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Not just loans: PJSC "Ukrsotsbank", UniCredit Bank™, expert’s opinion


Oleg Sergeev, Head of Western Commercial Macroregion of Corporate Business in PJSC “Ukrsotsbank”, UniCredit Bank™, about alternatives to crediting.

It is commonly known that business development requires financing. According to the prevailing practice loans are the main instruments for corporate clients financing. The fairly high rate of interests in Ukraine and exceeded demands (especially after the crisis) when appraising the risks do not always let the client get financing be means of a loan. This all usually restrains business development.

- What to do in such cases? Is there a possibility to decrease the cost of financing, which financial instruments could be used instead of a loan? What does PJSC “Ukrsotsbank”, UniCredit Bank™, offer its clients?

The toolkit of our bank has a wide range of instruments, which could be used instead of a loan. When the client needs to get a loan, it is very important for us to understand the core of the operation to be financed. Sometimes the loan may be replaced with more profitable product out of the bank line. For example, the client needs cash for commodity purchase. The seller insists on advance payment in order to decrease his/her payment risks. In this case there is a point in using the bank payment guarantee. Having received a grace period from the seller for payment under the bank guarantee, the client significantly saves money as payment for risk, taken by the bank, is 4-6 times smaller than the price of the loan. Realization of commodity under the bank guarantee may significantly expand the possibilities of both the seller and the buyer. The buyer gets commodity with minimal expenses for financing and the seller decreases payment risks.

The bank payment may be interesting to corporate clients not only as a way to save on financing, but also to increase the sales. For example the client wants to decrease payment risks against contractors and increase sales. The bank is ready to take these risks. In this case it is needed to appraise the solvency of client’s buyers and in case of matching all the demands of the bank, to act as a guarantor. Another important issue – is an international guarantee. PJSC “Ukrsotsbank”, UniCredit Bank™, is a member of UniCredit – a powerful financial structure, operating in 22 countries of the world. This gives our clients a possibility to use guarantees of the group around the world on terms, which could be far more attractive than in the majority of Ukraine’s banks.

- Which other products except for the bank guarantee can PJSC “Ukrsotsbank”, UniCredit Bank, offer its clients?

Another alternative bank product – is bill. It is one of the oldest financial instruments, existing from XIII century. As a mechanism of decreasing payment risks – bill of exchange guarantee can be named. A service, which we provide to our agriculture producers, could serve as a good example of using this financial instrument. The client may get a payment delay having paid for the commodities, received from such suppliers as BASF, Bayer, Syngenta and others, with a bill, avalized by the bank.

- Which is the price for this service?

The price depends on client’s financial status. It should be noted that bill is an interesting instrument, providing the solution for a set of tasks when arranging business relations among partners, decreasing risks with the possibility of working capital financing, etc.

- It would be interesting to know about all the alternative bank products for financing client’s business?

As it was mentioned earlier, it all depends on the core of the financed operation. For example, if the client imports commodities or equipment, we may use documentary operations, for example letter of credit with payment delay, to make advance payment instead of a loan. To specify, an example may be given on financing our client PMTZ “Agropromtechnika”, which deals with realization of imported agricultural equipment in Ukraine. The client signed a delivery contract of agricultural equipment with the CNH International SA (Switzerand). The payment is executed via irrevocable letter of credit, issued by PJSC “Ukrsotsbank”, UniCredit Bank™, and assured by the first-class international bank UniCredit SpA (Milan, Italy). The letter of credit is valid for 90 days, payment delay is 12 months. This lets the client import equipment, provide its realization at Ukraine’s market and enjoy the payment delay.

Documentary operations – are set of instruments, opening big possibilities to clients, especially when the get the service from international group UniCredit.

- All the named instruments are guarantees in fact, which decrease the risks but cannot replace the money. What can you offer a client besides traditional loan, if he/she still needs money?

