The process of takeovers of leading Ukrainian banks by the foreign banks and financial groups was widely covered by Ukrainian mass media, and couldn’t be left unnoticed even by those people who are practically not interested in such questions.
I decided to make an analysis whether there are advantages of the fact that among Top-10 banks (according to AUB) six are overtaken by the foreigners. And in general, what consequences will follow if bank sector in Ukraine at such development stops being Ukrainian.
In my opinion, the advantages of activities of the foreign banks in Ukraine can be the following:
- Partial decrease in credit rates at the cost of credit assets of ‘parent’ banks or interbank credit means;
- Increase in custom service level at the banks with foreign capital will increase the service level at Ukrainian banks;
- Increase in range of services for customers. So, there has been significant rise in number of deposit and credit programs ‘for certain customer’ for individuals. For legal persons, besides common credit accounting operations, there has been an introduction of credit and deposit programs, attendant services, such as leasing, factoring, etc.;
- Intensification of cooperation between banks and insurance companies has partially led to decreasing insurance service tariffs (it is also connected with entering Ukrainian market by insurance companies; for example, Generali Garant, ING Group, has opened a bank in Ukraine).
Disadvantages of such activity are:
- Foreigners are coming to us to earn money. Thus, gradual removal of the capital out of Ukraine. Our nationals, actually, finance fairly well-to-do life of the West paying too high interest on consumer credits;
- Increase in crediting from abroad has caused growth of the national debt of Ukraine. In 2004-2005 it was 45% of GDP, in 2006 – 51%. Mostly the debts are increased at the factories (almost 40%) and banks. Thus, at the beginning of 2005 the volume of credits from abroad was $2.66 billion, and at the beginning of 2008 - $30.97 billion;
- The world crisis provoked the problem with getting foreign credits by Ukrainian banks. Taking into account the fact that many of them pay the credits at the cost of refinancing, the risk of making an outstanding loan have the debts of almost $31 billion (35% of GDP);
- Most part of given consumer credits are not supplied by anything, so they are very risky. According to estimation of Standard & Poor’s the volume of problem credit in portfolios of Ukrainian banks may reach 75% (according to the NBU’s estimation, it is less than 2%);
- Increase in crediting the legal persons relative to legal ones. It leads to spending all the money on food, and finances Ukrainian import of not commonly affordable know-how. Thus, for 2007 the growth in crediting the individuals was more than 70%, and the legal persons – approximately 40%. In connection with this the head of supervisory board of the NBU Peter Poroshenko claimed the possibility of banning using the foreign consumer credits.
What conclusion can be made?
Coming of the foreigners to Ukrainian bank service market is an objective and irrevocable process as the national financial institutions are still unable to compete with them. And whether this question is positive or negative thing for our economy, it is up to you to decide, dear readers, on the assumption of the information received from this blog.
