The economic crisis forced banks to shift their focus towards corporate instead of individual clients

Universal Bank got tired of being universal

Photo: Konstantin Melnitskiy

Ukraine’s commercial banks are curtailing their operations in the retail business. For example, Universal Bank plans to concentrate on working with corporate clients. “Our bank, which for the past four years has been developing by the universal model, is shifting its focus towards the corporate segment. This is because the macro-economy will have a fairly strong impact on the population. The other negative factors include a hike in tariffs of housing utility services and the increased burden of loans taken out in hard currency. In addition to that, we expect a decline in consumer demand. For this reason, it is quite natural that standard products, such as home mortgages, will not be available in the foreseeable future,” said CEO of Universal Bank Ihor Volokh. The bank’s portfolio of retail loans in the national currency dropped since the start of the year by UAH 119 mn to UAH 442 mn.

History of disengagement

Chairman of the Board of Platinum Bank Andrzej Olejnik announced the bank’s re-orientation to working with the corporate sector several months ago. “We will focus on servicing legal entities. Unlike many banks we have always relied on the retail business. Now, the issue of resources is quite pressing and legal entities have a stronghold on the lion’s share of them,” said the banker. According to the calculations of the bank’s management, the implementation of the new strategy will increase the share of business clients in the total portfolio of the financial institution to 10-20%. In addition to that, the bank plans to increase the number of business payroll solutions, thereby attracting individual clients through corporate clients.

Retail business carries more risks and the cost of services in this sector is higher as it entails the coverage of potential losses, says Vice President of the Ukrainian Credit Banking Union Yaroslav Kolesnyk. “The banks understand that of the ten loans that they issue, two of them will not be paid back. Some financial institutions realized that operating expenses, the commissions for debt collectors and accompanying costs are quite burdensome, particularly in conditions when internal expenses must be cut,” says Kolesnyk.

In order to properly function in the retail segment a bank must have a branched-out network in the regions and an accompanying staff at the central office, Retail Sales Director of Fidobank Dmytro Havrykov assures. Conducting a retail business requires additional liquidity in the loan segment, which at the moment many banks do not have, he added.

In addition to that, the regulatory limitations of the National Bank of Ukraine also reduced the desire of commercial banks to work with retail services. “For financial institutions that do not comply with NBU standards the blank crediting is limited by the salaries of clients,” analyst of the Banking Section of the ICU Group Mykhailo Demkiv said.

As a result, retail banking services are suffering even in those banks that are considered the leaders in the consumer lending segment. For example, the retail loan portfolio of PrivatBank sunk over three quarters of 2014 by UAH 1.25 bn to UAH 21.3 bn and that of Delta Bank – by UAH 326.6 mn to UAH 16.6 bn. The statistics of the NBU also points to a decline in the work of banks with individual account holders. As such, the total volume of hryvnia loans issued to individuals dropped by UAH 8.3 bn to UAH 113.5 bn, according to the regulator.

Safety ring

Financial experts and bankers are hoping that the corporate sector will become the driving force of the recovery of the country’s economy. “Some companies will go belly up and some will survive and grow, but, as always, recovery after the crisis begins with corporate activities. First a product must be generated and salaries must be paid. This will foster a growth in consumer demand,” believes Volokh.

Director of Standard-Rating Andriy Nikitin agrees with this point, claiming that people are more vulnerable to the deterioration of the economic situation in the country, while legal entities are more resistant as their transactions are confirmed and loan risks are more predictable. “Based on our observations, the most profitable banks in Ukraine are those that work in the corporate segment. That is where the focus should be today,” the expert added.

However, working with the corporate sector one must take into account the appetites of borrowers, as they often demand large volumes of financing. For this a bank needs to have long-term and inexpensive funding. “In this case, the quality of the work of a bank’s risk management department comes to the fore,” says Head of the Financial Rating Department at IBI-Rating Ihor Dykiy. “Crediting of large borrowers implies an increase in the concentration of credit portfolios, which in the event of difficulties in loan servicing aggravates the financial condition of a bank.”