The Ukrainian Ministry of Finance announced its intention to privatize Ukrgasbank in 2018-2019, most likely in the autumn. This is due to the strong performance of the bank over recent years, which has seen Ukrgasbank become the fourth biggest in Ukraine by assets and the number one eco-bank.
While the top management of Ukrgasbank has led a remarkable turn-around of the company over the last few years, transforming it into one the best performing and most profitable Ukrainian banks, this story remains largely unknown in the West
Established in 1993, Ukrgasbank focuses on 4 main business sectors: corporate business, SME, retail and premier banking. With over 240 branches in Ukraine, the bank now has 23 regional offices in 153 cities and towns. These branches cater to over 900,000 retail customers, 43,000 SME customers, and 8,000 corporate members.
In November 2017, Ukrgasbank signed a Memorandum of Understanding (MOU) with the International Finance Corporation (IFC) and the Ministry of Finance of Ukraine, which was intended to help set the stage for the privatization of Ukrgasbank, Ukraine’s fourth-largest lender. The partnership is a key component of IFC’s strategy to establish a transparent and competitive process for the privatization of the country’s state-owned banks, to increase credit growth, and significantly reduce the high number of non-performing loans. The partnership will also help strengthen the corporate governance of the bank, as well as increase the investment attractiveness of the bank.
Regarding pre-privatization support, the IFC has also helped Ukrgasbank strengthen its corporate governance, ensure its operational autonomy and refine its commercially driven banking model.
Given the bank’s objective of becoming the region’s biggest eco-bank, Ukrgasbank has a very strong reputation in the area of green finance. Ukrgasbank became the first partner from Ukraine to join the Carbon Pricing Leadership Coalition, an international community of climate leaders brought together with the goal of putting in place effective carbon pricing policies that maintain competitiveness, create jobs, encourage innovation, and deliver meaningful emissions reductions.
The Ukrainian economy is one of the most energy-intensive in the world and requires immediate modernization. In 2016, Ukrgasbank, in cooperation with the IFC, started to develop green banking in Ukraine. Today, Ukrgasbank is the first and only bank in the region with a focus on green finance. Since the inception of the project, Ukrgasbank has financed more than 330 projects for corporate clients and SMEs in an amount that exceeds €400 million. These projects eliminate nearly 900 thousand tons of CO2 emissions a year. Indeed, every 3rd megawatt in 2017 and every 2nd megawatt in the first quarter of 2018 generated under feed-in tariff in Ukraine was financed with the support of Ukrgasbank.
Ukrgasbank has also signed a number of other agreements with the IFC around various green issues. This includes agreements around green finance and providing easier access to funding for companies intending to implement projects in renewable energy, energy efficiency, and environmental protection.
The bank has also worked hard to cut its exposure to the nuclear power industry and has reduced its exposure to the state nuclear company by over 40 percent since the MOU with the IFC. The bank is planning to have zero exposure to the nuclear industry by year-end.
Since the signing of the Paris Agreement in 2015, green banking has become a central focus for the bank. Ukrgasbank is now in the process of joining wider networks of green banks.
Ukrgasbank is therefore set to play a crucial role in strengthening the energy security of Ukraine by helping Ukrainian companies to save energy, reduce greenhouse gas emissions, and contributing to the country’s sustainable development.
An agreement signed in April this year between Ukrgasbank and the IFC around SME banking services promises to significantly boost economic growth and job creation in Ukraine. The agreement positions Ukrgasbank as the most important bank in the Ukrainian SME sector and will see the bank help SMEs in a variety of ways including restructuring and business model support, training, facilitating access to credit, and streamlining operational systems.
The SME sector is an increasingly important and growing sector in Ukraine, and independent experts have marked the potential profitability of SME business in the country at 5.7 billion Ukrainian hryvnias ($210 million). As a result of this agreement, Ukrgasbank is expected to increase its earnings in the service sector by 300-400 percent in the next four years.
Improving the corporate governance at the bank was a major strategic decision made in 2015. Independent advisors were added to the supervisory board, to ensure maximum transparency and increase trust from customers in the bank. These decisions were made despite there being no legal recourse to do so.
Over the last year, Ukrgasbank has been voted as the leading “Eco-Bank” 3 times for the implementation of the environmental and energy efficiency projects in the ratings of leading Ukrainian financial media.