An analysis of reform in Ukraine in the 1990s gives every reason to assume that a developed market society is in practice still a thing of the future. The creation of market institutions — National Bank, a network of commercial banks, stock and specialized commodity exchanges, etc. — has not changed the situation in any perceptible way. Even the infrastructure of most market institutions have undergone serious deformation. Thus, the commercial bank network has failed to turn into an effective vehicle to regulate property relationships, while the state has taken over in precisely this capacity. Bank loans remain too expensive, being the main factor maintaining the real sector in a state of monetary famine. With the annual inflation rate holding steady at 20%, the NBU’s annual discount rate is 29% and that of commercial banks reaches 65%. Yet such credit rates are by no means the reason but consequence of the overall economic disease of the Ukrainian state. One can launch a lengthy discussion about the attractiveness of Ukrainian banks, but we will concentrate on just one fact: the fourth largest bank of the Czech Republic has bigger balance figures than the whole Ukrainian banking system, let alone our commercial banks having constantly to adjust to inflation and production crisis, Cabinet changes, and inadequate legislation. Add to this “heartwarming” competition with both state banks that can always count on support from on high and banks set up just to grab a quick buck and vanish from the market after claiming bankruptcy. On top of everything else, one must work with enterprises (legal entities and corporate customers in the banking parlance) that always come with a carload of their own problems.
There is a serious competition in the banking service sphere. How do these banks go about attracting customers? This subject is broached in the following interview with Volodymyr KHLYVNIUK, deputy chairman of the board, Finance & Credit Bank.
The Day: There is a lot of talk about banks unwilling to extend credit to the real sector of the economy. How would you comment?
V.K.: Suppose we start with definitions. I understand the real sector as that part of the Ukrainian economy which functions and makes marketable products. The real sector can take loans, repay them, and keep a profit. If we are asked for credit by the real sector we are glad to go along. As for the size of this sector, I’d rather skip the subject. Still, our bank has a sizable credit-investment portfolio. A large part of this is channeled into machine-building, the power industry, and medicine. Despite the deep-going crisis of output, F&C always regards enterprises in these sectors as its [potential] customers. And we are always prepared to credit any other enterprises after they prove their solvency
For example, if AvtoKrAZ is revived, if it starts putting out cars and supplies them on prepayment, rather than beg for barter deals, this happens precisely because it has a new management, and our loans are not its main need.
The Day: Does one have to be your customer to get a loan? Do you practice any privileged programs like lower interest rates, deferred payments, and so on, when making loan agreements? If so, what categories of customers are such programs meant for?
V.K.: Our bank gives loans not only its clients. Any financially stable business is considered eligible, regardless of whether or not it is a corporate customer. Here decency and fair play are the main criterion. If a customer uses a lot of banking services and if the resultant revenues are sufficient, this customer can count on soft credits. But if credits are the only transactions a customer wants we give him loans on the general terms.
The Day: How about the problem of repayment?
V.K.: There is an interesting aspect to credit in Ukraine. The Western banking system is especially concerned about loans given natural persons. They believe individual customers, rather than legal entities, are especially given to economic instability. In Ukraine, owing to the high risks involved with legal entities and the entire economy, banks have to practice collateral credits. Even so the customer’s decency remains the crucial thing. Considering our controversial legislation and arbitration practice, one can always find a loophole, making such collateral fictitious. Repayment default, where given loan was issued in keeping with established procedures, is a problem that includes the disposal of pledged asset. I don’t like being told about how things are done in the West. Still, in the United States one makes a bank loan against real estate and if no money is forthcoming on the date of maturity the bank will publish an on-sale ad within three days past the deadline. The house is sold by auction thirty days later and the bank gets back its money on the 31st day. In Ukraine, such procedures are much more complicated and drawn-out due to a multitude of legal collisions.
The Day: Are you exposed to pressure from the state when deciding on a loan?
V.K.: In my opinion, another thing is much more important now. The current Cabinet and National Bank are trying to phase out administrative pressure on the economy.
The Day: Who do you prefer to do business with: natural persons or corporate customers? Which category brings more profit and less trouble?
V.K.: Individual clients are easier to deal with, but corporate customers are more profitable, at least for the time being. In fact, our bank treats all customers with equal friendliness and efficiency, regardless of their financial and legal status. At present, F&C caters to tens of thousands of customers. Providing each customer with maximum convenience and top- quality service remain the bank’s highest priority. We attach the utmost importance to both the number of customers and how well we can help them, for this has a direct bearing on our revenues. In terms of references, I would mention the State Property Fund, the Enerhoatom National Generating Company, Poltava Mining and Processing Combine, Odesa Port-Side Factory, Kyivmedpreparat, electricity distribution companies, natural gas transport companies, and our new partners like Morshynska and Carlo Pazolini.
The Day: And your fees for banking services?
V.K.: We practice moderate costs and emphasize the effectiveness of customer money invested rather than charge extra hryvnias as fees for money orders or bank statements.
The Day: Are there any new banking services you can offer customers in Ukraine?
V.K.: We try to keep a step ahead. All our customers’ financial and other business proposals and complaints are carefully considered. Despite Ukraine’s habitually fluctuating legislation, our customers are never exposed to risk, because we have staff lawyers ready to consult and assist in full conformity with the law. As for exclusive services, the bank operates a financial engineering department specializing in sophisticated consulting in financial management and planning. Our main task is to identify and, of course, solve our customer’s financial problem. We practice custom- made financial patterns using the bank’s existing and new products.
F&C is also constantly expanding and reinforcing its positions on the domestic currency market. Further development of the correspondent network helps increase the bank’s efficiency and improve customer service. International settlements are made using S.W.I.F.T and Reuters Dealing, allowing transfers on a day- to-day basis.
In addition, we can provide pay using plastic cards. We call this our payroll project. One doesn’t have to draw money from one’s account by check or lug around sacks of hard cash to pay wages at the office. Most importantly, one does not have to waste office time. Often, clients prefer corporate cards to bankbooks. People frequently going on business know how it is when the term is prolonged and one is flat broke, especially abroad. This is when a corporate card comes in handy and solves a lot of problems. Our objective is to make the customer’s access to banking services easier.
