Ukrgasbank has made a name for itself as Ukraine’s leading bank with a specialized green banking practice that is a focal point across its retail, SME, and corporate segments. By partnering with the International Finance Corporation (IFC), Ukrgasbank has become a trusted bank for investors interested in participating in Ukraine’s green sector. Kyrylo Shevchenko, Ukrgasbank’s Chairman, has led the bank through an impressive transformation, and the strategic shift to green banking has paid off — the bank returned to profitability in 2015 and for the next fiscal year profits are expected to reach $20 million
You became Chairman of Ukrgasbank in 2015, and you were the first chairman in the bank’s history to be elected on a competitive basis. How would you describe your leadership style?
In terms of leadership, it is not just me as an individual, but my team. It’s a collective effort. In 2015 when I came in, I brought in a new team, and with it, a complete change in the approach to the bank.
What did this change entail?
First, we started with corporate governance. We added independent advisors to the supervisory board, which wasn’t required by law at the time, but which we felt was critical to the governance of the bank. This was the first step towards our future success. It brought us more transparency, which translated to trust in the market and with our customers. Before, we looked like an old school state-owned bank. It was a major strategic decision we made in 2015 to change that. We’ve been working for the last three years towards that goal.
The bank became profitable in 2015 and ended the 2017 fiscal year with $9.5 million in profits. What were the main factors driving the increase in profitability for the bank, and what are your expectations for 2018?
We started 2014 with losses of about $90 million. By the end of 2015, we drastically turned the situation around and transformed from losses to profit. Frankly, it wasn’t easy. The market in 2015 wasn’t conducive to such a dramatic shift. We did it by making the right decisions on strategy. We launched our business in green banking, which was a game changer for Ukrgasbank. We made this transition by working with international partners with expertise in green banking. Our most significant partner is the IFC, whom we have been working with since 2016. We know now that this transition was absolutely the right choice for the bank. For next year, we anticipate our profits to be about $20 million, double what we are doing this year. On the one hand, this may not seem like an enormous amount, but when you think about the fact that since 2015 we have not been getting any government subsidies, we feel very positive about this growth.
Ninety percent of Ukrgasbank belongs to the state, but as the government seeks to reduce its foothold in the financial industry, Ukrgasbank could be privatized in the coming years. How is the bank preparing for the expected privatization?
In terms of privatization, we would be looking at adding an international financial organization as a minority shareholder in the bank, and we expect the IFC will become a strategic partner. This type of privatization will be historic—it will be the first time we see cooperation of this kind between the public, the government, and an international financial organization.
What opportunities does Ukragasbank offer potential investors in Ukraine?
In terms of investors, we have three main target areas in green banking at Ukrgasbank: energy efficiency, renewables, and emission reductions. The investment potential of Ukraine in these three areas is estimated to be $70 billion in the next 15 years, a figure we calculated in partnership with the World Bank Group. It’s a huge amount of money and a huge opportunity. As a bank, we are number one in this space. Every second megawatt of renewable energy that is installed in Ukraine is financed by Ukragasbank. Ninety percent of projects in Ukraine in renewables, energy efficiency and environmental protection go through our bank. Due to the projects we’ve financed so far, carbon emissions in Ukraine were reduced by 800,000 tons. This is the equivalent of removing 390,000 cars from the roads.
We serve as gate-openers to this market for investors. One of our main activities is risk mitigation. This specialization is our competitive advantage in comparison to other banks. We also have a positive incentive environment—feed-in tariffs for renewables in Ukraine are the highest in Europe.
You also signed an agreement with the IFC around small and medium-sized enterprise (SME) banking services, which promises to significantly boost economic growth and job creation in Ukraine. Can you tell us more about this and the win-win outcomes of this agreement?
We have retail, SME, and corporate segments in our banking practice. Within each segment, we have core products that are directly related to green banking. In retail, for example, we have products like special loans for homeowners to install solar panels. In terms of SMEs, we will push the development of SMEs especially targeted to the green industry and help other SMEs finance the addition of green elements to their business.
One of the challenges we encounter here is explaining to SMEs what we do and why it is advantageous. This is a completely new idea. We’re the first green bank in the region. In the beginning, our competitors looked at green banking like it was a novelty or fad. However, with the signing of the Paris Agreement in 2015, green banking became a central focus, and things like a green banking network were created to link green banks throughout the world. We’re in the process of joining this network. Now green banking is a huge business and our green portfolio totals around $400 million.
What specific opportunities exist for investors in Ukraine’s green sector?
Historically, this part of the world has been one of the highest for energy consumption. It originates from the Soviet era. We compare only with some parts of Africa. As I mentioned, we estimate the potential green energy market to be worth $70 billion. Investment in new energy-efficient industry equipment is needed. A market segment I would highlight to a potential investor is the municipal-level market. The government’s national decentralization program has brought a lot of money to the municipalities, so they are currently some of our best clients. We’ve done several projects with municipalities and would be interested in involving partners, particularly related to bringing in energy efficient equipment. There’s a huge market there. There’s also a policy mandate for this work — according to an agreement between the Ukraine and EU, the share of renewable energy in final consumption in Ukraine must reach 11 percent by 2020. We’re currently at 1.2 percent, so there is a lot of work to be done in this space.
How do you make Ukragasbank known as a specialized partner in this field?
For this, we really count on our partners, particularly the IFC. They are the best worldwide experts in green finance. A lot of projects come from their trade office and the embassies based in Ukraine.
Apart from green energy, what other sectors in Ukraine do you think might be of interest to investors?
We know green the best of course, and I will say that green does not just mean green energy. It also means pollution reduction, for example. Everyone knows carbon emission, but there are a number of other types of emissions and pollutants. The depth of the tillage is also important.
That’s a huge market for specialized agricultural machines. Ukraine has enormous agribusiness potential. For me, agriculture and the green industry can be combined. Currently, the biggest part of renewable energy comes from solar and wind, and one of the smallest parts comes from biomass. However, there is huge potential for biomass production in an agricultural country like Ukraine. We are number four in the world for agriculture. For investors, I would say that is big business.
We do understand that some investors may have concerns about coming to Ukraine. That’s where we come in. We, partnered with the IFC, have world-class expertise in green business. We will take on a portion of the risk of your investment, in some cases up to 70 percent of the total amount. In our experience, investors are cautious at first, but once they start seeing the return, the investment ratio flips and they are investing 70 percent and we are investing a smaller amount in the project.
How optimistic are you about the future of Ukraine?
We know that business in Ukraine is profitable and transparent. We have so many examples of success stories in the green sector, and those success stories are the best advertisement for potential investors. I have no doubt that we will have a bright future.