THE UKRAINIAN BANKING SYSTEM

THE UKRAINIAN

BANKING SYSTEM

15th BACEE Country and Bank Conference

14-16 November 2006, Budapest

Ukraine: number of registered and functioning banks

Number of functioning banks still growing

In 2005, 6 new banks registered, in 9 months of 2006 – another 9 (Sygmabank, ”Prestige”, Delta Bank, AIC-Bank, Partner Bank, Bohuslav Bank, ”Concord”, Ipobank, Finansbank)

190188186

183182181179179

182185

166165165162160

157158152

153151

150

155

160

165

170

175

180

185

190

195

06.2

002

01.2

003

06.2

003

01.2

004

06.2

004

01.2

005

06.2

005

01.2

006

06.2

006

10.2

006

Registered banks

Functioning banks



Banks with foreign participation

32

28

23

19181920

20

11119

76676

0

5

10

15

20

25

30

35

With f oreignparticipation

100% f oreignownership



Share of foreign investors in UA banks’ statutory capital (%)

13,711,3

9,6

19,5

23,425,4

0

5

10

15

20

25

30

01.2003 01.2004 01.2005 01.2006 06.2006 10.2006



Major acquisition of stakes in Ukrainian banks by foreign investors in 2005-2006

Bank's name Rank in UA as of 01.07.06

Investor's name

Aval 2 Raiffeisen International

Ukrsibbank 3 BNP Paribas

Ukrsotsbank 5 Banca Intesa

Raiffeisenbank UA 7 OTP

VABank 19 TBIH Group NL (minority)

Index-Bank 22 Credit Agricole

Mria Bank 26 VTB

Megabank 42 BA-CA

NRB-Ukraine 43 Sberbank

Agio (SEB Bank) 55 SEB

Agrobank 56 Home Credit (PPF)

Bank Universalnyi 74 EFG Eurobank

Prestige Bank 58 Erste

Avtoinveststroybank Russian Standard

Leader-Bank Renaissance Capital

UA banks abroad: Ukrprombank buys 35% of Arminvestbank, Pivdennyi Bank buys Regional Investment Bank (Latvia)



Ukrainian banks: Total Assets (gross), bn UAH

299,4

250223

141,5120,4

105,684,4

57,8

0

50

100

150

200

250

300

350

01.2003 06.2003 01.2004 06.2004 01.2005 01.2006 06.2006 10.2006



Dynamic growth

Top Ukrainian banks by Assets as of 1 January 2005

Most of large banks grow quicker than industry average

0

5

10

15

20

25

30

Privat

Aval

Prom

inve

st

Ukrsi

b

Ukrex

im

Ukrso

ts

Oschad

Raiffe

isen

UA (O

TP)

Nadra

Finan

si i K

redit

Brokb

usines

s

Assets as of 01.01.2000






Ukrainian banks: Loans/1 (bn UAH)

Retail loans became main driver of lending growth

0

50

100

150

200

250

01.2

003

06.2

003

01.2

004

06.2

004

01.2

005

01.2

006

06.2

006

10.2

006

Total gross loans

Corporate loans



Ukrainian banks: Loans/2 (bn UAH)

Average maturity of loans is shortening

0

50

100

150

200

250

01.2

003

06.2

003

01.2

004

06.2

004

01.2

005

01.2

006

06.2

006

10.2

006

Total gross loans

Long-term loans



0

500

1000

1500

2000

2500

3000

3500

4000

4500

End-2000 End-2001 End-2002 End-2003 End-2004 End-2005 Oct-2006

UA

H m

illio

ns

0%

2%

4%

6%

8%

10%

12%

Pe

rce

nta

ge

Non-performing loans NPLs to Total Loans

Improving loan performance



0

20000

40000

60000

80000

100000

120000

140000

160000

180000

01.2003 06.2003 01.2004 06.2004 01.2005 01.2006 10.2006

Private deposits term

Private deposits sight

Corporate deposits term

Corporate deposits sight

Ukrainian banks: Deposits (bn UAH)

All deposit categories grow quickly, most dynamically private term deposits



Household deposits: currency structure

Increasing share of savings in FX

58%

42%

UAH

FX

57%

43%

54%46%

53%

47%

07-01-2005 01-01-2006

07-01-2006 10-01-2006



Top-10 Ukrainian banks by deposits (as of 01.07.2006)

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Privat

Aval

Prom

inve

st

Ukrso

ts

Oscha

d

Ukrsi

b

Ukrex

imNad

ra

Fina

nsi Kre

dit

Ukrpr

omba

nk

Raiffe

isen

bank

UA (OTP)

Corporate deposits

Private deposits



Clear distinction between retail, corporate strategies

0

5000

10000

15000

20000

25000

30000

35000

01.2003 06.2003 01.2004 06.2004 01.2005 01.2006 10.2006

Equity

Registered capital

Ukrainian banks: Equity (M UAH)

Equity increases quickly, in line with T.A.



