Andriy Pyshnyy, the CEO of state-owned Oschadbank, Ukraine’s second largest bank, says that his goal is to make the bank profitable again.
That would be quite an accomplishment, considering the bank’s history of recording only losses. Nevertheless, Pyshnyy says that if everything goes well, the bank will make a Hr 300-400 million ($12-16 million) net profit this year.
The main reason for the bank’s poor performance is that it has been a pocket bank for lawmakers for years, just like the other two state banks in Ukraine, Ukreximbank and Ukrgazbank.
While former President Viktor Yanukovych was in office, the bank was financially drained by people such as Yanukovych himself, Serhiy Arbuzov, Yuriy Kolobov, Oleksander Leshinsky, and Andriy and Serhiy Klyuyev, the bank’s CEO said.
But some say it developed a reputation as the prime minister’s “piggy bank” while Ukreximbank catered more to the friends of the president in power.
Political deadbeats
Pyshnyy, a former member of parliament, says that the previous administration didn’t work to develop the state bank at all.
“They abandoned it,” Pyshnyy said during an interview with the Kyiv Post on June 6.
He said that 96 percent of the bank’s credit portfolio was placed with big corporate businesses and that successive administrations had not invested in its various branches across the country.
“Most of the corporate loans that were given out were currency credits,” resulting in about a fifth of the bank’s loans becoming problematic in the wake of the crash of the hryvnia.
Pyshnyy said that Oschadbank has already sent a number of cases to law enforcement agencies on borrowers who did not repay loans.
These include: Urozhay, an agriculture company in Sloviansk that owes around Hr 2 billion; Pivdenzahidshlyahbud and Stroyuplavleniye No. 813, road construction companies that together owe at least Hr 1 billion; and Kreativ, an agroholding company which must repay more than $300 million.
But these are only some of the cases on Oschadbank’s long list of deadbeat loans. Pyshnyy will not talk about some of the cases, such as that of Bank Mykhailovskiy, referring to bank secrecy. The now-defunct Bank Mykhailovskiy, owned by Viktor Polishchuk, is believed to have borrowed money from the state bank to build the Gulliver shopping mall, located in the center of Kyiv.
Pyshnyy refused to say if his bank gave any loans to build the Gulliver mall and whether Polishchuk repaid them. Polishchuk has been accused by National Bank of Ukraine Governor Valeria Gontareva of falsifying the bank’s balance sheet by Hr 1.1 billion and said that he and the bank’s CEO, Igor Doroshenko, face five years in prison if convicted of fraud. However, despite more than $11.4 billion in bank losses stretching back to 2008, nobody has been prosecuted for bank fraud. Attempts to reach Polishchuk or Doroshenko were unsuccessful.
“There are questions that I cannot discuss because of banking secrecy,” Pyshnyy said.
Publicizing ‘blacklist’
The Kyiv Post asked whether the bank would be willing to provide a list of deadbeats so that taxpayers would know why their money is being used to refinance a state bank.
“Why not?” Pyshnyy said. “I think that we could collaborate with our colleagues from the National Bank of Ukraine on this… I think this blacklist would be a proper evaluation and response.”
The central bank carried out an inspection over almost six months, completely analyzing the credit portfolio of the bank to see whether there were any abuses.
“As a result, all of the information regarding possible abuses that were identified are at present with the regulator,” Pyshnyy said. “And all of the corresponding statements for each such case where there were offences have been submitted to law enforcement.”
Bank remodeling
But to become profitable again, Pyshnyy doesn’t want to wait until all of the court cases are settled. Instead, he is remodeling the bank to make it look more European and more customer service oriented.
One of his first decisions was to give a Western image to the bank, investing in branding, and to make relatively quick-fix changes, such as buying 1,000 payment terminals and installing them at at least 320 bank branches. Soon there will be internet and mobile banking services as well.
When it comes to long-term goals, the bank has prepared a rigorous modernization plan for the next two years in collaboration with global audit firm PriceWaterHouseCoopers.
The strategy, which was approved in February 2015, consists of 100 projects, a third out of which are already completed, and most of which will be completed by the end of this year, Pyshnyy said.
But the overall scale of the changes required at the bank is massive.
“We’re basically doing open heart surgery on a bank with 4,500 branches, 32,000 employees, working on the front line of the war in the east, and solving problems that have to do with the damage done to the bank by the occupation and annexation of Crimea,” Pyshnyy said.
