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CEO of UniCredit Bank: interview to


— Graziano, UniCredit Bank has a big portfolio of bad loans in Ukraine. What part of the credit portfolio in your bank is not performing now?

— Significant part, about 33%, and especially the credits issued before 2008. What we should do now is to recover those bad loans. We actually plan to return all bad credits minus the provisions which we used in order to cover the problem. As for now we have already made the provisions to the loans which are not recovered.

In fact the problem of bad loans is a problem number one for the Ukrainian banking system. This problem has several angles in which you should look at it. First of all, the country needs deep reforms in creditors’ rights protection. Otherwise, we will not have a healthy banking system and we will never have any risk appetite to invest into the loans of the country without creditors’ rights protection. There is no capital that is enough to cover the fact that loans can be repaid or no depending on the will of the debtors. Every banking system needs strict rules to be applied.

All the banks suffer a lot and all the banks have gradually increased provision to cover the non-performing loans. The future is that a part of these loans should be collected with the support of the authority.

At the end of the game the exact percent which will be recovered depends a lot on the status of the economy. If economy continues to go bad, we will recover less. If economy starts improving, we will recover more. Because credits are strongly connected with the status of the economy. This is the main point.

We have a lot of creditors who took mortgages. Part of them is in serious difficulty now, so we cannot expect that they will pay. But many others expect improvements in the future and thus can start paying the debt.

— What tools is bank planning to use to recover portfolio?

— There are no new instruments. What we are doing constantly with the portfolio is trying to find a reasonable agreement with a client in order to develop the proper loan rescheduling plan and/or some other agreements like debt asset swap or voluntary selling. In some other cases we are facing bandits, and with bandits we do not negotiate, but act through judicial system.

— Are you using such schemes as factoring?

— No, we don’t use such schemes. The bank directly manages our non-performing portfolio. In some cases we can involve outsourcing for the part of the portfolio.

— But banks use factoring to improve the portfolio and manage the portfolio of non-performing loans via affiliated companies…

— If it was my affiliated company, I would manage its portfolio nevertheless; the point is whether you sell or do not sell the portfolio. If someone external offers me more than I expect to recover, I would sell the portfolio. If someone offers me less than I expect to recover – I keep the portfolio.

— Did you have offers from other banks to buy your portfolio?

— We had several offers concerning the portfolio – piece, single position or part of the portfolio. In some cases we closed some positions. But in most cases the offers which we received were not in line with what we were expecting to recover.

— Up to the events that happened recently in political situation, does UniCredit Bank still plan to leave the market?

— The group is carefully looking at the evolution of our market. By this moment the plan hasn't changed: we are available for sale. It means that the group monitors what is happening here very carefully and in this moment the situation is so complex that I can't even predict the outcome: we are here, but we may also be sold.

— Maybe, the question is not in the situation, but in the price?

— The price depends on what your expectations are about the future of the country. By this moment the future is uncertain.

— Who exactly offered to buy the bank?

— This is not my job. This is the job of our holding. They are dealing with potential buyers of the bank.

— Before Ukraine you have been working in Vienna and Rome. What difference is between the customers here and in Europe?

— Ukraine is a high volatile country. The high volatility has an impact to people. So, in Ukraine people are very short-term oriented, much more than in other countries. Implication is that the client easily changes the bank or provider of financial services or other products. In Ukraine the percentage of customers that can be considered loyal is lower than in the countries which we measure regularly. So it is very important that we first provide good service level to the customer and in particular on the services the customer is sensitive for. At group level we measure the customer satisfaction in the countries and the level of the satisfaction in Ukraine is not one of the highest, and the level of loyalty is particularly low. It means that Ukrainians are always ready to change their bank.

— What is necessary to be done in order to increase this loyalty level?

— We should operate in a stable and long term view, should be constant in out approaches, not volatile. What everybody cannot manage properly is uncertainty. We can manage difficulties, but we cannot manage volatility. If people don’t know what they will be doing tomorrow morning, it affects all the relations.

