Legal entities have actively started changing their banks

Photo: Konstantin Melnitskiy

Corporate clients of the banks are transferring their money to more reliable financial institutions having been scared off by the latest actions of the National Bank of Ukraine. Since the start of the year, the central bank declared 28 commercial banks insolvent. The Deposit Guarantee Fund will compensate the deposits of individuals in the amount of UAH 200,000. In the best case scenario, legal entities will not see any compensation and in the worst case scenario will be indebted to the fund. The fact is that if a company takes out loans from a bank on a deposit pledge the fund requires repayment of the loan, but does not return the deposit.

In search of security

Insurance companies that according to the National Financial Services Committee deposited UAH 9.09 bn in banks as of July 1 were the first to point to the instability of the Ukrainian banking sector. Over the next five months, the volume of deposits considerably increased. “As of today, insurance companies deposited nearly UAH 11 bn, which is approximately 10% of the deposit portfolio of legal entities in the banking system. Factually, the insurers are the largest creditors of banks. Over the past half year, when the banking sector has been shaken, insurance companies decided to transfer their deposits to the five most reliable banks,” President of the League of Insurance Organizations of Ukraine Oleksandr Zalyotov told Capital.

Earlier, insurers preferred to put their deposits in banks that allowed them sell policies to their borrowers. In the opinion of Assistant General Director of the Credit-Rating Agency Olha Shubina, the most reliable banks are those backed by foreign capital, state banks and financial institutions that have solid reserves in terms of capital stability that passed the stress tests and can form their own reserves.

The insurance companies have similar reliability criteria for banks. When choosing a bank to work with insurers that are backed by foreign capital are guided by ‘national signs’. “If it is a French insurance company, then deposits will be made in a French bank. If it is a Polish insurance company, then deposits will be made in a Polish bank. Insurers also take into account the results of stress tests,” said Zalyotov.

According to the results of the stress tests conducted in large banks only PUMB, Alfa-Bank, Sberbank of Russia and Raifeissen Bank Aval do not require additional capitalization. For example, the stress resistance of Alfa-Bank in October alone allowed it to attract US $84.2 mn in deposits of legal entities, said Director of Transactions of Alfa-Bank of Ukraine Vladyslav Huzenko. At the same time, rating agencies gave the highest credit rating uaAAA to Alfa-Bank, ING Bank of Ukraine, Credit Agricole, Ukrsibbank and Prominvestbank. Truthfully, why Prominvestbank was given such a high credit rating is unclear.

The latter clearly needs additional capitalization, which may happen in the foreseeable future. Just the other day shareholders of the bank decided to increase the authorized capital of the bank by 57.2% or UAH 4.7 bn at their last meeting. Most likely, all the money will go to forming reserves as the level of coverage of reserves of the credit portfolio of Prominvestbank is among the lowest at a mere 3%.

Unsteady position

In the current conditions small and mid-sized banks whose services are not fit to service certain business groups should be concerned about declining liquidity, says partner of the auditing-consulting company BDO in Ukraine Oleh Malashchuk. Banks that have a shortage of liquidity will also face difficulties in terms of additional capitalization and serious problems with their credit portfolios, says Head of the Ratings Department of the Financial Sector at IBI-Rating Anna Apostolova.

Nevertheless, the concentration of funds will be restrained by competition on the market. The mass transfer of deposits from one bank to other larger and more reliable banks will lead to the excess liquidity of the latter, presumes advisor to the Chairman of the Board of Eurobank Vasyl Nemerzhytskiy. And then they will be forced to lower interest rates.