The National Bank of Ukraine officially announced sanctions against five subsidiaries of the largest Russian banks: Sberbank, VTB Group and Vnesheconombank. The measures will not have a significant impact on the parent banks, but for their Ukrainian units it will have serious negative consequences, effectively putting an end to business development. As a result, sanctions can turn into problems for the banking system of Ukraine itself, where Russian banks occupy more than 10% of the market.
Yesterday, Ukrainian President Petro Poroshenko approved restrictive measures against five entities of Russian banks: Sberbank, VS Bank (Sberbank's subsidiary), Prominvestbank (VEB's subsidiary), VTB Bank and BM Bank (controlled by VTB through the Russian BM Bank). Sanctions presuppose a ban on placing in these banks funds of Ukrainian state enterprises, institutions, organizations and business companies whose authorized capital has corporate rights of Ukraine, as well as a ban on any financial transactions in favor of parent banks: provision of interbank loans, deposits, subordinated debts, funds from correspondent accounts, payment of dividends and interest.
Despite the fact that the statements about the sanctions were not unexpected, Russian banks, apparently, were hoping for a more peaceful scenario. Sberbank expressed disappointment with the decision of the Ukrainian authorities, calling it "discriminatory and politically motivated."
The bank hopes for support of the NBU in the restoration of the normal operation of the bank in Ukraine, and also asked the president of Ukraine to "restore law and order, unblock the central and other offices of the bank and ensure normal conditions for servicing the bank of its customers," as follows from the statement of Sberbank.
In this case, Sberbank itself also took measures to normalize the situation - restrictions were imposed on limits on spending operations and credit card limits were blocked. VTB and VEB did not respond to the request of Kommersant.
In the meantime, it is simply dangerous to work in Ukraine for the subsidiaries of Russian banks. At the beginning of the week, the radicals laid concrete blocks in the entrance to the office of the Ukrainian Sberbank, and also painted the building with anti-Russian slogans. Alfa-Bank's office in Kiev was also attacked - it was stoned.
However, the paradox of the situation is that for the Ukrainian banking system these banks are of significant importance, occupying about 10% of the market, and aggravating the attacks can lead to panic among investors. "The announcement of sanctions may have negative consequences associated with a negative information background, which could affect the reduction of customer confidence and lead to an outflow of funds," says Moody's analyst Lev Dorf. Although interbank loans from parent banks, as a rule, account for more than half of the total funding of Ukrainian subsidiaries, clients' funds are still an important source of it.
Thus, the stability of the Ukrainian banking system is under threat, experts say. The operating environment in Ukraine is deteriorating for all banks with Russian beneficiaries, including the private ones: Forward (part of the Russian Standard group), Alfa Bank and Ukrsotsbank (owned by Alfa Group). "The dynamics of business development is not obvious for all the subsidiary of Russian banks, not only with state participation, without exception," Kirill Lukashuk, head of the group of bank ratings of ACRA, is confident. "In the case of a prolonged negative background in relation to banks with Russian capital, some banks, who have not been affected by sanctions, may feel some negative influence on themselves," agrees Lev Dorf. Thus, the NBU, as a regulator, should be primarily interested in maintaining the stability of the banking sector, the expert concludes. However, according to the interlocutor of Kommersant in the Poroshenko Bloc, "the president believes that since sanctions do not require the closure or expulsion of banks from the Ukrainian territory, there is no threat to the Ukrainian banking sector."
However, so far in the offices of these banks in Kiev there is no panic. "We need to comprehend the decision of the Ukrainian authorities," the source said, which is close to one of the banks that came under the sanctions. "On the one hand, it's worse than it was, but better than it could be."
The essence of sanctions is to strike at the financial stability of shareholders, not all Russian owners of Ukrainian banks, but only state ones. ICU estimates that the total volume of loans from mothers in banks with state-owned Russian capital in Ukraine now stands at more than $1.3 billion. The ban on interest payments on these loans will deprive Russian banks of about $90 million per year. However, given the weight of Ukrainian assets in the total business volume of Russian state-owned banks, this situation will not have any negative effect on them. "Sberbank has less than 0.5% of its assets, VEB has 2% of all assets, VTB has about 0.4%," points out Lev Dorf. "Thus, even the worst scenario - a loss of Ukrainian business althogether, won't mean that much for the parent banks."
In general, the sanctions are rather weird, the experts believe. "The sense is to ban the transactions from the subsidiaries to the Russian banks; it must be taken into account, however, that since 2014 all financial flows have been directed to Ukraine, and the Russian banks supported their subsidiaries with the capital," notes Lev Dorf, reminding, that in 2016 the subsidiaries recieved around 36,5 billion hryvnia (around $1.4 billion).
However, since there are active negotiations about selling of the most of the Russian subsidiaries in Ukraine (VTB Group and VEB say that the negotations are in their final stages), the sanctions will without doubt worsen the positions of the sellers. "We are forced to sell cheaper and quicker," a source close to VEB told Kommerstant. According to Kirill Lukashuk, the prospects of selling the Russian subsidiaries in Ukraine were doubtful even before, and now they are virtually non-existing. Most likely, the banks won't sell their assets for a penny.