Engin Akçakoca: «PrivatBank should be an ordinary, normal bank»
McKinsey & Company completed the preparation of a five-year strategy for the nationalized PrivatBank. The Finance Ministry must approve it, and then PrivatBank's business model will change. The head of the supervisory board of PrivatBank Engin Akçakoca in the interview for FinClub told journalist Ruslan Cherniy about future of the bank, what its clients can expect, and the terms of bank’s privatization.
- Kroll has recently revealed the results of the investigation it performed regarding actions of former UBOs of the PrivatBank. What are you to do with these results further?
- First of all, the investigation by a professional, independent and a very well equipped company was the NBU initiative and I must congratulate them for this initiative. Most of the findings presented in the report coincide with the findings the NBU already had before. The value of the report, however, is that it was announced by an international, professional, independent expert company. It makes these findings very hard to challenge. Of course, now these findings need to support the relevant legal actions. It is necessary to make an effort to collect funds that are claimed to be withdrawn by former owners and not yet paid back. Moreover, if these withdrawals are results of illegal activities, they require legal action and criminal investigation. It is an international practice as well.
- What is your opinion on the qualification of the new CEO, Petr Krumphanzl, is he up to your personal expectations? How effectively is he able to implement the strategy you developed?
- Petr is a professional focused on operations, at improving processes and setting up controls. He has experience in transformations and operational management. It is what we need at the bank. He is a fighter, and a reasonable person. I think his management style will contribute to the Bank. With regard to other expectations, I would be able to comment more after he starts working. But he was appointed by the Supervisory Board unanimously, which is very important.
- What was the result of negotioations performed by Rothschild with Mr. Kolomoisky and Mr. Boholiubov? The company received money for the job. We see no result.
- The negotiations in the sense that you mean were not the goal. The goal was to bring Mr. Boholiubov and Mr. Kolomoisky to the situation, where their loans are appropriately collateralized. Also, Rothschild had to give their recommendations on how to collect the loans.
- So what did they recommend?
- Recommendations are different. Some loans will go to courts for collection. With regard to some other loans they recommended to sell collateral. Also, there is a recommendation to keep collateral until the market is ready for selling.
– McKinsey&Company has already finished the development of PrivatBank strategy. When will it be approved, when will the implementation start and when will the bank begin to change in accordance with the strategy?
– It is important to understand that the strategy was developed jointly by McKinsey & Company and the Bank. Only after we receive confirmation from the owner, the Ministry of Finance, as to the strategy, we will instruct the bank to start working in line with the instruction. Reforming the business model of such a huge bank as PrivatBank is a real challenge. I am sure, however, the new CEO will be able to fulfill this mission with support of the Supervisory Board and the bank staff.
- Everyone in the market is interested: the Supervisory Board of PrivatBank comprises very qualified and literate people such as you, Oksana Markarova, Artem Shevalov, Francis Malige and others. Couldn’t you develop the strategy on your own without engaging a company from outside?
- It was the IMF requirement that the strategy should be developed by an independent expert company. It is important for some projects that they are developed by independent specialized companies. That makes the developed idea easier to be accepted and implemented.
- How did you prescribe the terms of reference for development of McKinsey and company?
- First of all, the TOR was developed not only for McKinsey. It was developed for the tender. Thus, a lot of other companies, including McKinsey, submitted their proposals based on the TOR. It provided for development of a business model allowing to bring PrivatBank to privatization as soon as possible. It was the main aim of the terms of reference.
- Still, when the implementation of the strategy will start?
- The strategy becomes effective from the very beginning of 2018 until the privatization. We already have definite objectives for end-2018, and for end-2019 and further.
- When will PRIVATBANK be put on sale?
- As soon as the market requires. It is not an easy question to answer. The strategy requires us to finalize efforts with regard to privatization by 2021.
- Still, if there is an interesting proposal from an investor this year, what will you do?
- Of course, we will consider and negotiate.
- How do you see PrivatBank in four years?
- The network and the staff size will be smaller than today. Clients will be more than today. Profitability will be much higher than today.
- As far as I understand, the strategy by McKinsey, provides for several scenarios for development. What are they? Could you explain which variant was chosen by the Supervisory Board and why?
- I would like to emphasize again that the strategy has been developed jointly by McKinsey and the Bank. First option was to develop the bank to a fully-fledged universal bank. It is one end of the spectrum, and the other end is to preserve the bank as a payment agent. There are different proposals between these two ends, which differ by the extent to which the bank wants to be present in the segment of small and medium enterprises (SMEs), in corporate and retail segments. Each strategy provides for different priorities. Roughly analyzed strategies are: universal bank, retail focused bank with good presence in SME and limited presence in corporate, retail-focused bank with good presence in SME, but no presence in corporate, and retail-focused payment network. As you notice the reviewed options refrain from markets where the bank does not have capabilities now and had made mistakes in the past – like corporates. Our advisers presented the pros and cons for each of the options. We decided that we will propose to be oriented at the retail segment with limited presence in the SMEs and very selective presence in corporate banking services.
- Is that to support salary projects?
