Two European banks agreed to purchase controlling stakes in Ukrainian mid-sized banks, marking the continued advance of foreign groups onto the market
Two European banks agreed last week to purchase controlling stakes in Ukrainian midsized banks, marking the continued advance of foreign banking groups onto the Ukrainian market.
Whereas in previous years the acquisition action in Ukraine’s banking sector centered on purchases of larger Ukrainian banks, the current trend shows smaller domestic banks being snapped up and glued together into nationwide banking operations.
SEB, a northern European financial group based in Stockholm, has agreed to purchase a controlling stake in Factorial Bank for $120 million, while the Bank of Cyprus signed an agreement to buy 95 percent of AvtoZAZBank for $76 million. Both AvtoZAZBank and Factorial Bank are medium-sized Ukrainian banks.
SEB was the first Nordic bank to enter Ukraine through its acquisition in 2004 of Bank Agio. SEB’s latest acquisition expands and strengthens the bank’s presence in the region.
“We have a long-term commitment to offer universal banking services in Ukraine,” SEB President and CEO Annika Falkengren said. “Through the acquisition of Factorial Bank, we will serve more than 110,000 customers in Ukraine.”
She emphasized that, “The ongoing consolidation within one of the fastest-growing banking markets in Europe offers SEB continued opportunities for growth in the region.”
Kharkiv-based industrial group UPEK, controlled by Anatoliy Girshfeld, signed an agreement to sell a 97.25 percent equity stake in Factorial Bank to SEB, pending the National Bank of Ukraine’s approval. Girshfeld, a former Ukrainian parliament deputy, is the president and majority shareholder of UPEK, one of the largest management companies specializing in machine-building in Ukraine.
Kyiv-based investment bank Concorde Capital acted as sole financial adviser to both UPEK and Capital Group, which owns AvtoZAZBank.
With the purchase of Factorial’s banking network of 53 branches, SEB will expand into eastern Ukraine to service around 13,000 corporate customers and 100,000 Ukrainians.
The last several years have been marked by an increase in banking acquisitions. Since the Orange Revolution in 2004, foreign financial institutions have tripled their presence in Ukraine and currently control about 30 percent of the market in terms of net assets.
More foreign banks are also looking to jump on the M&A trend in Ukraine. Some of them hope to increase their existing presence in Ukraine through additional acquisitions.
Georgia’s largest banking institution, the Bank of Georgia, is looking to acquire a second bank in Ukraine after it bought Kyiv-based Universal Bank for Development and Partnership for about $28 million this fall.
Two leading Greek banks – National Bank of Greece and Piraeus Bank – are bidding for a larger Ukrainian bank, Kreditprombank, valued by analysts at more than $500 million.
In September of this year, Piraeus Bank agreed to pay $75 million for a controlling stake in International Commercial Bank, a small Ukrainian bank.
Nick Piazza, corporate relations director at Concorde, noted that the last several years were marked by the entrance of large banking groups, but recently the trend “has shifted gears and a lot of smaller banks are coming in and [the process] hasn’t really slowed down … it is just that the size of the banks that these foreign banks are looking at has changed.”
Most of Ukraine’s largest banks were sold in the past years for top dollar.
He emphasized that the Ukrainian banking sector’s performance continues to be strong and “it seems that everyone wants to get in on the Ukrainian retail banking market.” Piazza mentioned that currently several other banking institutions are considering buying Ukrainian banks and Rodovid Bank is a prospective seller.
Piazza added that currently the level of growth in the Ukrainian banking sector is three times higher than in Central and Eastern Europe, where markets “were hotter five to 10 years ago, but now they are becoming more mature and kind of leveling off, and that’s why there is so much interest in Ukraine.”
Oleg Pronin, banking sector analyst at Kyiv-based investment bank Dragon Capital, mentioned three reasons for the continued interest of European banking institutions in the Ukrainian market.
First, the Ukrainian market is still fragmented and not consolidated, with the level of competition not reaching a point that would make it unprofitable to enter the market through an acquisition.
Second, the market is not saturated in terms of banking service penetration in everyday life.
Third, profit margins on the Ukrainian banking sector are two-and-a-half times higher than in saturated European markets.
“In terms of profitability of the [banking] business itself, [the Ukrainian] market is one of the most promising in Eastern Europe,” Pronin said.
He added that the Ukrainian market is expected to reach its saturation point no earlier than in the next five years.
