Bankers Can Make Only One Mistake. The Path to Leadership: How Oschadbank Keeps Moving Forward in Wartime (part 1)

Ukrainian banks keep growing despite the daily challenges of a full-scale war. They have figured out how to operate in a crisis to support businesses and the state. The program “Commanders of the Economy” featured a discussion between Volodymyr Lavrenchuk, Chairman of Oschadbank’s Supervisory Board, and host Vitalii Sych on how Oschadbank ensures the continuous operation of its branches today, what mistakes a state-owned bank cannot afford to make, what has become the main weakness of this institution, and whether privatization is possible now.

The Greatest Danger Is Moving Away from Systemic Management

Vitalii Sych: To capture the audience’s interest, let’s start with the following question. What do you consider to be the biggest managerial mistake that a state-owned bank cannot afford to make in wartime?

Volodymyr Lavrenchuk: I’d put it in one sentence: moving away from systemic management toward so-called crisis management, where the will of one particular leader determines the activities of large systemic organizations. Therefore, it’s important to preserve the systemic management that has been built up over the last 10, 15, or 20 years in Ukraine and has been established in many companies.

Vitalii Sych: Could you explain to me how systemic management differs from crisis management? I suppose there might be such a thing as “systemic-crisis” management?

Volodymyr Lavrenchuk: I’d say that crisis management in a crisis is when we shift from a systemic approach to what’s called “discretionary” one, or when the will of a single executive determines the company’s future.

Vitalii Sych: Okay, so you mean that systemic management is when procedures and processes are in place and everything works as it should. And crisis management is when there’s subjective, manual management, so to speak?

Volodymyr Lavrenchuk: When the rules of interaction are maintained, during a crisis it’s possible to allow for elements of management even on a manual basis. But when the will of a single person takes precedence over the rules, this can pose a major risk to the company. That’s exactly why I said: it would be a danger or a mistake to move away from systemic management.

Vitalii Sych: It seems to me that this also applies to larger systems, such as an entire country. We see this happening in very large countries right now – the United States, our country, and others – where, once the will of a single leader begins to dominate, much goes in the wrong direction.

The Basic Customer Standard Has Changed

Vitalii Sych: You’ve been working in the banking system for 44 years and have seen various models: state-owned, private, and international ones. To compare, where were Ukrainian banks and Oschadbank 15–20 years ago, and where are they today? What has fundamentally changed, if anything?

Volodymyr Lavrenchuk: First and foremost, society has changed. I’ll say this based on my impressions from the accessibility conference recently held by Oschadbank, which was attended by war veterans, public organizations, and government representatives involved in strategy development. I wouldn’t say it’s just about resources, money, or attention, but rather about how much greater the awareness is now of what people actually need.

Accessibility is now a fundamental standard in people’s minds. It’s no longer viewed solely in terms of ramps and other infrastructure; there’s an understanding of what clients truly need: to see the person first and foremost, with their dignity, and only then their specific needs. The same is true in the banking sector – the client base has changed. First and foremost, the country has moved away from a large share of state ownership; the majority of the economy is now privately-owned, part of the private sector. This means competition and rivalry. In their personal lives, people use digital services, and banks must not only respond but also promote these services. Which, by the way, is happening in Ukraine. For instance, looking back 10 years ago at bank cards… Half of all payments were made at ATMs, and half were cashless payments. Now, 5% are ATM transactions and 95% are online payments.

Vitalii Sych: That’s tremendous progress.

Volodymyr Lavrenchuk: It’s truly tremendous progress. It’s, so to speak, world-class payment systems that have been developed in Ukraine.

Vitalii Sych: Do you know where this stands in comparison to, say, Austria or Germany? Is this roughly in line with global trends?

