Ben Aris in Kyiv -

Sitting in the café under the Premier Palace, Kyiv's best hotel, Denis Gorbunenko, CEO of Rodovid Bank, is short of time.

It's the anniversary of the October revolution (which, confusingly, is measured by the Gregorian calendar so actually happens in November) and the streets of the capital are snarled with traffic as several thousand communists march down the main thoroughfair, the Kreschatik. So Gorbunenko will have to walk to the hotel where he is due to showcase his bank at an investment conference as a means to find a strategic investor.

Rodovid is the fastest-growing bank in Ukraine, which has leapfrogged up the rankings since Gorbunenko took the helm over three, short years ago. And it is not just Gorbunenko who is rushing: all of Ukraine's bankers are slightly breathless as deposits are expected to be up by over a third and total banking sector assets will increase by just under half in 2007. But Rodovid's performance is exceptional, even by local standards.

In 2004, Gorbunenko was vice president of leading commercial bank Krediprombank. But as the economy began to soar - GDP was up 12% that year - he got itchy feet and decided to strike out on his own.

Ukraine was something of a backwater for most of the last decade until the world's attention became fixed on the dramatic events played out on Mai'dan square, in the heart of Kyiv, where President Viktor Yushchenko's supporters pitched their tent camp and faced down the incumbent administration of former-president Leonid Kuchma. Talking to businessmen in Ukraine, however, and the ceaseless political crisis endured since rarely features in their conversation: as far as commerce is concerned, the Orange Revolution barely registers.

"In 2004 competition in the banking sector was just starting," says Gorbunenko. "By 2005 and 2006, the whole sector was growing very fast with the assets of the banking sector rising by 60% a year."

As it can take up to a year and half to get a banking license, Gorbunenko, together with some private investors, bought Percombank (a contraction of Personal Computer Bank as its original founder made silicon chips) - a small bank ranked near the bottom of the league. "It was very old by Ukrainian standards, but it was also very small," says Gorbunenko. "It made money to begin with, but failed to keep up with the competition.

Gorbunenko won't say how much he and his partners paid for the bank other than it was, "a very small amount," but under the new management the bank instantly began to grow.

Re-branded bank

When Gorbunenko took over in 2003 the bank had one office, 120 employees and a mere $27m in assets; four years later and the bank has 115 braches, 3,000 employees, assets of $1.5bn as of November 1 and is ranked 18th in the country by assets.

The bank was re-branded Rodovid - an old Ukrainian word that can be roughly translated as "tradition," but carries connotations of ancestral loyalty.

In just the first nine months of this year, Rodovid bank's assets have doubled - the biggest increase in the sector - and the bank boosted its customer lending portfolio by 139% to just over $1bn - also the biggest increase of any bank in Ukraine.

Gorbunenko has built up the bank by playing to his own strengths. Kremitprombank is a contraction of "credit industry bank" and it was to the corporate clients that Gorbunenko turned to first for customers. It picked up the accounts of Motor Sich, Ukraine's leading carmaker, and several other large industrial enterprises that provided the funds with which to work. Doing payroll for these companies provided a platform on which to build a retail operation.

"Retail banking is driving the growth of the Ukrainian banking sector, but it is the corporate business that provides the revenues," says Gorbunenko. "We are pushing the retail, but we also need to keep the corporate book full. Retail is competitive and profitable, but it requires a lot of people and incurs a lot of costs, whereas corporate is much easier to organise with a handful of managers."

Rodovid has captured a significant share of Ukraine's retail loan portfolio, which makes up just over a third of the bank's own loan portfolio, or $380m as of the end of October. Retail lending doubled over the first nine months of this year, but corporate lending is growing faster still, up by 163% over the same period, and accounts for two-thirds of the bank's loan book, $661m as of the start of October.

The game is changing now as competition in the banking sector has become fierce. The key to more growth is securing funding and boosting the bank's capital. Rodovid has already tapped the domestic bond market for UAH250m ($50m) earlier this year and will be back for more before the end of this year. It had also organised its first syndicated loan of $20m from international lenders before the current brouhaha hit international credit markets. But the most significant event was Rodovid's successful private placement of 18.9% of its shares at $600 per share in April 2006 to raise $47m. Since then, the bank's share price has risen to $1,800 and analysts expect this to rise further to $2,300 by the end of this year.

"Trading at average discounts of 24% to its domestic peers and 27% to CEE peers based on estimated 2007 price/book value, Rodovid is currently one of the cheapest and most promising banking stocks on the Ukrainian market," say analysts at Dragon Capital in Kyiv.

But investors will have a wait a little bit longer for another bite of the apple: Gorbunenko called off plans to place another 20% this year in September, citing poor market conditions. But they won't have to wait forever. "Ukraine banks face a very simple set of choices in this market," says Gorbunenko. "Merge, sell or die."

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