Shevki Ajuner, the head of the Supervisory Board of Sense Bank (formerly Alfa Bank), told in an interview with NV Business on Oct. 30 how the bank, which previously belonged to Russian oligarchs, is making money now, how new top managers are being selected, and about possible lawsuits with former owners and future privatization.
The nationalization of Sense Bank, which belonged to sanctioned Russian oligarchs Mikhail Fridman and Petr Aven, went smoothly. The bank would have passed into state ownership even earlier if it were not for the long search for suitable top management. The Finance Ministry was looking for qualified specialists who would successfully continue to develop the Sense Bank system, which was considered the main competitor for Monobank (online bank) before Russia’s full-scale invasion of Ukraine. However, the new head of the now state-owned Sense Bank has worked for less than a month, and the regulators are already seeking a replacement for him.
Results after nationalization
NV: How has the bank’s operations changed after nationalization?
Ajuner: Of course, nothing has changed in the way we build our relationships with customers. We continue to work as we’ve been working before. But we’ve also, of course, made changes towards the bank’s activities so that it meets the new state status. We continue to work as a universal bank. And we believe this is our strong point. Now, as a state-owned bank, we’re more focused on accepting new customers. With the beginning of the nationalization process, we saw that some customers—both retail and corporate—began to return to us. And this is because they have more trust in a state-owned bank. And those clients who previously didn’t want to work with the bank owned by Russian oligarchs are returning.
NV: Was it possible to preserve the dynamics of the bank’s development after nationalization, since the former owners invested a lot in this bank? On what are you focused now?
Ajuner: We plan to allocate reasonable but sufficient resources for development: first, for the further development of staff competencies, as well as for IT infrastructure to capitalize on the bank’s capabilities.
NV: What does the bank make money on now? Have you changed anything in this area?
Ajuner: There were no significant changes in the dynamics related to the bank’s profitability. We see the bulk of the profit coming from the margin percentage. But there’s also a positive trend in terms of increasing income from both interest and commission income. We have a percentage of the interest margin that is two-thirds of the total revenue, and the commission income is one-third. But our strategic goal is to bring this balance closer to 50/50.
NV: Now there are many complaints from analysts that banks simply make money on deposit certificates of the National Bank of Ukraine (NBU). Do you plan to develop lending during now that the NBU is cutting rates?
Ajuner: Like any bank, we also want to have a healthy interest income. However, it’s more valued around the world when banks have stable commission and operating incomes since income from lending operations is more liquid than income from commission. And even more importantly, the income related to commissions doesn’t require a capital reserve as lending transactions do. And so, from the point of view of evaluating the overall financial management of the bank as a whole, it’s important that this balance is correct to strengthen the bank’s stability and create a favorable final assessment of the value of the bank’s own capital. As you know, bank privatization is the new shareholder’s main goal. And that’s why it’s very important that this bank’s new management increases its value. This is the main goal of both our organization and the shareholder.
NV: And what do you think about taxing excess banking profits? Is Sense Bank willing to pay this excess tax?
Ajuner: One of our main tasks as a financial institution is to ensure that the overall system remains stable.
We must help strengthen our financial system. This is due to the difficult period both the financial system and the economy are currently experiencing. And this applies to all enterprises operating in the economic system.
Therefore, I think it’s reasonable to leave enough resources in the system to keep it stable.
NV: Are you opposed to such a tax, as far as I understand?
Ajuner: I’m not taking sides. I’m talking from a fundamental economics perspective. It’s very important for the system to remain stable. We’re in a state of war. And therefore, if we look at it from the state’s point of view, and I’m talking now about balancing the budget, initiatives to increase incomes are justified. But in terms of the financial system, it’s necessary to consider the issues of stability and strength, which I mentioned above.
NV: What’s the situation with customer funds after nationalization? Sense soared and corporate clients’ funds increased by 50% in a short period of time. Are the old customers no longer afraid, or have you brought in some state-owned companies?