Volodymyr Lavrenchuk: When you walk into a store, for example, in Austria, you’ll see more cash payments than in Ukraine, and fewer bank card transactions. This is just something I’ve observed in everyday life. My work at the Raiffeisen Group was related to Austria, so I’ve observed these processes and can speak to this. It’s not just the level of digitization or individual transactions – our entire Ukrainian banking system is structured in such a way that there’s a qualitative difference between before and after.

To put it in one sentence: 15–20 years ago, the banking sector and banks competed on scale and volume; now they compete on quality. Quality means technology; quality means controls, capital, and risk mitigation, or more precisely, managing measures to mitigate risks. It’s a qualitatively different world now. Note that we’ve been going through four years of war, and we don’t see lines at ATMs or other evidence that would cast doubt on whether banks are substandard or unable to provide their services on time.

Corporate Governance in Practice – What Is It?

Vitalii Sych: Why does a state-owned systemic bank need an independent supervisory board, and what does high-quality corporate governance mean in practice? Where is the line drawn between the roles of the supervisory board, the management board, shareholders, and the oversight function?

Volodymyr Lavrenchuk: We’ve sort of touched on what not to do. And I said that systemic management has tremendous value. In management circles, we call this “corporate governance.”

In recent months, corporate governance, especially in state-owned enterprises, has been called into question: why is it needed, what standards should it meet, and so on. I think the public should be asking these questions in light of certain high-profile events. So, I’ll try to offer my perspective.

Corporate governance is a system of authority, roles, and checks and balances among officials and governing bodies of a specific company, which, like in our case, is a bank. In other words, it defines what everyone does, how they interact, and the general rules for ensuring that goals are achieved for the benefit of customers and shareholders. Adherence to rules and operating principles can be better ensured, or more precisely, actually ensured, through the division of responsibilities and mutual oversight – as opposed to relying on the discretion of a single executive.

The risk of deviating from the rules during a war or crisis, it seems to me, could be very costly. The goal of adhering to the rules is precisely to prevent this. The supervisory board is one of the key elements of corporate governance. I would like to remind you that the bank is managed by the management board. Each body performs its functions. The supervisory board formulates and develops strategic directions, oversees the management board’s activity, appoints the management board, and dismisses it if there are grounds to do so. The supervisory board interacts with the management board. However, the less people hear about the supervisory board and the better customer service is, the more effectively corporate governance operates.

The supervisory board's work is not about interfering in day-to-day management. But what exactly does this work entail? Recently, a good friend of mine asked me what it specifically involves. How does it all work, beyond general terms like “strategy,” “control,” and so on? Here’s how I explained it to him: if we consider the volume of reports requiring decisions – applications for large loans, guarantees, or policy changes; decisions on whether to grant a mortgage, for example, and to what extent; how many risks we might face and how to mitigate them - it’s practically impossible for one, two, or even three people to process all these requests.

That’s why corporate governance is structured this way. There are four committees at the bank. Each committee is chaired by an independent member of the supervisory board, typically someone with international experience. Each committee – whether it’s the Risk, Strategy, Nominations, or Audit – serves as a platform for analytical working sessions, the results of which are translated into prepared decisions.

If we imagine that this structure didn’t exist and that a single strong-willed individual was in charge of it all, then from my perspective, that would be physically impossible, because a bank is a multifunctional institution. And the division of authority is specifically designed to ensure that all key processes are carefully reviewed, managed, and then decisions are made.

I praise corporate governance as if I were unaware of how it sometimes slows down the decision-making process or adds to the red tape. I’m aware of this. This is not a defense, but an explanation of why I think there aren’t that many alternatives. To paraphrase Winston Churchill’s quote about democracy: “democracy is the worst form of Government except all those other forms that have been tried from time to time.” The same applies to a bank.

How Does the Government Influence the Bank’s Operations?

Vitalii Sych: Oschadbank is a state-owned bank. But is it possible for a state-owned bank to be an independent, effective financial institution – rather than merely an instrument of government policy?

