Awards for Excellence 2020
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Few banks have undergone as great a transformation over the last four years as PrivatBank. In December 2016, when it was taken over by the state, Ukraine’s biggest bank held more than a third of the country’s retail deposits and boasted 20 million customers.
The bank’s loan book, however, consisted almost entirely of credits to companies linked to its former owners, Ihor Kolomoisky and Gennadiy Bogolyubov, all of which defaulted after the forced nationalization.
The first challenge for the new shareholders was to ensure the stability of the bank. As well as its huge deposit base, PrivatBank was the Ukrainian market leader in credit cards and processed three quarters of the country’s payments thanks to its technological sophistication.
In 2017, an interim management team succeeded in preventing a run on deposits and keeping the bank’s systems running, despite the departure of more than 600 of the bank’s IT staff. Work was also started on developing a new strategy for the bank.
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Petr Krumphanzl |
This was approved by the Ukrainian government in early 2018. The task of implementing it fell to a new management team appointed in early 2018, led by chief executive Petr Krumphanzl and chief financial officer Anna Samarina.
A key component of the new strategy was building up PrivatBank’s lending business by leveraging its large retail and SME client bases. Before that could be done, however, the bank’s procedures had to be overhauled and, in some cases, created.
“Risk management basically didn’t exist at PrivatBank when we started,” says Krumphanzl. “The vast majority of the loan portfolio was concentrated in companies associated with the shareholders of the bank, so it was not needed. We had to start risk management from scratch.”
The development of risk management procedures and systems, and the hiring of experienced personnel, began in mid 2018. A similar process was also initiated for compliance, including a thorough audit of PrivatBank’s existing client base.
Meanwhile, work began on retraining staff to sell a full range of credit products, including mortgages, auto loans and consumer finance.
“We had to spend a lot of time reorganizing our branch network and teaching people how to work with clients,” says Krumphanzl.
Digitalization was also a priority for the new management team. While PrivatBank had a reputation for cutting-edge technology, financial pressures had prompted a sharp decline in investment in IT in the years before nationalization.
“We had to review the existing infrastructure and reprogramme software, as well as buying new infrastructure that would be more stable and could handle transaction growth,” says Krumphanzl.
Technological focus
The Privat24 digital platform was completely overhauled as part of a drive to maintain the bank’s technological leadership. New functionality and products have also been added, including most recently biometric identification. In partnership with three retail networks in Ukraine, PrivatBank last year became one of the first lenders in Europe to trial FacePay, a system that allows payment using biometrics only.
This technological focus has boosted the number of users of PrivatBank’s digital services to 10 million from six million at the time of nationalization.
PrivatBank’s financial results under new management have been similarly impressive. By 2018, the bank was back in the black, while last year’s net profit came in at a record Hrn32.8 billion ($1.2 billion).
Commission income, mainly from cards, still accounted for 40% of total revenues, but strong lending growth – 19% in 2019 – and attractive margins boosted interest income to the same level. Customer numbers also increased, with individual and SME clients up by 18% and 22.5% respectively year on year.
PrivatBank’s transformation has been all the more impressive given that it has taken place against a backdrop of constant harassment of the bank, its shareholders and senior management by parties related to the former owners.
Executives, including Krumphanzl, have been the target of local criminal investigations apparently linked to claims PrivatBank is pursuing against Kolomoisky and Bogolyubov internationally, as well as the subject of a relentless negative media campaign and even disruption outside the bank’s headquarters.
Restructuring the bank under these conditions has been challenging. The success of the operation to date speaks to the commitment and hard work of all those involved and makes PrivatBank the winner of this year’s award for the CEE’s best bank transformation.
