Sberbank of Russia decided to merge daughter companies in Ukraine

Sberbank of Russia is planning to merge its namesake Ukrainian subsidiary and Lviv’s VS Bank, owned by Sberbank Europe (a part of the Sberbank of Russia group). This comes from the materials of Sberbank’s presentation on Eurobonds issue. A year ago, CEO of Sberbank of Russia (Ukraine) Ihor Yushko said the probability of a decision on mergers of the banks was quite high, though he did not rule out the possibility of selling the bank. None of the Ukrainian daughter structures of Sberbank of Russia responded to Capital’s inquiry yesterday.

Europe’s position

The merger process would help optimize expenses and reduce administrative costs of the two financial institutions via elimination of duplicate functions and offices. Using the chain of offices of VS Bank in Western Ukraine the financial institution could have strengthened its positions in the region. There is no sense in considering the sale of VS Bank as investors are not very interested in Ukrainian banks. It is most rational to merge a smaller bank with a larger bank or transfer assets and liabilities through a large bank via acquisition and liquidate the smaller bank with a formal balance, says Director of Standard Rating Agency Andriy Nikitin.

Also, changing the name of two institutions after the merger is possible, believes CEO of Ukrainian Interbank Foreign Exchange Anatoliy Hulei. “It is possible that this is linked to the attacks on Sberbank subsidiaries in Ukraine. If the banks merge, there will be a rebranding and the fact is that they will need to reposition themselves in Ukraine,” emphasized Hulei.
Unlike Sberbank, VS Bank mainly positions itself as a European financial institution. For instance, at the end of March the Ukrainian daughter bank of Alfa Bank changed its Russian shareholders to Cypriot ones. Now, the Ukrainian bank is owned by ABH Ukraine Ltd., registered in Cyprus. This allows Alfa Bank (Ukraine) to position itself as a bank with western investments.

Optimization variant

If VS Bank and Sberbank of Russia (Ukraine) do merge, no substantial changes in the financial indicators should be expected, say experts. “This is due to the small size of the bank being merged with a larger bank,” says Chief of Market Studies at the Ukrainian Credit Rating Agency Viktor Shulyk.

According to the NBU, as of April 1 the Ukrainian subsidiary of Sberbank of Russia was in the 8th position with assets of UAH 42.5 bn. The bank’s credit portfolio amounted to UAH 34.4 bn, of them UAH 33 bn were debts of legal entities and only UAH 1.3 bn – debts of the population.

In the structure of the deposit portfolio, the situation is the opposite. Of the total volume of UAH 19.5 bn only UAH 5 mn are funds of legal entities and the remaining UAH 14.6 bn are the funds of private clients. In recent years bankers often complained about the policy of Sberbank of Russia, which attracted large corporate clients with more attractive lending conditions. The profits of Sberbank of Russia in January – March totaled UAH 103.6 mn.

At the same time, VS Bank occupies the 74th position among Ukrainian banks with a total volume of assets of UAH 2.26 bn. As of the beginning of April, its credit portfolio amounted to UAH 1.7 bn, of them UAH 1.3 bn – loans of legal entities and UAH 405 mn – of private individuals. The bank’s deposit portfolio was UAH 866 mn based on the results of Q1, of which UAH 295 mn were funds of legal entities and UAH 571 mn – of individuals. The losses of the financial institution in the first quarter amounted to UAH 22.8 mn.

“The example of the merger of UkrSotsbank and UniCredit Bank shows that it is a very lengthy and costly process,” says Hulei. “There is no guarantee that in the end it will give a positive balance. When DonGorBank and PUMB were merged, they wanted to unite two balances, but the NBU was categorically against it, because it demanded that the capital of the newly created bank be reduced.” As a result, one bank was merged with the other on conditions of a subsidiary and the size of the capital was reduced. The same scenario may be used for subsidiaries of Sberbank of Russia.