Kyrylo Shevchenko: New strategies for fostering progress of Ukraine's banking sector

KIEV - Media center of Segodnya.ua hosted an interview with Kyrylo Shevchenko, Chairman of Board at JSB UKRGASBANK, laureate of the national award Person of the Year 2017, nomination Financier of the Year.

Barring the shocks of economic crisis and the failure of the banking system at large, Ukrgasbank has not only seen its profits increasing but has successfully grown to the leading positions in the marketplace. As of today, the bank ranks the 4th largest asset holder among Ukrainian banks. In particular, we were first to introduce loans to enable homeowners to install solar power plants at 0.001% per annum interest rate. We were also the first in Ukraine to adopt a unique eco-friendly credit card. All throughout 2017, we have been continuously reducing mortgage and car loans rates. Our affiliate programs with property developers and car dealers enable us to offer new housing for as low as 5% per annum rate and cars and electric vehicles for as low as 0.001% per annum.

– Mr. Shevchenko, you’ve just become "Financier of the Year". What was it that made you choose a career in banking?

Kyrylo Shevchenko: Upon graduating from school, I had two options to choose from: a career of a journalist or an economist. It was quite an obvious choice for me as my mother was a member of the USSR Union of Journalists and my father was an economist. My poor handwriting would have barred me from passing the introductory essay I needed to produce, were I to pursue a career in journalism. That’s why I chose to study economics at the same university. I can see now that I wasn't wrong to make that decision.

 – What are the major qualities a banker should possess?

Kyrylo Shevchenko: I can name the one quality that not only a banker but anyone else should fight, which is envy. A job like ours entails a lot of money and if you try personalizing it as opposed to viewing it purely as a means of production, this career is definitely not for you. 

 – What do you value most in your work?

 Kyrylo Shevchenko: The most important thing is to do no harm. And the important thing is being happy with what you are doing.

 – They say that bankers have special premonitions and beliefs when it comes to money. Do you believe in any such things as rules or omens?

 Kyrylo Shevchenko: No, I do not. I am familiar with many common beliefs about things to avoid doing but I don’t know a single person who gained any benefit from following these so-called rules. As a banker, how can you avoid lending money? It renders your very job meaningless.

 – Can you allocate enough time for your hobbies and loved ones, and how do you enjoy spending your leisure time?

Kyrylo Shevchenko: I do lack spare time for my hobby. I am a fan of mountaineering, however, I didn’t have a chance for a significant ascent since the beginning of my career in Ukrgasbank. Work remains my focus but I am lucky to have an understanding family.

 – Why are bankers predominantly male, in your opinion?

Kyrylo Shevchenko: To a great extent, this is a false statement. During the Soviet era, the bank employees were overwhelmingly female. I won’t generalize and assume others think the same but, personally, I never made any difference between men and women with regards to their career growth. At Ukrgasbank, every true professional can make a successful career. As of now, we have more female employees than male. The Board itself is 50% men and 50% women. Women cope just as well as men. By the way, last year, for the first time in our country, a woman became the head of the state bank. Galyna Danylivna Pakhachuk took on the leading management position at Privat Bank.

 – Kyrylo Evgenovych, the National Bank’s data shows that Ukrgasbank is the fourth largest bank in terms of assets among 88 active Ukrainian banks. What was it that made it possible to achieve that?

Kyrylo Shevchenko: Indeed, as of January 1 2015, we were ranked 17th and held a market share of less than 2%. Now we have grown to reach the 4th position and a market share of up to 6%. We had to step in 2015 with a UAH 2.8 billion loss but managed to finish the year with more than a UAH 250 million profit. In 2016, Ukrgasbank joined the ranks of top banks. Moreover, since 2015 and onwards Ukrgasbank is the only state bank that did not require an increase of authorized capital. For the past three years, we have not made use of budgetary donations. The bank’s authorized capital is replenished of its own profits. In 2017, these amounted to over UAH 620 million. Fighting our way out of loss is due to the joint effort of our team. We improved a lot of things to transform the bank. Without a doubt, the new Green Banking strategy played an important role in the overall success. Additionally, SMEs were organized into a new business vertical group in 2015. We have also launched our affiliate programs for affordable housing. 

 – What does the Green Banking strategy entail?

 Kyrylo Shevchenko: Launching any "green" program pursues a goal of financing investment projects aimed at improving the environment in a given country. Loan rates for renewable energy are always lower than standard rates. Additionally, exclusive programs and deals are usually put in place. Borrowers use loans to switch to a more energy efficient equipment and are able to pay the bank back thanks to all the savings they’ve been able to make as opposed to the income they earned. In 2016, the World Health Organization estimated that our country once again topped the list of countries with the largest death toll caused by air pollution. This has nothing to do with a state of advanced economy, rather, it is a matter of the government's concern for the health of its citizens and future generations. At Ukrgasbank, we set up a special department to conduct technical audit of each project. We also cooperate with international experts in this field. In particular, we signed an agreement with the International Finance Corporation in May 2016. We request them to audit our "green" projects. In turn, IFC applies its global experience to assess these projects. Thanks to our cooperation with IFC, Ukrgasbank was the first bank to invest in environment protection projects in Ukraine which means that each investment is not only profitable but also has a positive social impact. IFC made a decision to make Ukrgasbank part of the Global Trade Finance Program which is an umbrella for the top banks from over 100 countries. This has been sufficient proof of opting in for the right growth strategy for us. At the same time, our "green" lending program allows us to carry on with other programs. We are constantly improving our operational models and introducing new programs. We signed up new customers and grew our profits thanks to the launch of unique programs, personalized customer service and simplicity in relationships with our clients.

 – Which clients or business sectors comprise the largest credit group in Ukrgasbank?

