Sergii Naumov, Oschadbank: Bad borrowers don't let us sleep well, and we don't let them sleep well

In an interview with RBK-Ukraine, Sergii Naumov, Chairman of the Management Board of Oschadbank, talks about huge taxes and huge losses, sky-high earnings and lending problems, borrowers under occupation, refugees and DDOS attacks, mobilization, female collectors and working without electricity, lawsuits with Russia and problem borrowers, as well as golden eggs and healthy sleep.

In the third year of the great war, the state-owned Oschadbank is among the leaders in financing budget expenditures through taxes and dividends. But this was not always the case - the bank still has to cover billions of dollars in losses from previous periods, including those caused by Russian aggression.

Today, the bank, like most other businesses in Ukraine, has to survive in the context of the war, while supporting other businesses, ordinary citizens and the state with money.

The bank's priority remains to create the preconditions for guaranteed survival and further development of the economy by expanding lending. Moreover, the bank should be privatized after the war. At least partially. Oschad also remembers this.

ABOUT TAXES AND LOSSES

– Let's start with a retrospective. In April, the government approved the annual report of Oschadbank for 2023, obliging it to allocate 30% of its net profit of UAH 1.8 billion to pay dividends to the state budget; 5% of its net profit of UAH 299 million to the reserve fund; 65% of its net profit of UAH 3.9 billion to cover accumulated losses of previous years. What amount of taxes for 2023 has Oschadbank already paid and still has to pay? What are the deadlines?

– We paid everything for 2023 in advance at the beginning of the first quarter. There was a letter from the Cabinet of Ministers asking us to pay at least 50% of the annual dividend in advance. We paid this amount. Then we had an audit. According to its results, Oschadbank's profit turned out to be higher, and we paid extra.

Plus, we paid income tax. Dividends amounted to UAH 1.8 billion, and income tax to UAH 4.2 billion. In addition, we paid UAH 4 billion to the budgets of various levels.

– What net profit did the bank earn in the first quarter of 2024? How much tax do you have to pay for the first quarter?

– For the first quarter, Oschadbank's net profit amounted to UAH 4.9 billion. We did not pay income tax on this profit, as the bank used the negative value of the taxable object of previous periods in its calculations for income tax. At the same time, during the first quarter, we transferred about UAH 1 billion to other budgets.

– Why did the government approve the distribution of the bank's net profit for 2016, 2017 and 2018 only in 2024?

– This is more of a legal formality. Oschadbank was not able to legally formalize the distribution of the said profit in due time because the Supervisory Board was not fully formed during these years. But all charges were paid on time and in full.

– According to Oschadbank's report, 65% of the net profit for 2023 of almost UAH 3.9 billion will be used to cover the accumulated losses of previous years. What is the total amount of outstanding losses from previous years? What caused these losses and over what period? How long will it take the bank to fully repay the losses?

– These losses arose at the beginning of Russia's war against Ukraine in 2014 as a result of the economic crisis and devaluation. And since then, they have remained on the bank's balance sheet. Until now, when earning profit, the bank directs part of it to cover the losses of previous years. 

–  What is the amount of outstanding losses at the moment?

– As of May 1, 2024, Oschadbank's outstanding losses amounted to UAH 26.5 billion. This is after deducting the aforementioned UAH 3.9 billion from the profit for 2023.

It's hard to say how many years it will take to cover all the losses of previous periods. I think if we can get the Russian assets, we will be able to cover them quickly. Because they were the result of Russian aggression against Ukraine, in particular the annexation of Crimea.

– Who determines the rate of deductions to cover past losses and how?

– The law stipulates that 5% of a bank's net profit must be allocated to a reserve fund. There is a norm for the amount of dividends determined by the Cabinet of Ministers. It is 30%. Everything that remains goes to cover losses. This is how we get the 65% set by the government for 2024.

We cannot pay more than 30% of our net profit to the state budget in the form of dividends, as the bank is limited by the parameters of the Eurobond issue prospectus. Under the terms of the prospectus, payment of more than 30% of dividends is considered a default. The government and the Ministry of Finance are aware of this, so they have set us a dividend payout ratio of 30%.

As soon as Oschadbank pays off all the bonds and there is no longer any restriction on the amount of dividends, the government may set a different rate of deductions. Most likely, it will be higher than it is now. But we also need to take into account how this may affect the bank's capital. By and large, everything we earn belongs to the state, as it is our shareholder. The only thing we constantly care about in this regard is compliance with the capital ratio. It is important for us to increase capital to further finance the economy, and this is best done at the expense of net profit, as it is very difficult for the state shareholder to find funds for additional capital during the war.

