Ukrainian bank sector overview

By bne IntelliNews February 26, 2007

Alfa Bank in Moscow -

Ukrainian banks seem to have adopted their strategy for the next few years from neighboring CEE countries, appearing ready to sell stakes to foreign institutions. On this expectation, Ukrsotsbank is currently showing the greatest upside potential. Trading at 3.7x P/BV for 2007, we rate it as a BUY, given its retail market penetration. Two other banks we cover - Bank Forum and Raiffeisen Bank Aval - have become expensive on their P/BV multiples and have thus been assigned HOLD recommendations.

Beginning January 1, Ukraine simplified the process for banks to raise capital, which opens a number of banks, such as Nadra Bank and Rodovid Bank, to possibly holding an IPO. In particular, Nadra offers a good opportunity to play on Ukrainian retail growth and high banking valuations.

Ukrainian banking sector outlook for 2007

In 2007, we forecast a slowdown in banking sector growth to 40%. This year growth in this category appears to be directly correlated to banks' access to external funding. In addition, lending appetite remains strong in Ukraine, given that escalating prices for gas imported from Russia has pushed a number of industries, especially metals producers, to install energy efficient equipment, which is fueling demand for loans. The Ukrainian market has also shown an abundant appetite for retail loans.

In contrast to Russian commodities exporters, which are flush with cash and investment from within their respective financial-industrial groups, Ukrainian companies continue to borrow heavily from local banks. Overall, corporate deposits are 2x lower than corporate loans. Moreover, as of the end of 2006, retail deposits were relatively equal to retail loans, suggesting that the Ukrainian population is no longer a net deposit holder in the banking system.

Insofar as domestic sources of financing are running low, we expect Ukrainian banks to show greater interest in international markets, which includes issuing Eurobonds, attracting syndicated loans and securitizing mortgage assets. We also believe more Ukrainian banks will seek foreign strategic investors as a means of getting better access to cheaper foreign resources. For example, Italy's Banca Intesa should soon complete its purchase of Ukrsotsbank, while Bank Forum is currently negotiating with multiple potential buyers. The owners of Ukraine's largest bank, PrivatBank, are also in deliberations with a potential strategic investor. A number of local banks have already been sold to foreign investors and growth for these banks is financed by foreign capital.

In 2006, retail lending in Ukraine showed spectacular growth of 138%, albeit starting from a relatively low base. As a result, retail loans accounted for 15.4% of Ukraine's GDP last year. This figure suggests that the market remains under-penetrated, implying ample upside potential. In 2007, growth in the banking sector will continue to be driven by Ukraine's retail consumption boom. The retail sector should grow by 80% and reach 23% of GDP this year.

Ukrainian retail market

In October 2006, Ukraine's retail market reached $15 bln. Compared to markets in Russia and Kazakhstan, Ukraine's retail sector is more diversified.

In Russia, personal loans for unspecified uses account for 60% of market volume, while in Kazakhstan mortgages account for 30%. In Ukraine, the share of personal loans remains modest, while mortgage and auto loans together cover more than half of the total retail market.

At more than 200% y-o-y growth, consumer finance was the fasted growing segment in 2006. As in Russia, this market niche delivers strong returns for Ukrainian banks, even though banking services remain underutilized overall.

We expect this market sector will deliver the strongest gains for banks in 2007.

Overall, the mortgage market grew by 60% in 9M06, with PrivatBank leading the pack with 16% market share. Ukraine's other four major mortgage providers are Pravex-Bank (13% market share), Raiffeisen Bank Aval (12%), Ukrsibbank (12%) and Ukrsotsbank (10%).

PrivatBank has a decisive lead on the cards market. As of mid-2006, the bank issued 10.6 mln cards, or 34% of the total number of cards given out in Ukraine. Bank Aval and Nadra Bank are the second and third largest players, respectively. The card market remains rather concentrated, with the top three cards issuers controlling 60%. In Ukraine, there are 8.3 mln credit cards in circulation, or 25% of the total number of cards issued. As the Ukrainian economy still primarily cash-based, we do not expect the credit card market to show rapid growth in 2007.

One major positive observation of retail lending in Ukraine is that it remains highly specialized. The share of personal loans remains just below 10%. We expect this segment to grow in line with market averages in 2007, maintaining its modest share of the total retail market.

Related Articles

Ukraine's largest PrivatBank faces down nationalisation fears

Graham Stack in Kyiv - Ukraine's largest lender PrivatBank has survived a stormy week of speculation over its future, but there are larger rocks ahead, with some market participants anticipating the ... more

bne:Chart - Russia begins to steady the ship according to latest Despair Index

Henry Kirby in London - Ukraine and Russia’s latest “Despair Index” scores suggest that the two struggling economies could finally be turning the corner, following nearly two years of steady ... more

Austria's Erste rides CEE recovery to swing to profit in Jan-Sep

bne IntelliNews - Erste Group Bank saw the continuing economic recovery across Central and Eastern Europe push its January-September financial results back into net profit of €764.2mn, the ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.