Sberbank in Kharkov, Ukraine (V. Vizu, CC BY-SA)
Under the pressure from the growing wave of public protests against the activity of Russian banks in Ukraine, Kiev authorities decided to introduce sanctions against five of them. The National Security and Defense Council announced the list which includes: Sberbank (formerly: Sbierbank Rossiji), WTB, BM Bank, Prominvestbank and VS Bank. The only banks not on the list are: the Alfa Bank – which is in fact Russian, however, as almost 60 per cent of the shares belong to Russian oligarchs with Israeli passports Mikhail Friedman and German Han, it was treated as a “non-Russian” entity – and the Forward Bank, which is hiding behind its Western owners. The banks covered by the sanctions were prohibited from “exporting capital outside Ukraine for the benefit of the people associated with the bank.”
At the same time, the Ukrainian government was obliged to take immediate action in order to prohibit the investment of funds of state institutions, state-owned enterprises and companies with State Treasury shareholding in the banks covered by the sanctions.
The presidential decree authorizing the sanctions also included an indication of the virtual reality created by Petro Poroshenko’s team. In accordance with the content of the document, the Ministry of Foreign Affairs was instructed to “inform the competent authorities of the European Union, the United States and other countries about the introduction of sanctions, and to discuss with them the possibility of adoption of similar measures in relation to the relevant legal entities.” The problem is that the European Union and the United States has already imposed sanctions on Russian state-owned banks in connection with Russia’s aggression against Ukraine in 2014.
However, the introduced sanctions do not prohibit Russian banks from running business activity on the Ukrainian market, their recapitalizing by the founding structures, or selling them to investors. “Recent events have triggered a public backlash against the activity of state-owned Russian banks in Ukraine. Due to national security concerns, we have imposed restrictions on the operations conducted by these banks with their founding structures,” explained the Ukrainian central bank (NBU). However, it does not intend to hurt the Russian banks. In a letter addressed to the IMF, the Head of the National Bank of Ukraine Valeria Gontareva informed that they would still have access to loans from the central bank.
They didn’t want but had to impose sanctions
“We’re pleased about the growth of any bank in the country, but Russian banks have some moments of aggression. This is not politics, this is common sense. We do not want to see Russian banks in our country, we want to have a stable banking system,” said the Finance Minister Olexander Danyluk in May commenting information on Russian banks that could exit Ukraine.
This is a significant change in Kiev’s position – still in February the governors of the NBU argued that the banks with Russian capital were no different than the others.
“The NBU would like to point out that since 2014 curators appointed by the NBU have been working in each of the banks with Russian capital. They strictly control all the operations and in the case of disclosure of any illegal activities, they have all the instruments to implement countermeasures. Such violations have not been disclosed now,” argued NBU in February in a communication sent to media.
However, ordinary citizens had a different opinion. A wave of attacks on Russian banks swept across Ukraine. Nationalist organizations started, among others, a campaign of destroying their ATMs and a blockade of Sberbank’s branches.
The risks associated with Russian capital in the banking sector were also pointed out by experts. “Russian banks were introduced to Ukraine in order to credit and finance Russian companies and oligarchs. They do that in order to control our economic sphere, as well as the electoral and political processes, and to broaden their expansion,” commented in March Vasil Furman, a member of the Council of the National Bank of Ukraine.
Meanwhile the International Monetary Fund came to the defense of the Russian banking capital in Ukraine. “The IMF was very concerned. We wrote explanations in which we took upon ourselves the obligation to stop this lawlessness and vandalism,” informed in mid-April the governor of the central bank Valeria Gontareva. As reported by the media, NBU promised IMF to weaken or lift the sanctions imposed on the Russian banks, “as soon as the security situation allows for that.”
The vice-president of Prominvestbank Vyacheslav Yutkin revealed in an interview with the business station UBR that the owners of Russian banks were aware that they had no future in Ukraine. “This is nothing new to Russian banks, it was already clear in early 2016. Their main objective now is to sell their portfolios and to settle with the stakeholders. They are dealing with this now, and they are also looking for buyers. If no buyer is found for the banks, a clearance sale of their assets will take place. There is an enormous stream of customers wishing to withdraw their money. Many banks have introduced restrictions on the amounts of withdrawals, which are illegal and contrary to the regulations of the central bank. There are plenty of complaints filed in the courts and the banks are feeling the pressure,” reported Vyacheslav Yutkin. He estimates that Russian bankers will leave Ukraine by the end of 2018.
Sberbank with a buyer, but without a name
One bank in a particularly complicated situation was Sbierbank Rossiji (Sberbank of Russia), whose Ukrainian subsidiary shortened its original name in December 2015 in order to escape the negative connotations. The reference to Russia which was irritating to many Ukrainians was removed.
In mid-April agencies reported that a buyer was found for the Ukrainian assets of the Russian state-owned giant. A citizen of Russia and the United Kingdom Said Guceriev, a son of the owner of the Russian holding SAFMAR, was to purchase 77.5 per cent of the bank’s shares. The parties to the transaction have already submitted the documents necessary for its finalization to the Ukrainian central bank.
It is not certain, however, whether the sale will take place – two weeks after the information about the potential buyer was published Sberbank lost the right to its trademark. At the request of the Ukrainian state-owned Oschadbank, the Economic Court in Kyiv ruled that the Russian-language equivalent of its name, i.e. the brand “Sberbank”, belongs exclusively to the Ukrainian company which registered it back in 2007 and prohibited the Russians from using it. In this way the Russian company was left without any trademark at all. The court also denied the Russian bank the rights to the internet domain sbierbank.ua.
The “piggy bank” of an oligarch
At the end of May official information emerged about the sale of Prominvestbank – the Ukrainian subsidiary of the Russian Vnesheconombank. The buyer is the DCH holding of the Kharkiv-based oligarch Alexander Yaroslavsky, who is currently regaining influence. “The Bank has a well-developed network of branches in large cities, which will help in financing the structures associated with it, regardless of the limitations imposed by the central bank on such operations,” estimates Viktor Shulik from the Kiev-based rating agency IBI-Rating. For the DCH holding, which operates in the construction, hospitality, chemical and machinery industries, an associated bank ready to finance both its own investments, as well as the purchases of customers, is a perfect solution – argues the analyst.
According to the data of the central bank, in the spring Prominvestbank had own equity reaching UAH3.5bn. The finalization of the sale may only take place in the autumn after the transaction is approved by the NBU.
In the case of Prominvestbank there is also a Polish element – through its loan portfolio it controls the Industrial Union of Donbas (ISD), which consists of metallurgical plants in Ukraine, Hungary (ISD Dunaferr) and Poland (ISD Huta Częstochowa).
They may be weaker but are still dangerous
At the end of May a new scandal erupted in Ukraine, as if to confirm the words of those experts who point to the political rather than economic significance of the operation of Russian banks on the Ukrainian market. As the media revealed, the state-owned WTB controlled by the Kremlin took advantage of the problems of its debtors – Ukrainian companies from the chemical industry – and began an operation aimed at seizing control of the Ukrainian market of fertilizers.