ABOUT THE BANK'S EARNINGS

– What is the money allocated to the reserve fund used for?

– The law stipulates that 5% of the bank's net profit must be transferred annually to the reserve fund until it reaches 25% of the regulatory capital.

This means that the shareholder, and in our case it is the state, cannot take this 5% away from the bank. The bank needs this money to form a reserve in case something goes wrong, in particular, if there are expenses not covered by operating activities.

– What did Oschadbank earn in 2023? What is the structure of income?

- 70% of the structure of operating income is net interest income. It is distributed as follows: about 45% - loan portfolio, 55% - income from securities (government bonds and NBU certificates of deposit).

30% - fee and commission income, as well as income from forex and other transactions.

– What do you plan to earn in 2024?

– We are currently working with consultants to develop a medium-term development strategy until 2028. For the current year, we have a wartime strategy, the priorities of which are financing the economy, supporting the budget, and financing retail customers. In lending to individuals, we focus on mortgages and car loans.

At the same time, the loan portfolio is a strategic priority, and we will invest excess short-term liquidity in NBU certificates and government bonds.

This year, we plan to increase our retail loan portfolio, as well as the volume of loans to small, medium and large corporate businesses.

ABOUT LENDING

– How realistic is it to increase the share of lending in the bank's revenue structure?

– It depends on the investment climate in the country. Besides, there is no such demand as we would like to have. This demand, unfortunately, is partly formed as a result of significant destruction of infrastructure, in particular energy, and production facilities, as well as the lack of funds for their restoration. At the same time, there are not many innovative projects during the war.

– To what extent is the existing demand solvent?

– In the areas of Ukraine where relative security is maintained, and no hostilities are taking place (the so-called green zone), the level of non-performing loans (NPLs) on the new portfolio does not exceed 1%. The NPL level in the yellow zone is about 2-3%. In the war zone and the occupied territories, the NPL is 79%.

It is very difficult to contact borrowers in the red zone. We are currently not doing anything with them until the end of the war. This is, by the way, a recommendation of the National Bank and relevant ministries.

– What is the bank's share of borrower rejections?

– It depends on the category of borrowers. For example, when it comes to lending to micro, small and medium-sized businesses, it is 30 percent.

– How has the rejection rate changed compared to the pre-war period?

– We started issuing more loans, and the lending terms became more loyal thanks to government support.

For example, as of the end of 2021, the loan portfolio of small and medium-sized businesses at Oschadbank amounted to UAH 9 billion. As of today, we already have more than UAH 23 billion.

We finance Kharkiv, Chernihiv, and Sumy regions. Sumy region in general demonstrates record growth in the loan portfolio. For Oschad, the war is not a stop factor in lending.

ON BORROWERS UNDER OCCUPATION, REFUGEES AND DDOS ATTACKS

– How are loans serviced by borrowers from the occupied territories?

– Almost no, but there are companies from the occupied territories that repay their loans. We are talking about relocated companies. However, there are literally only a few of them.

– How do you see further work with clients currently located in the occupied territories after their de-occupation?

– We will apply an individual approach in each case based on an analysis of the borrower's situation. But I want to emphasize that the problem is systemic, and it will most likely be resolved at the level of the entire banking system.

For example, it is possible that banks will not apply any requirements to such borrowers until they receive compensation for losses under international law. I think this will be a systematic approach for all such borrowers.

– How does Oschadbank work with Ukrainian refugees abroad?

 – Ukrainian refugees abroad can use funds from Oschadbank credit or debit cards, but within the established limits, and therefore cannot buy a car or real estate with their help in the host countries.

– In your 2023 report, you mentioned the unprecedented DDOS attack on Oschadbank that took place on February 15, 2022, on the eve of the full-scale Russian invasion. Please tell us about that attack!

– The attack was not only on Oschadbank. Many state-owned enterprises and authorities were targeted. But the bank was not damaged, we had some problems only for a few hours. That day, we used additional equipment and successfully repelled the DDOS attack. During 2022, we purchased the appropriate equipment. Since then, such attacks on the bank have occurred from time to time, but they do not affect its operations in any way.

– If the bank's report for 2023 mentions a DDOS attack that occurred in 2022, then something very serious must have happened then. Was any client data lost as a result of that attack?

– It was a unique cyberattack in terms of its power, but no information was lost. All technical systems are now more stable than they were before the full-scale Russian invasion.

AND AGAIN ABOUT LENDING (BECAUSE IT'S ABOUT BANKS)

– Returning to the topic of lending: despite many years of talk about the importance and necessity of lending to the economy, the cart is still there, as they say. How do you think it is possible to really intensify lending to the economy?

