Russian-affiliated companies increased their share to 19 percent of Ukraine’s banking-sector assets after ABH Holdings acquired Ukrsotsbank, the nation’s seventh biggest bank with $1.7 billion in assets as of Oct. 1.
Owned by Alfa Group, Russia’s largest privately held investment group, Luxembourg-based ABHH announced late on Jan. 11 that it swapped shares with Italy’s UniCredit for the ownership transfer in the unprofitable bank.
Italy’s biggest bank has been wanting to unload its Ukrainian unit ever since the global financial crisis affected Ukraine in 2008-2009.
Non-performing loans account for more than 40 percent of Ukrsotsbank’s loan portfolio, of which more than 70 percent are in foreign currency, according to Investment Capital Ukraine. UniCredit was also facing a charge of €652 million at the end of September because of the weaker hryvnia, Bloomberg reported.
The Milan-based bank will in exchange get 9.9 percent new shares in ABHH, a seat on the board and incur a €200 million charge in the fourth quarter from the sale, according to its news release.
The sale has yet to receive approval from Ukraine’s central bank and anti-trust agency.
“Moreover, the bank (Alfa) could benefit from recent and upcoming changes in legislation aimed to simplify borrowers’ restitution and strengthen creditors’ rights,” ICU said in an emailed note on Jan. 13.
Bankers are awaiting the passage of key bills in parliament. One allows creditors with 25 percent or more of the total borrower’s debt to restructure the entity. According to ICU banking analyst Mykhaylo Demkiv, “some fiscal obstacles to this process exist that are due to be removed; the law has not been adopted yet.”
A moratorium on seizing mortgage collateral is still in place, Demkiv said, and parliament is expected to pass a moderate version. Bills related to strengthening creditors’ rights are expected to be passed in the first half of the year, the analyst said, because they are included in Ukraine’s memorandum with the International Monetary Fund.
Some 19 percent of the solvent banking sector’s total assets of $48 billion are now controlled by entities with Russian roots. Alfa Group, controlled by billionaire college friends Mikhail Fridman, German Khan and Alexei Kuzmichev, has three banks in Ukraine: Alfa Bank, Neos – formerly Bank of Cyprus – and now Ukrsotsbank. Lviv-born Fridman, who Forbes estimates is worth $13.7 billion, started Alfa-Eco, a commodities trading firm, in 1989 with Khan and Kuzmichev. They formed Alfa-Bank two years later, according to Forbes. The trio share with other shareholders control of ABHH, whose assets were worth $47.2 billion at the start of last year, according to Concorde Capital.
The other Russian-affiliated banks are Prominvest, Sberbank Russia, VS Bank, VTB, BM Bank and Forward (formerly Russian Standard). Five of the nation’s top 13 banks, which account for 78 percent of the banking sector’s assets, belong to Russian groups.
Alfa’s Ukrainian unit is mostly engaged in commercial lending, while Ukrsotsbank historically has focused on retail clientele.
“If merged, these two banks will become the nation’s fourth-biggest financial institution,” said Oleksandr Parashchiy, head of research and analysis at Concorde Capital, in an emailed note. “We believe the deal will be neutral for Ukrsotsbank’s value, while it could be slightly negative for its image as Ukrainians view banks with EU-based shareholders more favorably than those with Russian roots.”
Kyiv Post editor Mark Rachkevych can be reached at [email protected].