 Kyrylo Shevchenko: SMEs and large businesses are the most profitable customer segments for Ukrgasbank. We have expanded our existing credit line for SMEs to add renewable energy projects and "green" financing. Of course, we offer our clients much more favorable loan terms under these programs. The rates for these loans are always lower than the market ones in order to motivate our customers to switch to clean and energy efficient business processes. We have also introduced a new risk assessment approach. For example, when evaluating each particular loan, our managers consider the environmental impact of that particular project. Additionally, we cooperate with the German-Ukrainian Fund and set up a separate program designed specifically for SMEs. Moreover, Ukrgasbank is an absolute winner in terms of implementation of the state energy efficiency program. Throughout the entire duration of the program, the bank has issued more than 600 "warm" loans for the installation of energy-saving equipment. This comprises 70% of the total volume of the "energy efficient" loan portfolio in Ukraine.

 – Based on Ukrgasbank records, are there new loan trends or preferences evolving?

Kyrylo Shevchenko: Without a doubt, the loan market in Ukraine is undergoing a busy period. Demand for loans from both the population and businesses is increasing. It is worth noting that a growing interest in installing energy-saving equipment as well as in alternative energy sources is gaining more and more traction. Since the beginning of our cooperation with IFC, 72 large-scale projects have been implemented, and the total amount of clean electricity is expected to exceed 990 gigawatt-hours per year. This is enough to meet the electricity needs of all inhabitants of the city of Mykolaiv every year. Novotroitsk wind farm with a capacity of 70 MW in the Kherson region was a truly grand project as this wind farm is expected to become one of the three most powerful projects of the kind in Ukraine. Overall, Ukrgasbank was able to make a real breakthrough in the renewables industry in 2017. Every 3rd MW of the "green" energy in Ukraine last year was produced by Ukrgasbank. Also, as part of our cooperation with the Ministry of Ecology and Natural Resources of Ukraine, we have started workking with 100 enterprises that cause the greatest air pollution. We have already issued an eco-loan to Zaporizhstal, the largest metallurgical company in Europe. Following the installation of modern equipment, harmful emissions will be reduced by at least 20% which will significantly help the environment protection of the industrial region. Overall, our eco-loans helped businesses save UAH 715 million and reduce CO2 emissions by almost 761,000 tons.

 – How can you describe Ukraine’s banking sector based on what you’ve learned with Ukrgasbank?

Kyrylo Shevchenko: Following 2014-15 reforms, Ukraine’s banking sector faced a number of problems of a core economic nature. The crisis years were hard on the banking system but we can see today that things are getting back to normal. First of all, the most important proof of stabilization is that banks are growing their assets. Respective figures are increasing for the whole of the banking system. By the way, I’d like to emphasize the fact that Ukrgasbank also demonstrates a significant capital growth and remains a weighty component of Ukraine’s banking sector. Based on our 2017 performance, the bank's profit reached UAH 624 million which is almost 20% higher than the target figure set by the budget and approved by the bank's Supervisory Council.

 – What are the most troubling issues right now, in your opinion?

 Kyrylo Shevchenko: Trust remains the biggest problem in the banking system. Faced with the consequences of the crisis and bank closures, even strong banks find it hard to regain the trust of citizens. On the other hand, though, this motivates banks to improve their product range and build new models of cooperation with customers. For example, we signed up new customers by introducing unique programs, prioritizing convenience, simplicity, speed of registration and of course, personalized service. Moreover, Ukrgasbank takes care of its customers by always offering affordable loans and interesting bonuses. Clients can not only place a deposit with us but also benefit from our loyalty program. The mix of these programs provided us with a stable growth of our client base.

Other issues faced by the banking sector in the era of ubiquitous technology are cyber-attacks. According to the IBM’s estimates, each bank is exposed to thousands of attacks during the year, some of which can completely destroy the bank's infrastructure. Today, criminals are less likely to rob bank branches and more likely to attempt to break into the database looking for credit card numbers, PIN-codes, passwords, keys, etc. At Ukrgasbank, we have significantly reinforced our IT department as well as our security services and are constantly improving the system to be able to resist cyberattacks. Technology has both benefits and drawbacks so it is vital to be able to effectively address the new challenges.

 – Are housing loans popular among Ukrainians?

Kyrylo Shevchenko: According to our estimates, 50% of Ukrainians are in a need of housing or better living conditions. That’s a lot, for sure. There’s no better solution to this problem across the entire world than getting a mortgage. However, clients today face a significant constraint: a high interest rate. That’s why we offer loans under affiliate programs for which the rate starts from 5% per annum in UAH. In December 2017, we provided almost 100 mortgage loans worth more than UAH 35 million. According to our stats, Ukrgasbank issues 40 housing loans per month. I don’t think that’s a lot. Still, even this result required a considerable amount of effort on the part of the bank's employees and our partners. Additionally, demand is influenced by external factors. For example, once the devaluation of hryvnia begins, demand increases and vice versa.

– What exactly do housing loan programs offer?

Kyrylo Shevchenko: The minimum contribution a homeowner is required to make in the primary market is 30% of the cost of a home. Existing conditions are quite flexible. We offer both fixed rates for the entire year and differentiated ones. We actually offer a great variability: rates from 5% per annum in UAH, an affiliate program with Kyivmiskbud from 7% per annum, and other programs from 12%. Our standard rate equals about 18.9% per annum. We are able to offer such flexible rates thanks to our affiliate programs. On the contrary, other banks are not able to offer such rates. The loan period is 20 years. According to our statistics, the average lifespan of a mortgage loan is typically up to 10 years.

As the state bank, we find another thing very important: when calculating a loan, we only take the official income of the borrower into account. If a person has other sources of income he or she is not willing to disclose to evade paying their  taxes, we will not issue a loan. Therefore, we perform another important function: eradicating the black market.