乐鱼体育

BY VADYM SYROTA

In November 2007, in a move that received scant attention beyond banking鈥檚 C-suites, German Gref, formerly Russian鈥檚 minister of the economy and trade and a longtime ally of President Vladimir Putin, was appointed director of the Russian state-owned Sberbank. One month later, Sberbank acquired a bank in Ukraine. Ensuing years saw the juggernaut continue its international buying spree until by 2014 it had become and Europe鈥檚 third largest. Major acquisitions along the way included Volksbank International in 2011, a deal that encompassed all of VBI鈥檚 European assets except Volksbank Romania, and the , including subsidiaries in Turkey, Austria, and Russia. But it is perhaps in Ukraine, with its weak banking system and lack of a firm regulator, that the hand of Russia鈥檚 biggest bank lies most heavily鈥攁nd, for Russia, quite comfortably.

The expansion of Russian banks into the Ukrainian banking market truly got under way after the crisis of 2008鈥�2009. The banks were not particularly interested in occupying the retail banking niche vacated by Western banks; their goal lay elsewhere. Unlike European banks, Russian banks have often served as a tool to spread political influence in alignment with Putin鈥檚 policies. A striking example is VTB Bank鈥檚 purchase of stock in Facebook and Twitter; evidence indicates that Russia used these platforms to .

The business model of these Russian banks operating in Ukraine was to attract interbank loans from the parent bank in foreign currency; such loans constituted 40 to 60 percent of the banks鈥� liabilities. Currency risks were for the most part unhedged. The funds were channeled to corporate borrowers, creating a potential 鈥渄ebt trap鈥� that now threatens strategic industrial Ukrainian enterprises. For instance, a lender may use the debt as a bargaining chip to influence the borrower鈥檚 economic activity, especially if the borrower is confronted with the threat of hostile takeover.

Despite the obvious economic and political risks posed by Russian banks insinuating themselves into the Ukrainian financial sector, Ukraine鈥檚 banking regulator hasn't developed a clear strategy for dealing with the problem. The situation hasn鈥檛 changed for years: it is the same today, under a Western-oriented government in Kyiv, as it was during the presidency of Russia-backed Viktor Yanukovych, which ended with the Maidan. Today, Russian state-owned banks hold a significant stake in the Ukrainian banking market. As of October 1, 2018, assets in these banks accounted for approximately 7.7 percent of local banks鈥� total assets, with the liabilities of corporations representing about 2 percent of their total liabilities (the liabilities of individuals accounted for 2.4 percent of their total liabilities).¹

Moreover, the market positions of Russian state-controlled banks鈥� subsidiaries in Ukraine have remained sound despite some earlier downtrends. Local clients started withdrawing deposits from these banks with the onset of Russian aggression in eastern Ukraine: in the first nine months of 2014, individual deposits in Sberbank and VTB . In addition, the local economic downturn of 2014 caused by the annexation of Crimea and hostilities in the Donbas hit the banks鈥� financial standing. These lenders have sustained greater losses than other local banks: at the beginning of the fourth quarter of 2018, Russian state-controlled banks registered That situation owed mostly to the poor quality of their credit portfolios. As of October 1, 2018, approximately 60 percent of Sberbank鈥檚 credit portfolio was in lowest-ranked loans. The figure was 85 percent for Prominvestbank and 91 percent for VTB.²

To solve this problem, which threatened the banks鈥� solvency, an uncommon banking tool was used. The earlier interbank debts extended by the parent banks were converted by the subsidiaries into share capital. In simple terms, these financial institutions changed the legal character of loans that had been earlier allocated in an opaque way and rendered them as nonperforming loans. But such a maneuver allowed the subsidiaries to avoid investing liquid cash funds. According to analysts鈥� estimates, the total volume of such conversion of Russian state-owned banks鈥� loans amounted to in 2014鈥�2016. Moreover, the conversion of loans into share capital resulted in the banks鈥� market share increasing from 10 percent to 20 percent of total Ukrainian banks' authorized (statutory) capital.³ The trend has become painfully apparent in the context of Russia鈥檚 aggression toward Ukraine and the sanctions imposed on the Russian financial system by Ukraine鈥檚 Western allies. However, permissiveness or inaction on the part of Ukraine鈥檚 regulator can鈥檛 always resolve the mounting problems. After a huge liquidity crisis resulting in inability to meet clients鈥� demands, at the end of November 2018 the National Bank of Ukraine

Russian state-owned banks operating in Ukraine thus . They are in a comfortable position, carrying on business as usual. A few banks and individuals have made successful attempts to withstand the economic expansion of Russia into Ukraine鈥檚 banking system and business sector. For example, in November Ukraine鈥檚 by an international arbitration court to compensate for business losses and asset degradation in Crimea in 2014 (Russia does not recognize the ruling). Moreover, Igor Kolomoisky, one of Ukraine鈥檚 richest businessmen and , initiated a lawsuit claiming loss of assets in Crimea following Russia鈥檚 annexation; the suit resulted in a . The seizure was subsequently in a ruling that ed VB and Sberbank.⁴ However, individual successes are insufficient in the absence of a comprehensive state strategy to deal with Russia鈥檚 banks and their subsidiaries, which appear to be operating in Ukraine with impunity and beyond the reach of the regulator.

Notes:

1. The author鈥檚 estimates, based on the central bank鈥檚 database, 鈥淎ggregated Ukrainian Banks鈥� Balance Sheet Indicators鈥� ().
2. Ibid. These indicators are not the same as nonperforming loans but constitute their major part.
3. Ibid.
4. For more on this, see an October 3, 2018, article in Kommersant (in Russian): .