Banking sector Interview Top Interview

Today the banking sector of Ukraine looks healthy and predictable

Volodymyr Lavrenchuk, Chairman of the Board of Raiffeisen Bank Aval, tells about current challenges for the banking sector.

«Our «Raiffeisen Bank Aval» is a small society, the part of a big country,» says well-known Ukrainian banker Volodymyr Lavrenchuk. He has been in the position of the bank chairman for 12 years and his management has positive consequences: he has been repeatedly recognized as a «banker of the year», as well as one of the best top managers in the banking system of Ukraine. The appreciation of Mr. Lavrenchuk’s work on the part of society inspires him not only for the further development of Raiffeisen Bank Aval, but also for the development of the Ukrainian economics.

Probably Volodymyr Lavrenchuk is one of the few who is able to draw up a check-list from the points that would really help the state to achieve the desired results and become attractive for investments. In an interview with , the chairman of the board of Raiffeisen Bank Aval told how he is trying to create comfortable conditions for its clients, which factors deter investors from the country, and why crypto-currency has high risks.

: Representatives of the Ukrainian banking sector are sure that in the near future this market should not be expected to develop as the best results were achieved in 2017. What is your opinion on this, how do you assess the state of the banking sector of the country?

V.Lavrenchuk: In Ukraine there are about 90 banks. And this is much less than it was in the last 10-15 years, when they accounted for about 180. That is twice less. We have banks of different forms of ownership, but nevertheless banks are sufficiently capitalized. And this is the result of a post-crisis program coordinated by the government, the National Bank and the IMF. In addition, international financial institutions that have been operating and influencing the development of the Ukrainian banking sector have also been involved in this process. If we put everything together, then our assessment is as follows: the banking sector is well-capitalized, what is already the first sign of health. The second sign is that the sector has implemented IFRS – International Financial Reporting Standards, and banks are reporting today in a form that is understandable to all investors. In addition, customer operations are monitored, counteraction to money laundering is maintained. Therefore, in terms of financial status and regulations, today this sector looks healthy and predictable.

Also, I can confirm that there is interest to the banking sector. Today it is leading to financing economics and providing financial services for the needs of the population. There is no developed capital market in Ukraine, so investment companies and the bond market are at a very low level. As a result, there is no alternative to traditional lending, and it is unlikely that such an alternative will be created within the next year or two. I hope this will happen later.

: How did the latest crisis in the country affect the «Raiffeisen Bank Aval»? Has the lending policy been revised?

V.Lavrenchuk: We can consider ourselves an active lender of the Ukrainian economy. Our loan portfolio grew by 40% per year for both small businesses and large corporations. This is very good.

But the question remains about the financing of small farms, private individuals, the profitability of which does not allow them to receive funding for a long period of time. Obviously, the loan portfolios of banks should be larger in expense on this sector. The reason for its low growth is the high interest rates that exist on the market. Unfortunately, for now small enterprises will not be able to borrow massively in Ukrainian hryvnia.

: What spheres of business are being credited by Aval most actively?

V.Lavrenchuk: If you talk about the industry, then this is the agrarian business of almost all ways and stages of production – from plant growing, livestock to finished production; from internal operations to exports. Historically, Aval Bank has built a very fruitful relationship with the agrarian sector, which is about half of our loan portfolio.

We also have experience that allows us to work with different industries. We finance machine-building companies, the real estate market, logistics, metallurgy, with which we actively cooperated before the eastern part of the country was occupied. In addition, we go to new markets where we have less experience, but we see the prospects of these fields. For example, we consider the alternative energy market.

: Is IT business in your list of priority customers?

V.Lavrenchuk: Today IT services are the third export sector in Ukraine after agrarian field and metallurgy. The role of banks here is limited. IT is mostly funded from abroad. Is there a need for the banking sector to open funding for these companies? Perhaps not, but this issue can be returned when IT companies in Ukraine become active participants in the production of final products in our country. Then you can talk about a big need for funding. Now I see that banks are very interested in cooperation, but they do not have active financing products yet.

: You said that the banking sector in Ukraine has recovered and meets international requirements. Could it be an indicator of how foreign investors see the prospects in our country?

V.Lavrenchuk: This is not the only factor for investors but it`s an important one. Though there are other issues that investors are paying attention to and they are meaningful. I am referring to the predictability of the judicial system, which can protect the interests of investors.

In addition, it is very important that the country has political stability. This also forwards to change the situation in the East of the country, namely whether the situation will be under greater control, whether this conflict will continue constantly. So far, none of the investors can ignore this factor.

: And if these factors are eliminated, then it turns out that Ukraine has an attractive investment climate, doesn`t it?

V.Lavrenchuk: There are a lot of markets in the world, except Ukraine, where investors are coming actively. Some of them choose high returns and high risks, others choose lower risks, but in parallel with lower returns. I am suggesting that Ukraine could attract more investments than those we have today with our risks. The presence of risks is not a blocking factor. For example, in African countries, there is a high level of risk, including political, military, legal one, etc., but the number of investments is higher in comparison with Ukraine.

We have another important factor – the way how the state communicates inside and with the outside world. For investors, it is very important to understand the strategy that certain people want to build in the country. But when the viewing of fixed programs is happening once again it deter investors even more.

: Have the years of the crisis influenced on the formation of new trends in the activities of the bank?

V.Lavrenchuk: In 2017-2018 and even next years if crises does not happen there will be a lot of changes in our bank. Not only Ukrainian banking sector received enough challenges, part of these issues came from Fin Tech (Fin Tech – technological projects in the field of financial services).

Also Raiffeisen Bank Aval reviews its policies in being modern. This refers to the introduction of new technologies, management culture and customer relations. The market requires us to respond quickly, to make rapid changes. We are able to react fast to the clients` needs, we call adaptive organization and try to rebuild such an organization to be an adequate partner for our clients by offering them qualitative service.

: In this case, your bank should monitor new trends in the money market. What can you tell about the new interest of the present – cryptocurrencies?

V.Lavrenchuk: Of course we watch it. We can not ignore the digital currency because it exists and it is already used in financial transactions. According to the regulations we have today, in the international banking community operations with cryptocurrencies are called highly risky ones. This means that such operations in the banking sector need to be monitored and restricted in a very high level.

There is also a common professional interpretation on this point that today’s cryptocurrencies are not money. They do not match the parameters of money. Therefore, the banking sector is cautioned against them. But if the digital currency does not fulfill the function of money, then what is it? This can be considered a digital product. It has some benefits, but it is not money. This is a set of signs that allow a narrow circle to change something. And by now this interpretation dominates in most of the documents, both in Ukraine and in international central banks. And there are no other signals to change it.

The cryptographic currency is quite massive to ignore it and not to evaluate this phenomenon. But operations with them are highly risky, so banks include restrictions on the operation of these digital signage in their policies.

: And finally. In your opinion, as a progressive and modern person, what does Ukrainians lack? What do you want to wish us?

V.Lavrenchuk: I have been working for an Austrian company for a long time, my job is constantly interspersed with Europeans and I can mention some skills` shortages.

First, Ukrainians need to improve their self-organization. We see the mistakes of other people, but we are not always able to organize ourselves. For example, if this is about recycling of household waste, parking, etc.

Secondly, we are not always clear to investors. We could improve our communicative skills to bring our goals and actions, both in Ukraine and abroad.

And thirdly, although not everyone agrees with this statement, but sometimes we have a sense of uncertainty. With a high culture and traditions, we could be more convincing, using more actively the Ukrainian language and massively studying and using English as an important factor in overcoming this uncertainty

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