Top Ukrainian banks by equity

Ukrexim, Raiffeisen UA (OTP), are relatively better capitalised (Equity/T.A.) than their peers. Ukrprombank is the only in TOP-10 by equity not ranked in Top-10 by T.A.

0

500

1000

1500

2000

2500

3000

3500

Privat

Aval

Ukrexim

Prom

inve

st

Ukrsots

Ukrsib

Raiffe

isen

bank U

A (OTP)

Oschad

Nadra

Ukrpro

m

Brokb

iznes



(M UAH)

Ukrainian banks: after-tax profit (M UAH)

0

500

1000

1500

2000

2500

3000

3500

4000

2002 2003 2004 2005 2006 I.-IX.

Total



TOP-10 Ukrainian banks’ H1 2006 profit (M UAH)

86,8

187 180,2

27,5

140 148,5

81,4

168,5

120,5

27,4 20,8

020406080

100120140160180200

Privat

Aval

Prom

inve

st

UkrSib

Ukrex

im

Ukrso

ts

Osc

had

Raiffe

isen

UA (O

TP)

Nadra

Finan

si i K

redit

Brokb

iznes



Substantial differences in the TOP-10 peer group

TOP-10 Ukrainian banks by H1 2006 profit (M UAH)

187 180,2168,5

148,5 140120,5

86,8 81,4

37,4 35,6 33,1

020406080

100120140160180200

Aval

Prom

inve

st

Raiffe

isen

UA (O

TP)

Ukrso

ts

Ukrex

im

Nadra

Privat

Oschad

ING U

AM

ria

FUIB



Ukrainian banks: annualised ROA in % (for gross assets)

Quick improvement of profitability

0,6

0,8

1

1,2

1,4

1,6

1,8

2002 2003 2004 2005 2006 I-IX

ROA for all banks



Ukrainian banks: annualised ROE in %

4

6

8

10

12

14

16

2002 2003 2004 2005 2006 I-IX.

ROE for all banks

Quick improvement of profitability



Top-10 Ukrainian banks by ROA (net assets) in %

Ban

k O

dess

a,

Ode

ssa

(126

)

Reg

ion

Ban

k,

Kha

rkov

(129

)

Rai

ffeis

en U

A

(OTP

) (7)

Piv

dent

oban

k,

Don

etsk

(91)

Inve

stm

ents

&

Sav

ings

Ban

k,

Kie

v (1

46)

Ban

k N

adra

(8)

Mri

a (2

6)

Kre

dit-D

nipr

o,

Dne

prop

etro

vsk

(38)

Cal

yon

Ban

k U

A

(32)

Ban

k A

rkad

a,

Kie

v (5

4)

Ave

rage

for

the

bank

ing

syst

em

Only a few of the largest banks have above-the-average profitability



Events 2006

• BIG Energy Bank• Stabilisation credit by NBU to Express-Bank• Restrictions by NBU on operations of Novyi Bank and Stolychnyi Bank• Small-scale Harant Bank collapses, NBU introduces temporary

administration in Kyiv Universal Bank• Interkontynentbank experiencing solvency problems



Positive factors

• Proven crisis management ability of NBU• Steady growth of assets, deposit base, equity• Improving loan portfolio quality• Tightening of capital requirements by NBU• Increase of foreign ownership results in higher competition, better management

skills, improvements in risk management

Negative factors

• Quick increase of lending may raise concerns over banks’ risk management

systems• In case of economic downturn, asset quality may suffer in particular in Kiev’s

inflated housing market• In many cases, generally sound capital ratios are undermined by lack of

transparency of ownership• In many of the banks high overhead costs still result in relatively low profitability



Business risks:• Opaque ownership• Level of owners’ support untested• Fragmented corporate client base• Aggressive growth strategies

Financial risks:• High credit risk concentrations• Significant exposure to related parties• Concentrated and volatile corporate customer base• Low capitalization• Progressively growing operating costs• Profitability generally low



Expected tendencies

• Further increase of foreign ownership• M&A tendency to continue • Slow consolidation may speed up• Decreasing margins to force banks to improve cost control

Planned change in banking law

Foreign banks to be authorised to open branches in UA, subject to:• Co-operation of country of registration with FATF• Minimum statutory fund EUR 150 M• Unconditional guarantee of mother bank for the branch’s liabilities



THE UKRAINIAN BANKING SYSTEM

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