Since his election, President Petro Poroshenko has publicly promised to sell off the businesses he controls. But he hasn't fulfilled his promise. Meanwhile, despite the crisis and the war, his bank has demonstrated remarkable growth.
The assets of the International Investment Bank (IIB), whose main shareholder is President Petro Poroshenko, have grown by almost 50% since the beginning of the year, reaching UAH 2,5 billion. This was stated in the bank's report for the third quarter of 2014. By comparison, the assets of the entire banking system for the first eight months (data for the first nine months have not yet been released) increased by only 5%.
Significantly, even this modest growth across the system was driven by the rapid devaluation of the national currency. Approximately 41% of all bank assets are denominated in foreign currency. Given the 63% weakening of the official exchange rate, this suggests a de facto reduction in bank assets.
MIB's assets also grew partly due to the devaluation. However, the crisis had little impact on the financial institution controlled by the President. Unlike most of its peers, Poroshenko's bank saw an influx of deposits, including foreign currency ones.
Foreign currency-denominated balances in IIB client accounts increased from UAH 644 million to UAH 1,4 billion in the first nine months, representing a 35% increase in dollar terms. In particular, individual foreign currency deposits increased by 12% in dollar terms.
"VIPs, including the country's top leadership, keep their money at the bank. And they have no problem with dollars," says banking expert Alexander Okhrimenko. This is despite the bank offering modest rates on dollar deposits—3-6% per annum, depending on the term and deposit program. This is a good figure, considering that individual foreign currency deposits in the system declined by 33% over the same period.
The story of Poroshenko's bank is reminiscent of what happened to financial institutions controlled by the family of his predecessor, Viktor Yanukovych. For example, the All-Ukrainian Development Bank (VBD), owned by Oleksandr Yanukovych, also grew significantly faster than the market. In 2010, when Yanukovych was elected president, VBD's assets increased 2,5-fold. Over the course of the former president's four-year term, the bank increased in size 34-fold (!)
Whether Poroshenko's bank will repeat this record remains to be seen. What's clear is that while most other banks are shutting down their networks and losing clients, MIB, on the contrary, is opening new offices.
"MIB is constantly expanding its presence in Ukraine's regions, providing its clients with convenient and high-quality banking services," the bank said in a statement on September 8, 2014. In June of this year, the bank opened a regional office in Cherkasy, and in August, it added two more branches in Vinnytsia and the Odesa region. In September, the bank also began expanding into the Lviv region, establishing a regional office there.
In August of this year, it became known that the investment company Rothschild would be handling the sale of Petro Poroshenko's business.
Shareholders of the International Investment Bank as of October 15, 2014. According to IIB Bank
The experts we interviewed doubt this will be a market transaction. "The company (Rothschild – Author) specializes in trust management services and also advises VIP clients on optimizing their ownership structures," explains Dmitry Shestakov, partner at the investment firm Goldman Milestone Group.
As a rule, Rothschild doesn't send out teasers or hold competitions among potential investors. "They'll most likely register some public company, somewhere in Austria or Switzerland, and register Poroshenko's shares in its name, with the real owner being, say, the President's son. It's a simple scheme, but it works flawlessly," says an international lawyer who wished to remain anonymous. "If Petro Oleksiyovych sells the bank, the shares will most likely simply be 'registered to a cat.' In such cases, a nominal transaction is usually carried out," asserts the managing partner of one investment company.
It is noteworthy that Rothschild's interests in this deal in Ukraine will be represented by Investment Capital Ukraine (ICU), which until recently belonged to the current head of the NBU, Valeria Gontareva.
"The ICU has long represented the interests of Poroshenko's businesses. They will likely act as authorized representatives in handling legal and organizational matters within Ukraine," says Dmitry Shestakov. For example, they will represent the interests of the seller and buyer in government agencies, including the National Bank.
Market participants are confident that selling the bank separately from Poroshenko's other businesses makes no sense. Without key clients, the bank is practically worthless. "It's a given here that every oligarch or president must have their own bank. This allows them to conceal their own cash flows and withdraw or deposit capital. Furthermore, a bank is an indispensable tool for attracting attractive interest rates from abroad or within the country," explains Rostislav Kravets, senior partner at the law firm Kravets & Partners.
Interestingly, according to bankers, the lion's share of cash flows from companies linked to the Poroshenko family was until recently processed by Ukrsotsbank. Now, this financial institution is facing a capital deficit, preventing it from expanding its loan portfolio.
It is possible that the majority of the family business's cash flows will gradually be transferred to MIB.
For now, MIB, which ranks 78th in terms of assets in the NBU rankings, is clearly unable to service the Poroshenko family's multi-billion dollar business. However, its growth prospects are quite bright.
For example, Konstantin Vorushilin, the former head of the supervisory board of the International Investment Bank (MIB), was recently appointed managing director of the Deposit Guarantee Fund (DGF). The DGF is currently conducting an unprecedented sale of assets from insolvent banks, including banking equipment, real estate, and loan portfolios. According to Rostislav Kravets, the DGF is selling bank assets for no more than 10% of their value.
"A bank close to the Fund's management could, if it so desired, expand its network across the country without investing practically anything," says a banker who wished to remain anonymous.
At the time of publication, Konstantin Ludvik, Chairman of the Board of MIB, and Makar Pasenyuk, Managing Director of IKU, had not responded to questions from the Ministry of Industry and Trade.
Alexey Komakha, Ministry of Industry
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