-Austria relations and their deep historical links.
Born in Uzbekistan, Iliyav’s views are shaped by his family’s move to Austria in 1974 when he was a child.
He got Austrian citizenship and studied at the Vienna University of Economics and Business. He started his career in Raiffeisen Bank headquarters in Vienna. He continued at Raiffeisen offices in several ex-Soviet republics — Russia, Kazakhstan, Belarus and now Ukraine.
He is also multilingual, giving an interview to the Kyiv Post in English at his office in Parus business center. He could do the same in Russian or German. He outlined Raiffeisen’s state of affairs after expanding in the Ukrainian market through the acquisition of state-owned Aval six years ago.
Kyiv Post: How has Aval, formerly a big Ukrainian state-owned bank, fit into Raiffeisen, which bought it years ago for about $1 billion?
Arthur Iliyav: I think the transformation process has passed successfully. Raiffeisen understands the local pecularities very well. The most important thing is to change mindsets. The Ukrainian daughter was then one of Raiffeisen’s last acquisitions [in the former Soviet republics], so the Austrian headquarters had got used to different minded people. The former management and shareholders of Aval had left, and Raiffeisen people took over, which was a challenge at that time.
KP: What are the results of this investment? Did it turn out profitable? [The National Bank of Ukraine ranked Raiffeisen Bank Aval as the nation’s fourth largest by assets, with Hr 55 billion as of July].
AI: Regarding the company, the capital, the equity and the return we have, it’s a successful investment so far. The official financial figures of our success speak for themselves. We have more than three million clients and 922 outlets all over Ukraine. In each district city in Ukraine, you have Raiffeisen Bank Aval. We were able to become the number one player in servicing international companies. We are the number one in Ukraine’s agricultural business. I think that in 2008 we have been more careful than other banks. We reduced lending in the beginning and mid-2008, becuase at that time we already saw the turbulence on the global market.
KP: How different is the Ukrainian banking sector from European? What are major hurdles you face here and how do you deal with them? Are there any advantages as well?
AI: Seeing the presence of many foreign-owned banks means that certain standards have been established, and this time it seems to be quite good. The biggest challenge we face in all the countries now is the financial crisis. Ukraine is a good combination of the right size, the right location and the solid fundamental basis in the important sectors like metallurgy, agricultural, chemical sector, etc. The potential is not fully used, but it’s getting better.
KP: What is the situation in the banking sector now and what are Raiffeisen Bank Aval’s plans? How would a possible hryvnia depreciation affect the quality of your assets?
AI: Raiffeisen is a very strong player in Central and Eastern Europe and it is committed to the market. We do not leave our customers and the country in bad times. I think this second wave [of the crisis] is a prolongation of the first wave. Most of the problematic assets have been identified during the first wave of the crisis. They have been either sold or restructured, written off. From the new portfolio, lending came mostly in hryvnia. Therefore, there won’t be a huge impact.
KP: The bank’s activity in the retail sector fell in the first half of 2011, while it grew by 19 percent on the corporate level. Is this a shift in focus, like that recently adopted by Swedbank? [Ukraine Business Daily reported on Oct. 26 that the bank’s profits fell by 30.8 percent from January to September, to Hr 24.2 million.]
AI: I think these are the market realities … If you are a universal bank in Ukraine, you can only be successful by having retail and corporate banking combined in an efficient way. Currently we are working with hryvnia deposits, and not actively looking for dollar or euro deposits, while other banks do it. Secondly, the market situation is such that we should have fewer long-term deposits and more corporate short-term deposits on current accounts.
KP: Raiffeisen Bank International said it considers both Austria and Central-Eastern Europe as its home markets. How does having more than one home work?
AI: For Austrian banks, it’s a long common history. There has been a Raiffeisen bank in [western parts of] Ukraine before the World War I. There are still buildings preserved in Ivano-Frankivsk and Lviv, which have been Raiffeisen buildings. So Raiffeisen is not, in a sense, new to Ukraine. It is coming back. Basically it’s one home.
KP: What is the position of Raiffeisen Leasing Aval on the leasing market? Where did money come from to increase its share capital by 47 percent to Hr 180 million?
AI: Leasing is a product of a high demand, also from the bank’s point of view, because you are the owner of the asset, which makes it much easier to repossess and to resell. The capital increase came from Raiffeisen Bank Aval shareholders, and it has been maily done to give them more liquidity to finance the business. We are the number two on the leasing market. There is one company [number one] which provides specialized leasing only, and we are the largest company providing all kinds of leasing.
KP: Raiffeisen Bank International passed a simulation test of a “worst-case scenario.” What would be the results for Raiffeisen Bank Aval?
AI: The stress test has been done for the whole group, including all our banks. In this respect, Ukraine is performing quite well. Also we have the strongest rating in Ukraine from Moody’s. So far Eastern Europe is a very promising market and it is performing much better in terms of growth than Western Europe. And I’m not sure if the risks here are higher. What is more risky now – Spain, Portugal, Italy, Greece or Eastern Europe? It’s difficult to say.
KP: Why do many of Ukraine’s biggest businessmen and groups operate their businesses through Austrian-registered companies? Has Austria become a door to the offshore tax havens for them to conceal ownership and profits? [Editor’s Note: Some of Ukraine’s richest businessmen, including Dmytro Firtash and the Klyuyev brothers, Andriy and Serhiy, have enterprises registered in Vienna.]
AI: Vienna is close geographically, mentally and infrastructure-wise. Secrecy laws are mainly done for private individuals, and by any court decision you can open them up. There is no reason for this [concealing]. There are a lot of Western companies that have their headquarters in Vienna, not because they want to conceal something, but because they use the city as a perfect hub for Eastern Europe and otherwise.
KP: How comfortable was the Raiffeisen group with its subsidiary, Raiffeisen Investment, acting for years as a front for Ukrainian owners behind RosUkrEnergo, the high-profile yet mysterious gas trader which was also jointly owned by Russia’s Gazprom?
AI: I think there is no damage done. Everything has been done in accordance to international practice standards. I don’t remember any court decision.
KP: Why is there so much investment interest coming from Austria, Ukraine’s fifth biggest investor?
AI: Austrian banks were the first to feel the potential of Eastern Europe before it even opened up. Swiss banks are global players. Austrian banks have the focus [on ex-Soviet countries]. So it’s the history, mentality, focus and closeness to the market. Also a lot of Austrian companies are family businesses. They are more flexible, more pioneering. They make long-term decisions and don’t have to look at the share price all the time.
Kyiv Post staff writer Maryna Irkliyenko can be reached at [email protected].