- Yes, selectively. Synergy will be the main reason of cherry-picking corporates.
- If we recall the development of Oschadbank, Ukreksimbank, and, in recent years, Ukrgazbank, we will see, that they are actively crediting large state enterprises. The share of state enterprises exceeds the NBU limits, and the share of Naftogaz on its own reaches 50%. Can you promise the situation will not be the same in PrivatBank?
- Never. This is not part of our strategy. And me personally do not favor this type of banking for PrivatBank.
- How will PrivatBank work in retail segment? Will it provide cash loans?
- It is very important to consolidate PrivatBank as a market leader in retail, serving households in a more complete way. The most important goal is to ensure a wide spectrum of services and products and provide speed and quality. The SME segment also has the strategic importance – here PrivatBank wants to grow market share.
- Early last year every fourth Ukrainian had a PrivatBank card. Every third deposit was at PrivatBank. Now the share of clients is decreasing for sure. What do you plan to do to increase or retain the share of clients at PrivatBank, in line with the strategy?
- Yes, the quantity of cards was enormous, and deposits were enormous but the interest rates paid by the bank were also huge. Now we are reducing the interest rates in line with macro-economic requirements. The most important goal for us is to generate income. That is why the primary task is to preserve the market share together with reasonable profitability. If we are not able to keep both, we will let the market share go - it is not a problem.
If we talk about market share, PrivatBank is the largest bank in the country now. But expensive deposits were used to disburse loans that were not repaid. PrivatBank should be an ordinary, normal bank, which will compete with the similar banks on reasonable grounds. Everything that is in line with reasonable approach is acceptable. Reasonable competition, reasonable interest rates, reasonable market share - that is what we are aiming at.
- In what way do you plan to increase portfolio of SMEs?
- First, we have to get prepared, from the organizational point of view, to develop and/or improve products and services for SMEs and ensure appropriate level of quality of servicing.
- Is a complete refusal from lending to large corporate clients of PrivatBank possible?
- As I have already said, we will be selective in this segment driven by synergies, and we will be oriented at profitability. If both criteria coincide, we will be there but on a very selective basis. You understand, the easiest thing for a banker is to give corporate loans, because that way it is easy to grow the balance sheet very promptly. But the experience shows that the corporate portfolio is the one that generates the largest share of NPLs. Bankers first try to lend to the best corporate clients, but the margin is minimum there. In order to increase the margin, they start lending to lower tier/quality corporate borrowers, which usually end up in NPLs for the bank.
- There is such a position in society, that a state bank has to support economy, develop strategically important industries, not only lend to households, who buy foreign goods.
- This is more of a longer and philosophical discussion. But in short we should be banking in a free market economy. If the state has its priorities, it has to allocate funds for them in the General Budget. That way it becomes the problem of the general state budget. Most of problems at state owned banks result from such a practice… directed lending. Who will buy PrivatBank, if it will be transformed into a state agent forced to develop a certain part of economy? The question is: do we want to bring the bank to privatization, or do we want to turn it into dinosaur?
- PrivatBank will actively compete with Oschadbank in retail segment. How will it comply with the general strategy for the SOBs?
- As I have already mentioned, we will follow only reasonable principles of competition. I do not support fierce competition of interest rates. We plan to compete based on our products, services and quality. PrivatBank has a proven experience in these issues. On the other hand, we are not yet informed of the strategies of other state owned banks and therefore I am not able to comment on this question more widely.
- Is additional capitalization of PrivatBank discussed for 2018?
- No. If the Bank will suffer unexpected losses in future due to actions of ex-owners, we will address the shareholder to cover such losses. The only thing, the minimum CAR should be 14% according to the strategy.
- Is there any amount/figure for the assets that might be taken by Mr. Boholiubov and Mr. Kolomoisky from the Bank’s balance?
- Mr. Kolomoisky and Mr. Boholiubov were bailed-in during the nationalization process as per the Law on Banks and Banking. The purpose was to reduce costs for tax payers.
- Was the list of assets for the Hight Court of London provided by Kolomoisky and Boholiubov, or was it prepared by the Bank staff and Kroll?
- As far as I know, the court ordered Kolomoisky and Boholiubov to reveal all their assets. Naturally any incomplete or inaccurate information provided to the court will require corrective action, if any, by our lawyers.
- Is the IT-system “Privat 24” on the bank’s balance?
Yes, Privat 24 is completely on the Bank’s balance sheet under the Bank’s control.
At the same time, some noncritical processes in a cloud operate on a platform of external company. Mr. Dubilet has no relation to it, and thus has no possibility to create problems in operation. Alongside, the external company has also no possibility to cause disruptions in operations, as the processes are backed up on the bank’s resources. Moreover, the company bears full responsibility for the quality of software solutions it provides for the bank.
Although, such software solutions of the external company are appropriate in terms of security, we are taking technical, technological and legal efforts to make the bank completely self-sufficient this year, thus to transfer the operations to the software products newly developed by the bank itself. The decision to do so is based on the added value it may have in the process of privatization.
- Thus Mr. Dubilet can take a key and turn off all payments at PrivatBank. Can he?