Volodymyr Lavrenchuk: We have a mandate from the government regarding our priorities. Therefore, it would be incorrect to say that the supervisory board or the bank is disregarding the shareholder’s priorities. The shareholder sets our priorities. Do you know what they are? To finance the defense sector, support critical infrastructure, and the energy sector.

Vitalii Sych: I think these are the proper priorities during wartime.

Volodymyr Lavrenchuk: First of all, both as citizens and as professionals, we cannot even question these priorities. Furthermore, we must ensure a level of profitability no lower than that of the sector, keep developing, and ensure stability. In other words, these guidelines are extremely meaningful and have a long-term perspective.

On the other hand, appointing specifically independent members of the supervisory board to chair the bank’s committees is a legal requirement. You know how rigorous the screening process is, especially for candidates with international experience, prior to their appointment to this position, including at Oschadbank.

Appointing the chairman of the supervisory board from among its independent members gives the supervisory board this element of independence. In other words, I, as chairman of the supervisory board, along with the entire supervisory board and the entire management team, are accountable to the shareholder for fulfilling its mandate, but we are also accountable to depositors for safeguarding their money.

We are accountable to the staff to ensure that they do not lose their income tomorrow for no good reason, that they are not fired, or that they are not made to work in a non-transparent manner, in violation of the rules of conduct. That is why we bear this responsibility. It is both legal and personal. Because our reputation matters to us. You know, they say that bankers only make a mistake once. The second time, you won’t be working in banks anymore, or anywhere else for that matter.

Vitalii Sych: Donald Trump is the only one who can make mistakes multiple times. Listen, I’ve said this many times before, and I’ll say it again: to my surprise, the banking system has been operating absolutely seamlessly from the very beginning of the war. I was almost certain that with Russian aggression and all their technical capabilities, including electronic warfare systems and missiles, the banks would go down and it would be difficult to withdraw cash. But everything is working perfectly.

I know what we’ve done at NV to stay resilient, and it’s quite a lot. The Russians were constantly overwhelming us – there were 200,000 requests per second to the website. We went down for 4 hours, but we found a way to deal with it. They can’t do anything else to us.

We even know which Telegram groups they join when they’re planning an attack on us. But at a large, systemically important bank like Oschadbank, what needs to be done to ensure everything runs smoothly – payments, deposits, cash, branches, cybersecurity, and backup power? What needs to be done to ensure everything functions reliably amid constant shelling and alerts?

The First Factor Is People

Volodymyr Lavrenchuk: Thank you for bringing that up. Because the people behind the reports often go unseen. What you described is often the heroism of our employees, especially in frontline regions or areas – ensuring that Oschadbank branches keep operating, so pensions and salaries can be paid, and local transactions can be processed.

I didn’t bring any photos with me. Branches with shattered windows and almost no doors left after one bombing or another continue to operate, quickly restoring their physical and technological infrastructure to meet customer needs. This truly inspires great respect in me for the bank’s staff. I’ve only mentioned the frontline areas, but with the current bombing across the entire country, this applies to almost all regions.

Vitalii Sych: There’s Sumy, Chernihiv, and perhaps even Kyiv. It’s hard to call Kyiv a rear area, since there are air raid alerts here for 15 hours a day.

Volodymyr Lavrenchuk: The first factor is the people. Everything is done for their sake. The second factor is the professionalism of managers, who must ensure a rapid response is in place.

We call this business continuity. It’s an entire field of study, involving technology and specially trained personnel who, much like in American movies, prepare folders containing response protocols. You open the folder, and inside is a step-by-step plan of action. Our people train for scenarios like bombings or other emergencies. Managers, staff, and all employees train so they know how to respond.

Third, you need to have the necessary technology, equipment, generators, connection options, and organized coordination with other services. The bank cannot survive on its own: it needs telecommunications companies and companies that provide transportation services. This is a multifaceted task, and it depends on collaboration.

Going back to corporate governance, the supervisory board merely verifies that everything is prepared, but it treats the list of measures the bank is implementing with great respect.