* Foreign banks have pared back exposure in Ukraine
* Could see an opportunity to grab market share
* Banks will likely face write-downs on bad loans
* Russian banks have pledged commitment to market
By Megan Davies
MOSCOW, Feb 27 Foreign banks have pared back
their exposure in Ukraine in recent years and the unfolding
crisis could force them to choose between cutting their losses
or holding on to grab market share.
While Russian banks retain a strong presence, several
European banks have pulled out of Ukraine since the global
financial crisis in 2008.
The toppling of President Viktor Yanukovich by violent
protests has pushed an already frail economy close to default,
with the former Soviet state's new leaders appealing for $35
billion over two years to hold up its economy.
With the hryvnia currency falling to a record low, some
banks may be watching to see if the new government will be as
pro-European Union as expected.
"You have to make a decision whether you take your loss now
or ride it out and that may require big losses but leave you
with market share at the other side," said one senior banker in
Among banks which have pared back in Ukraine since 2008 are
Germany's Commerzbank, which sold its Bank Forum unit
in 2012; Austria's Erste Group Bank, which sold its
loss-making unit in 2012; and Swedish bank Swedbank,
which sold its subsidiary last year.
Italy's Intesa Sanpaolo said in January it would
sell its Ukrainian unit Pravex-Bank to a unit of Ukraine-based
Foreign banks in Ukraine have been shrinking their balance
sheets, said Timothy Ash, analyst at Standard Bank. "The only
guys that are expanding in Ukraine are Russian banks and even
their future in Ukraine must be in doubt."
Emerging Europe's second-biggest lender Raiffeisen Bank
International has been considering offers for its
Ukraine operations. "There are
two or three offers that really look closely into the data and
have due diligence," a Raiffeisen spokeswoman said.
Moody's rating agency said Austrian banks including
Raiffeisen and UniCredit unit Bank Austria
own Ukrainian units with combined total assets of 8.0 billion
euros ($11 billion) at the end of 2013, down from 8.8 billion
euros in the third quarter of last year.
"Austrian banks' strategic decision to exit the Ukraine will
be delayed, something RBI had considered before the mid-November
2013 start of the country's political crisis," Moody's said in
a credit outlook note.
Banks remaining include Hungary's OTP Bank and
Italy's Unicredit. Unicredit said in December it would
not walk away from Ukraine, as its business had been doing well.
French bank BNP's subsidiary UkrSibbank, which has about $3
billion in assets, declined comment.
Ash said foreign banks had been put off Ukraine due to the
high risk of doing business, high credit risk, a high ratio of
non-performing loans and the exchange rate risk.
"If you are a senior bank manager (overseas) and you are on
the edge about a decision what to do, it's another reason to get
out," Ash said of the recent unrest.
RUSSIAN BANKS ENTRENCHED
Russian banks seem willing to stay the course in Ukraine.
The largest, Sberbank and Bank VTB, have
pledged long-term commitment although they are halting lending.
While other foreign lenders have cut their Ukraine exposure
in the five years since Lehman collapsed - to 20 percent of
Ukraine banking sector assets in 2012 from 40 percent in 2008,
according to a Raiffeisen survey - Russian banks still account
for 12 percent.
They have around $28 billion of exposure, President Vladimir
Putin has said, naming Gazprombank, Vnesheconombank
(VEB), Sberbank and VTB as creditors.
Credit agencies have said Russian banks should be able to
cover any losses with earnings or get government support.
VTB has said it has exposure to Ukraine of 20 billion
roubles ($560 million), largely through big private companies,
and that the bank's business there amounts to about 2-3 percent
of total operations. VTB's CEO Andrei Kostin said on Wednesday
the bank aimed to stay in Ukraine for the long term.
Sberbank's CEO German Gref said last week the bank had no
intention of leaving the market. Sberbank had exposure of 130
billion roubles ($4 billion) to Ukraine - or less than 1 percent
of its balance sheet. [ID nL2N0LQ119]
State development bank VEB said in December its loan
exposure in Ukraine was nearly $4 billion, mostly through unit
Prominvestbank. It said on Monday it had no plans to exit.
Ekaterina Trofimova, a Gazprombank board member, said in
December that the bank was the least exposed to Ukrainian risk
among major Russian banks and has no subsidiary there.
The political changes could, however, work against the
Russian banks, said Chris Weafer, a senior partner at
Moscow-based consultancy Macro-Advisory.
"If (the new government) is overtly pro-Europe ... I would
expect more of the European banks to be coming in and perhaps
pushing the Russian banks out," he said.
MEASURING THE RISK
The main risks for foreign banks in Ukraine are that the
currency slide will make it hard for companies and individuals
to repay large foreign currency borrowings, analysts say.
Fitch credit rating agency has estimated that around 60
percent of lending in Ukraine is done in foreign currency.
"The focus has been on the political casualties but fairly
soon we will start hearing about economic casualties
particularly associated with the currency collapse," said
Weafer. "(Banks) will be writing off a lot of their loan
portfolio in Ukraine."
Banks have been cautioned by the U.S. Treasury about
potentially suspicious transfers of financial assets by
Yanukovich or members of his inner circle.
In any case, said one banker, who asked not to be
identified, "If you have a big loan out to a Yanukovich (family)
enterprise, you are not going to be in very good shape."