VZCZCXRO0329
PP RUEHIK
DE RUEHKV #2170/01 3521308
ZNR UUUUU ZZH
P 181308Z DEC 09
FM AMEMBASSY KYIV
TO RUEHC/SECSTATE WASHDC PRIORITY 8998
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZG/NATO EU COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY

UNCLAS SECTION 01 OF 02 KYIV 002170 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR EUR, EUR/UMB, EEB/OMA 
 
E.O. 12958: N/A 
TAGS: EFIN EINV ECON UP XH
 
SUBJECT: RUSSIAN BANKS ACTIVE IN UKRAINE 
 
KYIV 00002170  001.2 OF 002 
 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (SBU) Summary.  While other foreign-owned banks have shrunk 
their balance sheets, deep-pocketed Russian banks have expanded and 
increased their market share in Ukraine.  VTB Bank (formerly 
Vneshtorgbank) and Vnesheconombank (VEB), two Russian state-owned 
banks, have made several high profile acquisitions in the last three 
years and are now among Ukraine's ten largest banks, along with 
privately owned Alfa Bank.  Despite their aggressive expansion, 
Russian banks still only account for roughly 12% of total banking 
assets and are unlikely to significantly increase their position in 
the short- to medium-term.  End Summary. 
 
ACTIVE PLAYERS IN UKRAINE 
------------------------- 
 
¶2.  (U) Ten of Ukraine's 185 banks are Russian-owned.  The Russian 
banks range in size from some of the country's largest institutions 
to small lenders that barely meet regulatory capital requirements. 
Alfa Bank Ukraine, with $4.24 billion in assets, is Ukraine's 
seventh largest bank.  Prominvestbank, recently acquired by VEB, has 
$3.85 billion in assets and is the country's eighth-largest bank. 
VTB Bank Ukraine, with $3.53 in assets, is Ukraine's tenth-largest 
bank.  Other mid-size Russian banks are privately held Delta Bank, 
Sberbank Ukraine (a subsidiary of Russia's behemoth state-owned 
bank), and BM Bank (a subsidiary of the Bank of Moscow). 
 
ALFA BLAZES TRAIL 
----------------- 
 
¶3. (U) Large Russian banks have expanded operations by acquiring 
domestic financial institutions.  Alfa Bank Ukraine purchased 
Kievinvestbank in 2000, after it had established a local subsidiary 
to serve as a corporate treasury for the Alfa Group's assets in 
Ukraine, which include major interests in oil and gas (TNK-BP), 
telecommunications (Vimpelcom, Kyivstar), and media (CTC).  With the 
acquisition, Alfa Bank has since expanded to offer a full range of 
retail and corporate banking services. 
 
¶4. (SBU) An Alfa Bank executive acknowledged to us that the Group's 
connections with the Kremlin had benefitted their overall business 
interests, but that Alfa Bank's investment decisions in Ukraine had 
been seen through a pure business lens.  He said the bank channels 
funds from some of its most profitable divisions like oil or 
telecommunications to its banking division in an effort to increase 
its market share. 
 
¶5.  (U) The Alfa Group, founded by Russian oligarchs Mikhail Fridman 
and Pyotr Aven, is one of Russia's largest privately owned financial 
and industrial conglomerates.  Alfa Bank, the group's banking 
subsidiary, is Russia's largest private bank. 
 
OTHER MAJOR RUSSIAN ACQUISITIONS 
-------------------------------- 
 
¶6. (U) Russian state-owned banking groups have followed similar 
strategies.  VTB Bank (then Vneshtorgbank), VEB, and Sberbank 
established subsidiaries in Ukraine to serve large (often 
state-owned) Russian corporate customers.  They later purchased 
local lenders to acquire necessary infrastructure for universal 
commercial banking operations. 
 
¶7. (U) VTB Bank purchased a 98% stake in Kyiv-based Mriya Bank in 
2006, then owned by Ukraine's current Foreign Minister Poroshenko. 
In early 2009, VEB (Russia's economic development bank), bought 98% 
of Prominvestbank, an embattled lender that had been in state 
receivership since October 2008.  Sberbank acquired small Kyiv-based 
NRB in December 2007.  CEO German Gref said then he planned to 
inject $400 million in capital and expand the bank's assets so that 
Sberbank could become one of Ukraine's top-ten banks within three 
years. 
 
GEOGRAPHY DRIVES EXPANSION 
-------------------------- 
 
¶8. (U) Russia is Ukraine's largest trading partner and one of its 
largest investors.  Moreover, Ukraine's relative lack of banking 
sector development, which had made the country attractive to foreign 
players including Austria's Raiffeisen, Italy's UniCredit, and 
France's BNP Paribas, remains an important draw for Russian banks 
looking for growth opportunities beyond Russian borders.  Russia's 
biggest banking groups can often draw on resources unrelated to 
their core banking activities.  State banks have the explicit 
backing of the Russian government, while private institutions, like 
Alfa Bank Ukraine, draw on sizable financial resources of parental 
institutions. 
 
KYIV 00002170  002.2 OF 002 
 
 
 
"RUSSIFICATION" OF UKRAINIAN BANKING SECTOR UNLIKELY 
--------------------------------------------- ------- 
 
¶9. (SBU) Despite high ambitions and deep pockets, Russian banks are 
unlikely to significantly change the landscape of Ukraine's 
well-diversified banking sector, local analysts say. 
Prominvestbank, the largest Russian-owned bank in Ukraine, is only 
about a third of the size of Privatbank, Ukraine's largest lender. 
Local subsidiaries of Raiffeisen, BNP, and Unicredit are also 
significantly bigger than their Russian counterparts.  Moreover, 
some analysts remain skeptical about Russian banks' appetite to 
further expand, given the National Bank of Ukraine's non-transparent 
refinancing decisions and numerous restrictions seemingly targeting 
foreign-owned banks. 
 
COMMENT 
------- 
 
¶10. (SBU) Given the close economic ties between the two countries, 
Russian banks' increased activity in Ukraine is hardly surprising. 
Moreover, Russian banks, which often rely on the state or their 
parental business structures for funding, are among the few players 
with the capital to expand their operations, either organically or 
through acquisitions.  Yet, according to analysts, while their 
recent forays into Ukraine have come at a time when most other 
foreign players are downsizing their operations, they are unlikely 
to significantly tip the scales in the country's diversified banking 
sector.