– Oschadbank is willing and ready to lend. What is stopping it? There is no tangible economic growth, no investment. Inflation and rather high lending rates do not stimulate the development of lending. The government, realizing this, offers a number of preferential programs, such as state guarantees and the Affordable Loans 5-7-9 program. We continue to lend on the basis of these programs.

Why is Oschadbank still growing in these conditions? Because, unlike many other banks, we have a less conservative lending policy. Therefore, we “pick up” clients who cannot get higher limits in other banks. Oschad can provide significant limits. We have even simplified the requirements for borrowers. And, as we can see, this did not lead to a deterioration in the quality of the loan portfolio. So we see no reason not to continue lending.

– Do I understand correctly that the main increase in lending comes from government-subsidized programs?

– In the field of micro, small and medium-sized businesses, this is mostly true. Due to rather high lending rates. But now we are gradually revising this practice, realizing that such programs will not exist forever. We are trying to bring the cost of our own loan products closer to the level of those issued under government programs.

– The National Bank notes an increase in the share of unsubsidized lending. Do you observe this growth?

- We do, and it will continue to grow. Nevertheless, most of the loans to small and medium-sized businesses are government preferential programs, in particular, “Affordable Loans 5-7-9%”. In the loan portfolio of all legal entities, the share of preferential lending programs is about 30%, and it is decreasing.

– I would like to remind you that the government has recently expanded the capabilities of the Affordable Loans 5-7-9% program for the energy sector, in particular, the program will be expanded for businesses involved in the construction and installation of gas turbine, gas piston and biogas generating units.

– There is such a solution, and it is not the only one. Recently, the government has significantly expanded the list of preferential programs to strengthen the energy independence of citizens and businesses. There is a separate offer for individuals who can purchase equipment for alternative generation sources at a 0% rate. There are preferential products for condominiums and housing cooperatives. Together with leading Ukrainian banks, Oschad signed a memorandum in which it committed to provide loans beyond the “Affordable Loans 5-7-9%” and in the amount of more than UAH 150 million during the first year at a rate close to the discount rate of 13.5%. Oschadbank takes an active part in all such programs. 

– I remember that at the beginning of the year, the state had a significant debt to banks for interest compensation under the 5-7-9% program. What is the situation with the debt now?

– Currently, the debt to Oschad is UAH 1.2 billion.

This debt is decreasing. Perhaps there will be some 4-month debt left. But I believe the situation is under control.

In terms of liquidity, this is not a big problem for Oschadbank. However, it may be a problem for other banks. But the volume of lending under the “5-7-9%” program in these banks is not that large.

It is important to understand that the state's debt has a greater impact on bank borrowers themselves. 

– According to the results of 2023, Oschad became the main bank in Ukraine during martial law that provided mortgages. Your share in the mortgage market amounted to 44%. How did you manage to do this?

– We already have the results of the first half of this year. During this time, we have issued 2,068 loans for the purchase of housing totaling UAH 3.4 billion (of which 1,937 loans worth UAH 3.2 billion were issued under the eOselya (eHouse) program). Our market share this year is 40%. 

Oschadbank's success in this type of lending is based on many factors. First of all, we promptly implement all innovative changes to the state program “eOselya” and actively implement our standard lending programs, adapting them to the needs of the market. For example, we actively accredit developers from whom our customers can buy housing: in the first 6 months of this year alone, Oschad accredited 14 developers and 19 construction projects. We have started lending for the purchase of private houses, including frame and modular houses.

The Bank cooperates with many state administrations, which make these loans virtually interest-free for certain categories of borrowers at the expense of their budgets. We have the largest network of special mortgage branches, which makes Oschad more accessible to our customers.

– In early summer, consumers complained about the inability to purchase housing under the eOselya program due to delays in financing from the state-owned company Ukrfinzhytlo. To what extent did Oschadbank and its customers feel this?

– Of course, the financing of this program has certain limitations, but we are trying to compensate for this with our own mortgage programs.

– According to the results of 2023, Oschadbank became the leader in car lending – your market share amounted to 54% in terms of the number of cars sold. How did you manage to do this? What is the current demand for car loans? 

– It's not too much. It's just that the market is very small, and we are very big. Plus, there are not many players in this market now. However, Oschad does not aim to become a monopolist in the car loan market.

In the first half of 2024, the bank disbursed 1,000 loans for the purchase of new cars worth UAH 1.7 billion. The market share of Oschadbank for 6 months of this year is 44%.

Original https://www.rbc.ua/rus/news/sergiy-naumov-oshchadbank-poganim-pozichalnikam-1721752314.html