PJSC “Ukrsotsbank”, UniCredit Bank™, can offer a wide range of services for satisfying client’s financial needs. Let’s consider such situation. The buyers would like to get payment delay for the received commodity and the seller needs working capital. How to find a compromise? In this case factoring may help! The sense of this instrument is that having regular payments from the buyers, the bank is ready to finance the seller under the pledge of proceeds rights for the delivered commodities. This lets the seller to allow an even 90 days payment delay and to get working capital in the amount of 70-90% of the delivered commodities price. The bank not only provides the seller with working capital for the delivered commodities but also takes the responsibility of monitoring accounts receivable. The bank does not fully buy out accounts receivable but provides working capital for the term of delay for the buyer. After the debtor has paid the debt to the bank account, the money, exceeding the financing, is transferred to the seller. A factoring agreement with “Evrika” company may serve as an example of such financing. According to the factoring agreement the company got a limit of financing, which was divided for sub-limits among the debtors. When delivering the commodities to the buyers, the client submits the documents to the bank and gets financing in the amount of 85% of the delivery cost. Payment delay is 90 days. During the stated term the cash from the buyer goes to the bank account, the bank transfers the sum, exceeding financing (15%), to the client. This agreement gives the client a possibility to offer its buyers a payment delay of up to 90 days, get working capital in the amount of 85% of the delivery, which means to get a loan under the pledge of proceeds rights without additional collateral.

An example of “Evrika: company – is an example of internal factoring, when the seller and the buyers are situated in Ukraine. If the client exports commodities abroad, he/she may also use factoring – in this case it will be export factoring. This financing is organized in a different way. In this case financing should be rendered to the buyer in Ukraine and payment risks should be covered abroad. It is possible thanks to the fact that PJSC “Ukrsotsbank”, UniCredit Bank™, is the only bank in Ukraine, which is a member of FCI – the largest factoring association in the world, via which around 80% of the international factoring world volumes are executed. The abroad risks of the buyer are covered by import-factor or bank of UniCredit Group, or the other participant of FCI factoring association.

- The resources at Ukrainian market are pretty expensive. UniCredit is a large European group. Is there a possibility for the client to get cheap financing from abroad?

The price of financing is influenced by 2 factors – the price of resources and the cost of risk. The price of resources in European states is significantly lower than in Ukraine. Concerning the risks, Ukraine is rated by the 7th risk level out of 7 possible under the OECD scale. Accordingly, the payment for the risk will be high. Besides, the foreign creditor may appraise the client risk only if the company provides accounting report under the international standards of financial reporting with confirmation of international audit. Unfortunately, there are few such companies in Ukraine.

- And are there any other options?

Yes, there are. Financing of foreign creditors is possible if the risks for Ukrainian company are covered by the bank, working in Ukraine and enjoying good authority at the international market. PJSC “Ukrsotsbank”, UniCredit BankTM, is right that bank. Together with that it should be noted that such combination – European resources under the risks coverage for Ukrainian company (guarantee), indeed helps to decrease the cost of crediting. For example, the cost of loans for 12 months in Polish Bank Pekao, which is a member of UniCredit, in PLN amounts to approximately WIBOR + 1,5%, in EUR: EURIBOR + 2,2%, in USD: LIBOR + 2,35%. Bank Pekao is ready to credit Polish subsidiary enterprises of Ukrainian companies under the guarantee of PJSC “Ukrsotsbank”, UniCredit BankTM, The price of guarantee (approximately 3-4%) will accordingly be added to the cost of crediting. In total it is rather a lot, but after all it is lower than the cost of loans in Ukraine.

- And if there is no subsidiary?

There are also options. Again, everything depends on the type of operation to be financed. For example, if the client carries out modernization or expansion of production assets, the equipment is rather often imported from abroad. In many states there are special programs for supporting their exporters via their financing under rather beneficial terms. For example, in Poland there exist governmental programs for Polish exporters support.

Such support is held through financing via BGK bank (Bank Gospodarstwa Krajowego). Financing of Polish exporter by BGK resources under the PJSC “Ukrsotsbank”, UniCredit Bank™, guarantees – is a possibility for the Ukrainian importers to significantly decrease the cost of financing. Another example of exporter support is financing with the support of Export Credit Agencies - Euler Hermes (Germany), SACE (Italy), EGAP (Czech Republic), etc., with which UniCredit actively cooperates.

Summing up, I would like to quote a genius phrase: “Impossible – is something poorly desired!”

Date: 08.10.2013

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