Page 58 - BNE_magazine_12_2019 dec19

58 I Eastern Europe bne December 2019
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Ukraine’s investment summit on the front line of a war
Ukraine’s new government held an investment summit in Mariupol on October 29, barely 20km from the frontline in the undeclared war with Russia. International investors and Ukraine’s donors flocked to the Black Sea port town where President Volodymyr Zelenskiy urged them to come and grab the opportunity to invest in his country by the horns. → https://tinyurl.com/qwrmn2z
Ukraine’s banking sector made good profits in September, but NPLs remain a problem
Ukraine’s banking sector had a profitable September, earning UAH4bn ($161mn) in the month to bring the cumulative earnings for 2019
to UAH48.4bn as of September. That is a lot better than last year.
The banking sector lost money in September in the last two years, losing UAH2.8bn and UAH2bn in 2018 and 2017 respectively. And by September 2018 the sector had only earned a meagre UAH10.9bn
– a fifth as much as this year but still almost ten times more than the UAH1.4bn it had earned in the first nine months of 2017.
→ https://tinyurl.com/ujp5xlz
Vostok Oil is the new kid on Russia’s energy block
There is a new kid on Russia’s oil producing block: Vostok Oil is a joint venture (JV) set up to explore and exploit the oil resources of the Arctic, and the Kremlin has started to throw significant resources at the company as Russia’s existing oil fields reach peak production. Russian oil and gas producers have to develop increasingly remote and challenging fields to keep their output stable as some of
the biggest oil fields reach maturity or are already in decline.
→ https://tinyurl.com/w6xld59
significant capacity to enjoy a consumer credit led retail boom similar to that which Russia enjoyed for most of the noughties that fuelled economic growth of 6-7% pa.
While Ukraine’s banks have not yet turned to the retail business as a main source of business, with real wages growing by 9.8% in September and retail turnover growth of 8.6% in the same month, clearly the conditions for a sustained boom are in place.
The banking sectors of both countries are in good shape as central banks
in both countries have carried out very successful clean-up operations. However, with a significant non- performing loan (NPL) overhang
in Ukraine – just under half of the aggregate loans on banks’ books are non-performing – Ukraine’s banks are being very cautious and focusing mostly on corporate loans
In Russia, while retain loans remain
at half the volume of corporate loans, the high profitability of this business and the significant investments all banks have already long since made in building up a retail franchise means the volume of retail lending continues to rise quickly – especially in light of the fact that the corporate lending business has been largely stagnant for about
four years. Following the collapse of oil prices in 2014, and the deep devaluation that followed, Russia’s companies have mainly been focused on deleveraging, not taking out new debt.
Corporate lending is not booming in Ukraine either, but there the problem is bankers complain there are so few high quality clients to lend to that also want to borrow. The fact that Ukraine’s monetary policy rate is a very high 15.5%, even after a full 100bp cut this month, also makes commercial debt unattractive. On this score Russia is in a better place as the CBR also dramatically cut rates by 50bp this month to 6.5%, and more cuts are expected, making commercial borrowing a lot more attractive, but owners are suffering from a crisis of confidence which has kept borrowing low and dividend payouts high.
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