Bankers Can Make Only One Mistake. The Path to Leadership: How Oschadbank Keeps Moving Forward in Wartime (part 2)

Vitalii Sych: In your opinion, what is Oschadbank’s strongest point for customers, and what remains its greatest weakness?

Technological Capabilities as the Primary Weakness

Volodymyr Lavrenchuk: Are there 2–3 important factors that the audience might not be aware of? Today, Oschadbank is the economy’s largest lender. Approximately 30% of defense sector financing is provided by Oschadbank. We are also the largest lender to the energy sector.

We are actively cooperating with small and medium-sized businesses; our portfolio of investment projects totals UAH 3 billion. Every other loan to small and medium-sized businesses is part of a risk-sharing program. Already, 10,000 companies have received loans with potential compensation for losses should risks materialize.

About UAH 90 billion makes up the loan portfolio for large corporations. That’s a lot.

And, importantly, having a mandate from our shareholder, we also understand our own role in maintaining the bank’s stability. Therefore, I would say that our greatest value lies in the fact that the bank is able to fulfill its mission under current conditions.

The point is not that we rank first or that we are the largest. We’re pretty aware that we can do this and that our staff has solid expertise.

Your question was about weaknesses. I’d say our weakness is still a technological lag in a number of areas. We’re working hard on this.

Vitalii Sych: Do you mean apps?

Volodymyr Lavrenchuk: I’d say, generally speaking, a certain technological lag. Today, a technological lag isn’t just about apps and payments. It’s about data management, artificial intelligence, and using data to maximize benefits for customers. Because a customer may not even know how well we’ve prepared for their visit to the bank or even for their interaction with the bank in general. There’s a lot of discussion about artificial intelligence and technology, but when I look at the market, it’s clear that this is still something we can call a weakness, one we’re working hard to address.

Vitalii Sych: Are banks able to scale up business lending when a new or restored asset could be destroyed by the next attack? How can and should businesses be protected from war-related risks? I wrote this question down for myself a few weeks ago. But over the past few weeks, it has become much more relevant. We see how many strikes we’re facing; how many business warehouses have been destroyed, and the losses businesses are incurring. How can lending be scaled up under such conditions?

Businesses Need a Leverage for Recovery

Volodymyr Lavrenchuk: There are two scenarios. As a bank, we work with scenarios. Working groups or committees, as I mentioned, are working out these scenarios; the supervisory board and management determine which strategic direction to take: to move forward by continuing financing, or to identify the circumstances under which it will be impossible to move forward.

We are all aware that once companies stop growing and recovering, the economy will contract, with all the ensuing consequences. We have no interest in that happening. Moreover, companies that are struggling still possess expertise, contracts, and contacts. They just need to recover. It’s not easy. However, we can certainly provide them with the leverage they need to recover. The government can do this. And banks must find a way to contribute their own financing.

There are two possible scenarios, as far as I can see and as we’re discussing. This is the scenario involving existing instruments. Our bank has several dozen client agreements with the European Bank for Reconstruction and Development and the European Investment Bank regarding risk coverage. However, these are still isolated solutions. Half of the 20,000 small and medium-sized businesses we’ve provided loans to are covered by these programs. We can and must continue down this path. But this doesn’t cover the entire market.

I’m pleased to see that some public initiatives align with our discussions at the bank. I’ve seen Andrii Dlihach’s statement, and I hope he won’t mind me mentioning it, along with the industry associations’ appeal to the prime minister to create a large-scale state platform for covering war risks. I find this to be a great idea. There are some nuances, but it’s still a positive one. I also recently saw a statement by Nikolaichuk from the National Bank regarding a very similar initiative.

Vitalii Sych: The Minister of Economy told me that there is a plan to increase the VAT by 1%, and this should help address military risks.

Volodymyr Lavrenchuk: All these initiatives are moving in the same direction. It’s worth putting these signals together. I hope this happens very soon, because the need for recovery is undeniable. Such a large-scale mechanism, which would cover specific sectors of the economy rather than individual companies, would provide guidance not only to affected companies but also to banks on how to proceed with financing.

Vitalii Sych: Yes, Mr. Lavrenchuk, let me ask you a question that I am very curious about. The state’s share in our banking sector is, let me see, 60% - everyone says it’s the highest in Europe, but that’s not true.

My family spent the first year of the war in Ireland; there is the Bank of Ireland and nothing else. It operates – I hope they can’t hear me right now – worse than the average Ukrainian bank. And there’s almost no competition there; it’s state-owned. So, in Ireland, it’s actually much worse. Yet it’s a wealthy country.

What are the prospects for the privatization of Oschadbank? And what would such a bank be worth with no war? During the war, of course, it’s difficult. And who could be interested in such a large bank? It is, after all, a large bank. To me, it would be worth several billion euros if there were no war. It could be HSBC or Société Générale. What are the prospects for privatization? How much could it cost? And who would even be interested in this?

Privatization – a Possible Scenario

Volodymyr Lavrenchuk: This issue is not new to Oschadbank. It had already been outlined in government decisions before the war as a possible scenario: first, attracting an institutional investor, such as the European Bank for Reconstruction and Development, and then potentially bringing in a private investor, such as a commercial company or a commercial bank.

This plan, as a strategic prospect, was put on the back burner because of the war. There were various predictions about when the war would end, and we would start preparing for this again… Now there is a new government document that provides for the privatization of certain state-owned banks as early as this year or in the near future.

Vitalii Sych: I think Sense should be the first to go.

Volodymyr Lavrenchuk: Sense and Ukrgasbank, as far as I recall.

Vitalii Sych: We’ve heard in recordings that it’s time to privatize Sense.

Volodymyr Lavrenchuk: That aligns with what I know about the government’s stance on this issue. There’s a long-term vision for PrivatBank, while for Oschadbank, it remains a possible scenario for now, rather than a mandatory one.

Vitalii Sych: As a possible scenario in wartime, or is it possible in general?

Volodymyr Lavrenchuk: As a possible scenario in general. I think we need to work on the bank’s quality, constantly improving it, as part of a systematic effort to prepare for the possible attraction of an investor. There’s no specific date, but that is our goal.

Vitalii Sych: Have you heard of any specific banks expressing interest, or no specific ones so far?

Volodymyr Lavrenchuk: The initial plan was to attract an institutional investor who would create a platform for the next step: attracting a commercial investor.

Vitalii Sych: As far as I know, we have our largest bank, Oschadbank. It’s not as if some mid-sized Polish bank could make a bid to acquire our largest bank just to bring in its expertise. I’d expect it to be a major bank. For instance, I always mention HSBC. It’s the largest bank in Europe that isn’t represented in Ukraine. That would be nice someday…

Volodymyr Lavrenchuk: I have experience with Aval and Raiffeisen Bank. I completely agree that this isn’t just a matter of who will pay more. It’s a matter of the purchaser’s ability to integrate the acquired institution into its existing system. In the Raiffeisen Group, as far as I recall from the reports, the plan was to integrate it in two years, but it took over five years to do so successfully. It’s not easy. Therefore, if the acquiring bank doesn’t have sufficient resources, not only financial but also organizational ones, to integrate a bank purchased in Ukraine, then success is actually unlikely.