UkrSibbank in step with cautious Ukrainian clients

While anti-government protests recently raged in Ukraine’s capital of Kyiv, many businesses struggled to go about their everyday affairs.

Important to the city’s daily struggle under siege from a vicious presidential administration – held responsible for killing demonstrators in the centre – was maintaining the flow of funds through the banking system.

One of Ukraine’s leading bankers to businesses and the high net worth individuals who own them is UkrSibbank, which began its wealth management activities slightly more than 10 years ago. The bank’s progress has since been such that at the end of 2014, it was awarded the Best Private Bank in Ukraine accolade as part of PWM’s annual awards.

A key inspiration for the bank’s model was Credit Suisse, although head of private banking Alexey Aleksandrov also visited the operations of HSBC and Lloyds during an exploratory trip to London in 2004, before also studying Russian examples.

Like several top bankers in Ukraine, Mr Aleksandrov is of Russian origin. But he grew up in a mining town in Ukraine’s industrial Donbass heartland – a world away from the picturesque Kyiv district close to the banks of the Dnipro river where his bank’s HQ is found – so he is well versed in the Ukrainian mentality of doing business.

Next door is the charitable foundation owned by Ukraine’s richest man, coal king and Shakhtar Donetsk football club owner Rinat Akhmetov.

“We decided to acquire experience from ‘both sides’ and Russia is closer to the Ukrainian style of business than Western banks,” says Mr Aleksandrov.

But there are still specific “sociological and psychological” differences in the behavior of Russian and Ukrainian customers, which can appear quite dramatic to outsiders, even taking into account the two countries’ geographical proximity. “Russian customers are always more direct. Ukrainians are more closed,” says the youthful and cosmopolitan Mr Aleksandrov, who meets regularly with representatives from the Paris head offfce of BNP Paribas, his bank’s ultimate owners.

“Ukrainian customers need to analyse information, see documents, visit your offices and attend at least two or three meetings with private bankers before making a decision,” he says, demonstrating the reason why many foreign visitors find it tough to penetrate the business community of Kyiv and the Ukrainian regions.

“Only after this analysis will they sign an agreement. They are always more suspicious,” he says. The first meeting is a general introduction, the second is the real business discussion, where there is a critical analysis of credit ratings and investment returns, while the third is more of a formal signing ceremony. “With a Russian customer, it’s generally one meeting.”

Many says the patterns of cautious Ukrainian behaviour are born of religion, culture and a tragic history in the thrall of more powerful neighbours, which has ben reinforced by recent events in Crimea.

According to research from the country’s Academy of Sciences, says Mr Aleksandrov, Ukrainians trust only those closest to them. “The circle of trust for normal Ukrainians is only family. After that there are friends and relatives. As for the rest, trust is very limited, or it is not there at all.”

He also cites research commissioned from a Ukrainian consultancy in 2009, which showed that just 17 per cent of Ukrainians “more or less” trusted their own bank and relationship manager.

“We were startled by these figures which showed that around 35 per cent did not believe in their banking system,” he says. “Trust in Ukraine is negative or neutral at best. In such an environment, it’s not easy to work with customers or suggest complicated financial products to them.”

The most popular offer for wealthier individuals in Ukraine remains the plain vanilla deposit account, with some customers opting for short-term six to 12 month lock-ups. “Only very brave customers will invest for two years or more,” he says.

The fastest growth period for Ukrainian private banking was during the years 2004 to 2006, when private businesses expanded rapidly. Ukrainian shareholders – in those days the bank was co-owned by construction boss and then owner of Metalist Kharkiv football club Oleksandr Yaroslavsky – “helped us acquire new customers without difficulty,” says Mr Aleksandrov. “At the beginning of the private banking story, there were only two or three official players in Ukraine.”

Slightly after this golden period, UkrSibbank became one of the first players in Ukraine to sell mutual funds, progressing to an open architecture system offering bond, equity and indexed funds in 2007, although this was suspended when the economic crisis kicked in during 2008. “Step by step, we became more like a wealth management or private banking operation in Europe.”

The implementation of stricter compliance rules in 2008 was also a major leap, but soon became normal, he says. “If a customer wants to invest with a real international brand, in a classical private banking relationship, they need to officially account for their cashflow.”

Private clients in Ukraine can opt to bank with the major Swiss players such as UBS or Credit Suisse, Russian institutions like Sberbank, VTB and Alpha bank, or the “classical” local players such as UkrSibbank, Ukrsotsbank or OTP, owned by foreign parent groups, although more and more local start-ups are increasingly bringing innovative solutions to the market.

“Customers want to know if the bank is part of the top 10 and what rates they pay for euro accounts and US dollars,” says Mr Aleksandrov. “They want to talk about rates and profits, not about risk and return.”

It is in times of crisis, he says, such as in 2009 – and like today – when the risks become foremost in their minds. “Once a crisis is over, they are back to analysing profits before risks.”

While the bank has managed to attract customers from many cities including Kyiv, Donetsk and Kharkiv, as PWM went to press, the bank’s board was locked in intense discussion and could not be contacted. How UkrSibbank’s business customers in Russian-occupied Crimea will be serviced, was undoubtedly a top point on the agenda. 

Literary restoration

Like UkrSibbank’s parent institution, BNP Paribas in Paris, the Ukrainian entity is keen to become involved in philanthropic works. The first stage of this mission has ben the bank’s role in the restoration of the house of writer Mikhail Bulgakov on the historical, picturesque cobbled Kyiv street of Andriyivsky Uzviz.

The bank’s wealthy customers have also been involved in donating towards restoring this atmospheric house and museum. “Trust me, these are serious amounts,” says the private banking boss Alexey Aleksandrov.

Initially the museum’s curators were highly suspicious of working with a banking sponsor, due to their negative experiences of the Soviet banking system, but later relented and now host regular receptions for the bank’s clients.

Mr Bulgakov was born in Kyiv in 1891 and lived in the house until he was 28. He was influenced by Ukrainian writer Nikolai Gogol.

The Kyiv property is vividly referenced in Mr Bulgakov’s novel, The White Guard, in which German forces, Ukrainian nationalists and Russian communists among others fight for the city of Kyiv during the Russian Civil War. Some see recent events as a new chapter in this story.