UNCLAS SECTION 01 OF 02 KYIV 002170
DEPT FOR EUR, EUR/UMB, EEB/OMA
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TAGS: EFIN EINV ECON UP XH
SUBJECT: RUSSIAN BANKS ACTIVE IN UKRAINE
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SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION
Â¶1. (SBU) Summary. While other foreign-owned banks have shrunk
their balance sheets, deep-pocketed Russian banks have expanded and
increased their market share in Ukraine. VTB Bank (formerly
Vneshtorgbank) and Vnesheconombank (VEB), two Russian state-owned
banks, have made several high profile acquisitions in the last three
years and are now among Ukraine's ten largest banks, along with
privately owned Alfa Bank. Despite their aggressive expansion,
Russian banks still only account for roughly 12% of total banking
assets and are unlikely to significantly increase their position in
the short- to medium-term. End Summary.
ACTIVE PLAYERS IN UKRAINE
Â¶2. (U) Ten of Ukraine's 185 banks are Russian-owned. The Russian
banks range in size from some of the country's largest institutions
to small lenders that barely meet regulatory capital requirements.
Alfa Bank Ukraine, with $4.24 billion in assets, is Ukraine's
seventh largest bank. Prominvestbank, recently acquired by VEB, has
$3.85 billion in assets and is the country's eighth-largest bank.
VTB Bank Ukraine, with $3.53 in assets, is Ukraine's tenth-largest
bank. Other mid-size Russian banks are privately held Delta Bank,
Sberbank Ukraine (a subsidiary of Russia's behemoth state-owned
bank), and BM Bank (a subsidiary of the Bank of Moscow).
ALFA BLAZES TRAIL
Â¶3. (U) Large Russian banks have expanded operations by acquiring
domestic financial institutions. Alfa Bank Ukraine purchased
Kievinvestbank in 2000, after it had established a local subsidiary
to serve as a corporate treasury for the Alfa Group's assets in
Ukraine, which include major interests in oil and gas (TNK-BP),
telecommunications (Vimpelcom, Kyivstar), and media (CTC). With the
acquisition, Alfa Bank has since expanded to offer a full range of
retail and corporate banking services.
Â¶4. (SBU) An Alfa Bank executive acknowledged to us that the Group's
connections with the Kremlin had benefitted their overall business
interests, but that Alfa Bank's investment decisions in Ukraine had
been seen through a pure business lens. He said the bank channels
funds from some of its most profitable divisions like oil or
telecommunications to its banking division in an effort to increase
its market share.
Â¶5. (U) The Alfa Group, founded by Russian oligarchs Mikhail Fridman
and Pyotr Aven, is one of Russia's largest privately owned financial
and industrial conglomerates. Alfa Bank, the group's banking
subsidiary, is Russia's largest private bank.
OTHER MAJOR RUSSIAN ACQUISITIONS
Â¶6. (U) Russian state-owned banking groups have followed similar
strategies. VTB Bank (then Vneshtorgbank), VEB, and Sberbank
established subsidiaries in Ukraine to serve large (often
state-owned) Russian corporate customers. They later purchased
local lenders to acquire necessary infrastructure for universal
commercial banking operations.
Â¶7. (U) VTB Bank purchased a 98% stake in Kyiv-based Mriya Bank in
2006, then owned by Ukraine's current Foreign Minister Poroshenko.
In early 2009, VEB (Russia's economic development bank), bought 98%
of Prominvestbank, an embattled lender that had been in state
receivership since October 2008. Sberbank acquired small Kyiv-based
NRB in December 2007. CEO German Gref said then he planned to
inject $400 million in capital and expand the bank's assets so that
Sberbank could become one of Ukraine's top-ten banks within three
GEOGRAPHY DRIVES EXPANSION
Â¶8. (U) Russia is Ukraine's largest trading partner and one of its
largest investors. Moreover, Ukraine's relative lack of banking
sector development, which had made the country attractive to foreign
players including Austria's Raiffeisen, Italy's UniCredit, and
France's BNP Paribas, remains an important draw for Russian banks
looking for growth opportunities beyond Russian borders. Russia's
biggest banking groups can often draw on resources unrelated to
their core banking activities. State banks have the explicit
backing of the Russian government, while private institutions, like
Alfa Bank Ukraine, draw on sizable financial resources of parental
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"RUSSIFICATION" OF UKRAINIAN BANKING SECTOR UNLIKELY
Â¶9. (SBU) Despite high ambitions and deep pockets, Russian banks are
unlikely to significantly change the landscape of Ukraine's
well-diversified banking sector, local analysts say.
Prominvestbank, the largest Russian-owned bank in Ukraine, is only
about a third of the size of Privatbank, Ukraine's largest lender.
Local subsidiaries of Raiffeisen, BNP, and Unicredit are also
significantly bigger than their Russian counterparts. Moreover,
some analysts remain skeptical about Russian banks' appetite to
further expand, given the National Bank of Ukraine's non-transparent
refinancing decisions and numerous restrictions seemingly targeting
Â¶10. (SBU) Given the close economic ties between the two countries,
Russian banks' increased activity in Ukraine is hardly surprising.
Moreover, Russian banks, which often rely on the state or their
parental business structures for funding, are among the few players
with the capital to expand their operations, either organically or
through acquisitions. Yet, according to analysts, while their
recent forays into Ukraine have come at a time when most other
foreign players are downsizing their operations, they are unlikely
to significantly tip the scales in the country's diversified banking