Banking in Ukraine: Theory and practice
Oleksandr Pysaruk, chief executive of Raiffeisen Bank Ukraine, describes how contingency planning for war rapidly morphed into the real thing.
Oleksandr Pysaruk believed he had planned long and prudently to shield the bank he runs, Raiffeisen Bank Ukraine, from war.
As early as April 2021, Pysaruk and his executive team began modelling best-to-worst-case scenarios as Russia began to mass troops on Ukraine’s borders in threatening numbers.
“It was hope for the best,” says the 57-year-old former central banker and IMF veteran, “and plan for the worst.
“We had contingency plans, which were well thought out, not only on paper but actually tested many times.”
And then came February 24, when Moscow invaded.
“As Mike Tyson said, everybody has a plan until you get a punch in the mouth,” the phlegmatic Pysaruk says. “Testing is a good thing, but when the real war started, we had to really implement it. I think we operationally adjusted fully to the war regime after the first four to six weeks.”
Pysaruk was closer than most Ukrainians to the front on that fateful Thursday morning. He was at home asleep in Kyiv’s leafy northwestern suburbs on the main road connecting Kyiv and Belarus when the invasion began.
“I woke up because I heard massive bombs and the planes,” he recalls.
The Russians were taking the nearby Hostomel Airport, where they planned to create a strategic air bridge from which to encircle and seize Kyiv. Russian tanks were also streaming south, laying waste to now well-known nearby towns such as Bucha, Irpin and Borodianko.
Pysaruk quickly fired up his teleconferencing apps for the first of countless emergency meetings with bank colleagues.
“I’d been woken up at 5am, and by 5.30am we had the first meeting,” he recalls. “At first, we had them a few times a day, then it became daily, then we decreased the frequency. For the first four to six weeks, we were in crisis mode.”
Pysaruk is speaking to Euromoney from his refuge in the southwest city of Chernivtsi, near the Romanian border, from where he has run the bank for much of the year. More than six months into the war, he has come to know more about managing a bank in wartime than any scenario planning could have taught him.
“These risks have increased gradually,” he says. “It’s not like in the first week, when there was combat. Then the Russian invading force went to the bank and started threatening our staff. They were busy fighting and even as they occupied cities, it took them some time to actually start thinking about the economy, about banks. We had maybe a couple of months, and we had decentralized the decision-making process, to manage operational continuity for the bank during the war. We had to adapt our plans because then we knew the things we needed to do.”
As Mike Tyson said, everybody has a plan until you get a punch in the mouth
Remarkably, Pysaruk says Raiffeisen stayed operational for several months in besieged places such as Kherson and Mariupol, both important centres for the bank and until early September both occupied by Russia.
“We were operating our branches until one of two things happened: either we cut off the telco lines or the Russians started coming to the branch and basically threatening our staff, exposing the bank. We started to talk of [possible] collaboration if they threaten you. These two risks were too difficult to manage, they were impossible, so we shut the whole thing down.”
This first happened in April, when he had to cut staff from the network.
“We’ve never ended up in a mess with collaboration, risk materialization, and we never ended up with IT security breaches or something like that,” he says. "We’ve managed to fight. Decentralization of decision-making is a critical thing to do. It’s like the Ukrainian army fighting the Russians; the heavily centralized command machine where the front troops are waiting for the top-down command [versus] flexible, agile, mobile [troops]. What you have to do to be successful in banking or in business is the same."
The bank has been temporarily closing branches in combat zones.
“We still consider them a part of our [branch network of] 387, but it becomes pretty obvious that we will never reopen some of those. Some, depending on how the war goes, we may reopen and some we will not because we will not be able to capture the territory back or because the business will be so devastated there; so there probably will not be a business to save.”
Pysaruk says banks were worried about the vulnerability of physical data centres, some of which were in now-occupied places such as Kherson and Zaporizhzhia. The solution, he believes, is possibly a world first: to have central bank-mandated data stored in the cloud.
“We had pushed the central bank to legalize the usage of cloud services before the war and were not particularly successful,” he says.
Things changed once the fighting started.
Pysaruk says Raiffeisen’s non-performing loans, calculated at an industry average of 2% of its total portfolio before the war, have increased to the higher single digits now.
“But they are still single digits, they are manageable; the payment discipline is better than expected. Our outlook is that our risk cost and provisions for NPLs will be quite reasonable. We believe we can resolve it with the existing capital base. Our loan portfolio to legal entities, corporates and small and medium-sized enterprises increased more and the private individuals’ loan portfolio decreased.”