— What scenarios do you have for Ukraine?

— We have several scenarios, because here everything can be changed dramatically. The most important thing I would like to say - this country should run a deep program of reforms in order to modify the rules and be much more in line with the international standards, and modify also the behavior accordingly. The rules valid in Ukraine should be comparable to those in other countries. And this is very, very important point. If investing in Ukraine costs for the international group much more than investing in the same capital in other countries – the group will move the capital to other countries. This is the main reason for Ukraine to adopt the international standards as soon as possible.

— Talking about standards. Few years ago it was a scandal in Italy – Bank of Vatican launder money for Ndrangheta. How this scandal changes the approaches to transparency?

— I think I cannot comment Bank of Vatican actions

— Does bank have some connections with representatives of Vatican here in Ukraine?

— No local connections.

— But where is the financial system more transparent – in the EU or in Ukraine?

— I can compare our bank. Our bank is a part of the international group respecting all the standards of the group. Therefore we respect both – either Ukrainian or international standards.

— What advantages in Ukraine in comparison with other countries do you see?

— My personal opinion – Ukraine is the country with enormous potential. If you have a look at the country, first – is the theoretical potential, second – is the will to catch the potential. This country has huge potential, but so far has not done all the possible steps to materialize this potential.

— So many Ukrainian migrants are in the EU and Italy. How does your group use these clients? Are companies like MoneyGram competitors for you?

— In this business we can do much more than we are doing now. Because we are not that good in catching these flows between the Ukrainian migrants. We are present in 20 countries, but we are not comparable with such companies as MoneyGram or other special players, because of regulatory framework – they are not fully subject to banking regulations – and business focus. In any case, we should focus more on this market in future.

— How do the events on the South and East impact the business?

— I was pretty shocked in the emotional point of view. I could not expect few months ago what had happened in the Crimea. I could not expect that something like this would happen in Europe, in my age. In the Crimea we have loans, deposits and property. Concerning deposits it was our intention to respect our debt vis-à-vis the clients, so we are giving back all the deposits to all the clients that make a request. We have transferred all the amount of money to the cards, with the help of which they can withdraw the money in every ATM connected with VISA – in Ukraine, in Russia, in Europe. We are collecting our loans in the Crimea with the help of an agency. Concerning the property and real-estate – we have sold all our branches to a foreign investor.

Concerning the Eastern part. In fact, turbulence is continuing, and there are no clear signs of improvement, this makes me even more concerned. The only positive sign is that Ukraine and Russia start talking.

— The group has business in Russia. Why the group didn’t switch branches in the Crimea to the Russian bank?

— We decided to close branches in the Crimea. If in the future our Russian bank chooses to operate in the Crimea, they'll do it independently.

— How do you see the future of the foreign groups in Ukraine?

— The future of the foreign banking groups in Ukraine depends on the political and economic framework, and secondly – on the regulatory framework. If the country starts the pattern that everybody is open for deep reform, of converges to international standards, the picture will become better and better in the future.

— Who are the main competitors in Ukraine?

— We have several clusters of competitors. Because we are a full-fledge commercial bank operating in different client segments. For example, in corporate investment banking our competitors are all the major international groups in Ukraine – ING, Raiffeisen, CitiGroup etc.

— Does Basel III restrict your possibilities to operate in such countries as Ukraine?

— No, Basel is not the problem for us. Capital regulation and banking regulating for all the international groups are becoming stricter. But our group is one of the most capitalized groups in Europe. So, the question is how much I have to invest to be presented in a country, and what will be the return of the investment. For that, I repeat, Ukraine extremely needs to quickly adopt IFRS.

— Have you already received the invitation to the meeting with the new head of the National bank?

— No. Not yet.

— What is your main impression after the job of Stepan Kubiv?

— Too short! It is very difficult to estimate a governor’s actions in three months’.

— And what are your impressions of Sergey Arbuzov?

— I think I do not need to comment.

Date: 01.07.2014

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