Under attack. Is Alfa Bank in Ukraine at risk of bankruptcy?
Ukraine's financial front is courageously holding its ground. The Ukrainian banking system is profitable, and collapse has not occurred. However, despite overall stability, we could soon face major bankruptcies. Their consequences should not be ignored, as they could also affect large banks. For more details, see the article. RBC-Ukraine.
Alfa Bank's layoffs and losses
Over the past six months, the media has frequently discussed the Russian shareholders of Alfa Bank and the viability of the institution's continued operation in the market. Consequently, other facts that are more alarming signs of negative trends at the institution have become less noticeable.
What exactly are we talking about?
In particular, the bank is actively reducing its regional network and ranks 4th in the number of closed branches among banks in 2022. according to NBU dataThe branch network shrank by 30 units in the first half of the year and continues to shrink. This optimization is a necessary measure, partly due to the enormous losses Alfa Bank suffered in 2022.
Alfa Bank is also second in terms of losses Among Ukrainian banks in 2022, net losses for the first seven months of 2022 amount to over UAH 3,5 billion. The rate of loss is increasing month by month. In July alone, the net loss amounted to almost UAH 1,2 billion.
Reduction of assets The bank's assets increased most significantly among the group of largest banks: approximately 28-30% compared to assets as of January 1, 2022 (currency equivalents were converted at the same rate to avoid the exchange rate revaluation factor caused by changes in official exchange rates). Most banks in the top 10 saw asset growth.
Not everything is so clear-cut at Alfa Bank
One of the reasons for the reduction in assets may be related to the loss of trust among clients due to the Russian origin of the share capital.
Thus, the volume of funds of legal entities shrunk By more than 45%, or almost double (currency equivalents were converted at a single rate to avoid the exchange rate revaluation factor caused by changes in official exchange rates). In other words, if funds were transferred at a single equivalent rate, clients have withdrawn more than 20 billion hryvnias from Alfa Bank, and this process continues.
Relative to individual funds, they also decreased by 15-18%, or almost UAH 10 billion. Only the NBU's restrictions (no more than UAH 100 per day) on deposit accounts are curbing the outflow of individual funds from the bank.
Will the NBU help?
Alfa Bank, along with state-owned banks, is among the top three banks with the highest refinancing volumes from the NBU. Thus, the debt volume as of August 3, 01.08.2022, amounted to is almost 9 billion UAH, and since the beginning of the year has increased by more than 350 million UAH.
The inability to repay is clearly significantly related to customer outflows. Most Ukrainian banks significantly reduced their debt to the NBU during this period. In other words, they used the opportunities and time to address their operational challenges.
However, for some reason, Alfa Bank hasn't succeeded in this, and it's unlikely it will. The fact is that the bank's capital is under severe pressure, which leads to credit risk. After all, before the war, the bank was among the leaders in retail lending, ranking second behind PrivatBank.
However, while this model might be justified in peacetime, it could prove fatal for a bank during a war. And that's exactly what's happening: today, almost one-third of the entire retail portfolio, or UAH 10,65 billion, is problematic. This is the largest index among 5 banks in terms of the volume of loan portfolio to the population.
The situation is similar with the corporate loan portfolio. As of August 1, 2022, it amounted to UAH 43,3 billion. However, the NPL rate is only 15,6%, significantly below market estimates (given the depth of the economic downturn, the NPL rate is 25-35% or higher). Even Western banks, which carefully select borrowers and had no problem loans before the war, have NPL rates of 20%, gradually increasing.
All of these facts demonstrate that Alfa Bank's level of problem loans will only increase. This will lead to the creation of additional reserves, increased losses, and pressure on capital.
The bank's previously announced $1 billion capital increase is unlikely to help. Under sanctions, it simply won't happen, as the Russian beneficiaries and their businesses are subject to Western sanctions.
Moreover, due to the catastrophically low quality of the loan portfolio, most of it will never be repaid. Therefore, there is a risk of soon seeing the largest bankruptcy since Delta Bank, for which the NBU must be prepared today, as it concerns the return of funds to Ukrainian companies and depositors at risk.
Updated: Following the publication of this article, the bank's press service stated that the bank's operating profit before provisions for the first eight months amounted to UAH 5 billion.
"The bank's current loss is generated solely by the formation of reserves in case of deterioration in the financial condition of the bank's borrowing clients," the bank claims.
Regarding refinancing, Alfa Bank comments that it has repaid the anti-crisis refinancing provided by the NBU in the first days of the war ahead of schedule and in full. However, the bank disagrees with the further increase in non-performing debt.
By topic: Former Alfa Bank executives are suspected of siphoning assets from a Russian oligarch in Ukraine.
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