1

The Crisis Mode

in Ukrainian Retail Banking ...

... are we in the problem or

opportunity situation?

2

Half empty or Half full glass ... Or where is the bottom?

Economical cycle

A. Growth C. Decline

B. Plateau

D. Plateau

Where do we believe the Ukraine is at the moment: A) B) C) D)

3

Beginning of the year accelerates the trend from the 2014

11,28

-0,5-4,3

-10,7

-22,5

-5,4

11,1

-13,8 -14,5

-21,7

-32,0

-1,5

19,9

-4,5

13,7

2,8

-3,6

9,814,8 15,9

12,0

-9,6

-22,6

2010 2011 2012 2013 2014 2M2015

Промышленное производство СтроительствоСельское хозяйство Розничная торговля

9131 083

1 3171 409 1 455

1 567

+4,1%

+5,2% +0,2% 0% -6,8%

2009 2010 2011 2012 2013 2014

Номинальный ВВП Динамика реального ВВП, %

4

USD fx went crazy ….

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3

2012 2013 2014

97% 49%

Plateau

5

One year of the decline consumed the growth of 5 years ?

-

5 000

10 000

15 000

20 000

25 000

-

50 000

100 000

150 000

200 000

250 000

300 000

2009 2010 2011 2012 2013 2014 2015

Retail Deposits Market (mUAH; M$)

UAH Deposits $ deposits

-69bUAH

-8,7b$ +161bUAH +10,5b$

• The overall market 530bUAH with 2015 February 31% dynamics “thanks” to the UAH devaluation

• The concentration of the market increases, the TOP20 banks increased the share from 70% to 75% over

the past 12

6

Liquidity demand stimulates the buy at any price approach?

• Average deposit rate offer exceeded the 2008 crisis level and reached almost 22%

• Polarization of the market players where the customer offer for the effective rates ranges from 17% to 28%

• Rates are not shocking when compare them to the NBU refinancing rate of 30% and inflation 20%+

-

5,0

10,0

15,0

20,0

25,0

2009 2010 2011 2012 2013 2014 2015

Cost of Liabilities

Cost of Liabilities

7

Lending market in the horizontal position?

• “fantastic dynamics is February … but the patient died in 2009

• The market focused in the short term high yield products: Cash Loans, Credit cards, POS Loans, Overdrafts.

• Growing pressure of NPLs with the open question for the currency denominated mortgages.

0

50 000

100 000

150 000

200 000

250 000

300 000

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Retail Loans

1Y 1Y-5Y 5Y+

8

What do the customers do during the crisis ... That we do not like

Liabilities portoflio

I run to the bank to take as much chas as it is possible ...

When i place the my money with the bank i do it for the shortest possible period ...

The rates are never too high ...

I take the money from the deposit and put it to the safety deposit boxes ...

Lending

I am scared to take additional financial obligation ...

The municipal payments are more important than the loan ...

Why should i repay my mortgage at 25 UAH / $, when I buy apartment at 5 UAH / $ ...

I am not interesting in lending at 100% effective rate ..

Transactions and Services

The salary i receive i take twice per month from the ATM or the cash desk ...

I prefer the physical payment with the bank stamp on the confirmation ...

I will come with the friends to do the FX operations …

The bank should offer extensive network of physical presence preferably payment facilities ...

9

Crisis situation is the best moment to change …

10

There is always a way to manage the problem ...

Offer high price for the liquidity

Limit the access to the customer resources

Delay the realisation of the customer requests

Stop Lending

Increase the prices

Reduce the infrastruciture – Branches, Staffing

Reduce operational costs

11

There is always the opportunity in each problem ...

Focus on Core customer needs:

Salary processing

Payments and transfer

Switch from the Portfolio management to flow management

Give the customer the reason to stay with the resources

Help the customer to … manage the past portfolios

12

Where the flows are ... Customers Earn their salaries

0

40 000

80 000

120 000

160 000

200 000

QI QII QIII QIV QI QII QIII QIV

2013 2014

Remuneration flow

Salary Paid Social Transfers

• There are two major private remuneration flows 1.180 buah with the 611buah salaries and 570buah of social

transfers

• Annual dynamics in 2014 +2%

13

Where the flows are ... Customers pay for the goods and service

• The market of mass payments in Ukraine

reaches 400 bUAH per year

• 3 dominant players waiting for the

competition to come

• Independent players: Web Payment portals,

Payment terminal networks – growing share

Operational Excelllence +

Alternative Customer channels

14

Where the flows are ... Customers get the compensation from the guarantee fund

32

14

0

5

10

15

20

25

30

35

2014 2015

47 45

0

10

20

30

40

50

2014 2015

• 40-50 buah of retail deposits “frozen” in the problematic Banks since the 2014

• Guarantee Fund searched for the Bank Agents …

Number of new “Problem” Banks Retail Deposits portfolios frozen bUAH

15

… from past portfolio management to new model through current flow ..