Russia factor
Oschadbank lost at least $600 million due to Russia’s annexation of Crimea alone. Pyshnyy expects the figure to be much higher once a more detailed estimate is performed.
“Altogether the losses in Crimea were worth 30 percent of our capital, which the state had to compensate — and it did,” Pyshnyy said.
Because of Russia’a war, non-performing loans and the hryvnia devaluation, the state bank had to be refinanced. During the last six months the bank has returned more than Hr 15 billion of its refinancing credit, out of a Hr 20 billion liabilities portfolio, the CEO said.
“For the first time since 2008, the bank has started to return refinancing credits,” Pyshnyy said. He said he expects to pay everything back ahead of schedule.
Retail, business loans
One of the reasons for the bank’s current success is that it is putting a lot of effort into rebooting its retail banking business, where small- and medium-sized enterprises are a priority.
“About a year ago you had to wait up to 30 days in some cases in order to open an account. Today, our key performance indicator is 24 hours,” Pyshnyy said.
The bank would like to expand its lending program for smaller businesses, especially in the agriculture and energy efficiency sectors. In collaboration with the government, the state bank is giving out “warm-credits” to Ukrainians to heat insulate their apartments to reduce energy use. The loans can be subsidized by up to 40 percent by the government.
But today, Ukraine’s smaller businesses account for no more than 10 percent of the country’s gross domestic product – far less than in typical developed economies.
To fix this, there must be more educational and socially-oriented programs in working with smaller businesses to expand Ukraine’s middle class, Pyshnyy said.
Some bankers in the Ukrainian market say that state banks like Oschadbank should concentrate on retail and savings banking, and not engage in corporate banking at all.
But while he is planning to place more of an accent on smaller businesses, Pyshnyy is not prepared to cut out the corporate banking services altogether.
Oschadbank CEO Andriy Pyshnyy speaks with the Kyiv
“Oschadbank should work as a successful commercial bank, with an accent on small and medium business, and with the maximal commercial effectiveness in its branches,” Pyshnyy said. “Don’t pigeonhole us.”
State vs. private
Pyshnyy says that there is no major difference between state and private banks.
“Right now they are mainly different because they have different systems of corporate administration.”
The corporate administration of a Ukrainian state bank is formed by a 10-person supervisory board.
Five of the members are appointed by the prime minister and the rest by the president.
“But from the point of view of the mission and goals, Oschadbank should not be different at all,” Pyshnyy said. “Why? Because our function is to make money.”
He also says that it is a common misconception that the bank receives money from the state budget to pay its salaries, rent office space and give out as credits. In reality, as the owner of the bank, the Ministry of Finance can refinance it through the state budget by issuing bonds.
The govenrment fulfills the same obligations as any shareholder, he said. “It doesn’t matter if it’s privately owned or state-owned.”
Partial privatization
However, a stake of up to 20 percent in the bank is expected to be privatized in the near future. By the end of the first half of 2018, the government must make a decision about a partial 20 percent privatization of state banks with the participation of international financial organizations such as the European Bank of Reconstruction and Development, and the International Finance Corporation.
And by 2022, the government will decide on whether or not the bank should be fully privatized.
Early career
Pyshnyy’s carrier path at the state bank goes back to 2000, when he was the head of the bank’s legal department. He quickly worked his way up, and by 2003 was the first deputy chairman of the board.
Pyshnyy prepared the first strategy of the development of Oschadbank, when he was the bank’s first deputy head back in 2006. The strategy was drawn up together with Ernst and Young under a technical project aided by the World Bank.
“But then Yanukovych happened, and that team that was preparing the strategy for the development of the bank… had to leave the bank.”
Yatsenyuk connection
Some believe that Pyshnyy was appointed by ex- Prime Minister Arseniy Yatsenyuk and worked in his interests. Before he was made the bank’s CEO, he represented Yatsenyuk’s party bloc.
Yatsenyuk is also the godfather of Pyshnyy’s youngest daughter.
But their history goes back even further, when both of them were classmates at university.
But Pyshnyy denies acting in Yatsenyuk’s interest. “That’s because (the prime minister) doesn’t have this kind of power! He doesn’t appoint the chairman of the board,” Pyshnyy said. “Is it a fact that Yatsenyuk played a major role in my political career? Of course – yes; Is it a fact that he is my ally? Yes; Is it a fact that as prime minister he appointed five people to the supervisory board? Yes.”
When asked where he plans to go to back into politics after his contract runs out in 2018, Pyshnyy said he didn’t know. “I don’t even think about that… I’m concentrating fully on what I’m working on.”
