New roles for Ukrainian banks
Interview
This special project of NV and The Economist is dedicated to forecasts for 2025. Before the start of another year, people tend to try to foresee the future. The current situation in the country and the world makes this task very difficult. The plans that we set for ourselves at the end of 2021 were not realized by many. And next year will also be very volatile. However, we continue to plan to be better prepared for tomorrow. For example, the Supervisory Board of Oschad recently approved a new strategic program for 2024-2028. It reflects how the Ukrainian financial system and Oschadbank's role in it have changed. The full-scale invasion has changed a lot in the lives of all Ukrainians. In our opinion, this should be reflected in the work plans.
This is already the second strategic document adopted during my tenure as Oschadbank's CEO. The evolution of these documents shows how the Supervisory Board's vision of the future of the financial institution has changed. To a certain extent, this shows what new roles the Ukrainian banking system as a whole should take on, since Oschadbank is one of the pillars of this system.
Thus, the previous strategy of our bank before the full-scale invasion for 2021-2024 was approved by the Cabinet of Ministers of Ukraine on October 12, 2021. Its main goal was to prepare the bank for full or majority privatization by 2025. The implementation of this strategy was suspended with the beginning of martial law.
What was our shareholder, the state, most concerned about at that time?
The previous strategy envisaged that in 2024, Oschad would be a universal bank with strong positions in lending to the retail segment, micro, small and medium-sized businesses, and large corporate clients. I can state that this is exactly what happened. As of 10 months of 2024, our bank's net loan portfolio exceeded UAH 102 billion, which is an increase of 15% over the year. And yet, the share of loans in net assets is 25%. At the same time, banks would like to issue more loans to the real economy, but there are two important circumstances: the state's need to help the budget through the government bonds mechanism, as well as the current low demand for lending to investment projects for business development due to the war.
What is planned for the future in this regard in our new strategic program?
It is no secret that a large part of the loan portfolio in terms of loans to individuals and MSMEs was generated by government programs to support businesses and individuals. However, it is clear that they will not last forever. That is why the new strategic program of Oschadbank envisages continuous expansion of partnership with international financial institutions to gradually replace government subsidies with international cooperation programs.
A separate point of the new strategic program is to support economic recovery. Of course, such a task could not have been included in the 2021 strategy, and now it is expected not only from Oschad but also from the entire banking system.
According to some estimates, Ukraine needs about $500 billion to restore its economy. Part of this will be directed as grants and loans directly to the budget. This will increase the amount of money in the economy, which will eventually reach banks and stimulate a credit boom and economic development.
Some part of it will certainly come through concessional loan programs. Under the Ukraine Facility program, for example, this component will amount to about €8 billion. It will be implemented through European financial institutions - the EBRD, the EIB, etc. - which will also need local partner banks to implement the programs. They must be ready for this. And the Ukraine Facility is just one of the programs, of which there will probably be many more.
The money of foreign partners for the reconstruction of Ukraine will in no way bypass the Ukrainian banking system. This will significantly increase its volume. For example, the net assets of the Ukrainian banking system are about 78 billion dollars. The loan portfolio is four times smaller. And it is very small if we compare the ratio of GDP to the loan portfolio of banks in Ukraine and the most developed countries. Overall, the ratio of bank loans to GDP in Ukraine decreased from 19.2% at the end of 2022 to 15.1% in 2023. The EU leader in this indicator, France, has a ratio of 213%. Ukrainian banks need to build muscle, and financing reconstruction projects will help us do that.
The new strategic program of Oschad envisages that it will cooperate with all stakeholders who are and will be involved in Ukraine's recovery programs. And this is actually a huge challenge.
What do banks need to become worthy partners in rebuilding Ukraine?
I was recently asked this question by a representative of a respected international organization in Ukraine, who wanted to understand whether Ukrainian banks were ready for such money. And, of course, the point here is not that we can accept these funds into our accounts and then dispose of them at our discretion. Not at all. We need to prove to the world that we are able to manage this money professionally.
So, what do Ukrainian banks need to make the financial world believe in them?
We need to be technologically advanced. While loans to large corporations are always individual transactions, for a mass borrower (individual or small business), we need a scoring and portfolio approach. This is no secret, and banks now boast excellent automatic rating systems for potential borrowers. However, these systems need to be updated. And modern technologies (primarily artificial intelligence) provide excellent opportunities for their optimization and development. We have planned many steps in this direction in our strategic program. And artificial intelligence can significantly speed up the analysis of large borrowers, which usually take longer to approve transactions.
And of course, servicing in Ukrainian banks should be as comfortable as possible. That is why it should be digital, centralized, automated, and with minimal bureaucracy. At Oschad, we have a lot to improve in this regard, but I am convinced that we are on the right track and will certainly succeed. Without modern technologies, Ukrainian banks will not be able to start active lending to households and businesses, given the significant amounts we can count on from foreign partners.
Another important factor is compliance with the requirements of European legislation on financial activities. We are talking about strict implementation of anti-money laundering regulations and best European compliance practices. Banks should demonstrate responsibility not only in the fight against legalization of proceeds from prohibited activities, but also in helping the state to fight against unscrupulous clients who use modern banking system technologies to avoid paying taxes.
We also need to gradually introduce ESG practices (environmental factors, social responsibility and corporate governance). The new strategic program of Oschadbank provides for the implementation of priority initiatives in the field of ESG compliance: development of inclusive financial products and services, further transformation of branches and services to make them more accessible, expansion of sustainable financing programs, support for green projects in Ukraine, responsible management of our own environmental impact, as well as support for Ukrainian society and its most vulnerable segments. We plan to make Oschadbank a leader in ESG reforms in Ukraine.
The financial sector bears a special responsibility in this area, as we have the opportunity to support and stimulate the development of businesses that act responsibly and help rebuild Ukraine on the principles of the modern, civilized world. The gradual implementation of the sustainable development program in Ukraine is an important part of our country's movement towards the European Union. Without this, our foreign partners will not entrust us with funds to rebuild Ukraine.
And finally. To succeed in attracting international financing to the Ukrainian economy, banks need to invest in their staff. It is people who determine the success or failure of any business, and banks are no exception. At Oschad, we have development programs for our employees, including trainings on innovation, work with artificial intelligence, and English language courses.
We have also launched a program to transform our corporate culture, which should be change-friendly. We are actively developing social and psychological support for our employees, building a clear and transparent system of motivation and reward based on defined performance criteria.
And we need talents! This cannot be achieved without improving the employer brand. Similarly, talents are needed not only in Oschad or in the banking system as a whole, but also in other sectors of the economy. That is why today it is important not only to have an attractive brand of a particular employer, but also of the whole country as a decent place to live. And all Ukrainians need to work together on this, each in his or her own place. Let's include this in our work plans and strategies!
Interview
Oschadbank Press Center