Ajuner: It was an increase in all segments... People began to understand and realized that this bank is now Ukrainian. And they want to work with a Ukrainian bank that will provide them with the best possible service. And there’s also an added comfort or an added peace of mind for customers who place deposits in the bank as it’s now a state-owned bank. We can see significant increase numbers, such as 48% increase in the corporate segment in the regions, and 33% increase in the small and medium business segment. In general, we see the deposit base has increased by UAH 16 billion ($439.3 million) after nationalization.
NV: Have any state-owned companies come to you or not?
NV: What’s their share?
Ajuner: About 20%.
NV: Did nationalization contribute to this?
Ajuner: Yes, of course, since previously state-owned companies and enterprises were unwilling or unable to work with the bank’s former shareholder. But now they’re all in one state system.
NV: How do you see a balanced portfolio? Some state-owned banks have too large a share of state-owned companies. It’s important for the bank to be market-oriented for privatization. And all investors understand the state-owned companies’ share may drop sharply after privatization.
Ajuner: You’re absolutely right, and we want to be the first in line for privatization when our shareholder deems it necessary. There’re enough state-owned banks with sufficient funds to meet the lending needs of state-owned companies. Our bank also has serious positions and relationships with large state-owned companies, for example, in the energy sector.
But, of course, no private investor will be interested in privatizing a bank with a portfolio consisting mainly of the public sector. And of course, although banks can and should have state-owned companies in their portfolio, I believe this share shouldn’t exceed 10-15% of state-owned companies.
I understand why you asked this question. This is related to the state of the economy as a whole and the serious role that state-owned companies play in the economy. This can be such a very specific and critical moment to balance with all the related aspects. Everyone understands that we must maintain this delicate balance, especially when we’re fighting Russian aggression. But as I said before, our main goal is to maintain both economic and financial stability.
NV: Why does the bank not offer short-term domestic government bonds, the shortest is May 2024?
Ajuner: This is due to the way these [financial] instruments are issued. We can offer customers only what we have access to in the market. And you probably know that it’s in the interests of those institutions that issue bonds that they have a longer [maturity] term, not a shorter one. And this is due to the goals of these institutions, which are more interested in having tools with longer maturities than shorter ones. The Finance Ministry competently manages the financial base, so they divide the maturities of various tools to meet their future funding and repayment needs. Therefore, it’s entirely up to the Finance Ministry to determine what the maturity spectrum of the bonds they issue will be. We can only act within the framework they provide.
NV: Are you already looking for a new head of the bank’s board?
Ajuner: Yes, the process is already underway. It applies not only to the search for the new board’s head, but also new chief financial and operating officers. We’ve provided relevant information on our website that we currently work with recruitment consultancy agencies, we’ve engaged three different agencies, each working separately on one of these three relevant roles. We’ve held preliminary discussions on the first longlist of candidates and are now working on a shortlist for interviews. I hope we’ll complete the process of selecting people for these positions by mid-November.
NV: How much has the bank’s team been updated after nationalization?
Ajuner: No major changes have taken place. But, as you probably know, after the Deposit Guarantee Fund became the bank’s owner, the former bank’s board was completely dismissed, and after that new members of the bank’s board were appointed. There were also some changes at one level below the bank’s board. Also, the positions of advisers to the bank’s board and members of the supervisory board were canceled. In general, this is a natural process when a bank undergoes such significant changes. Some management positions are also experiencing these changes. To date, we have enough employees in all areas. The most important thing for bank managers is to involve the resource of existing employees as much as possible before inviting new ones.
NV: Do you plan to raise wages?
Ajuner: Starting with the new year, and we’ve already had such discussions in the bank, i.e., employees already know that we plan to return performance-related rewards. This is related to employee motivation.
NV: Is it true that personnel reshuffles in the bank have “shackled” employees? There were talks on the market that top managers in the bank are afraid to take responsibility and make decisions?
Ajuner: I don’t think that’s true. Of course, some employees felt insecure about the changes, and this is due to the fact that the bank changed owners and became state-owned. But we very quickly reassured our employees and provided them with information that nothing would change regarding the work environment. It’s also a natural process when, for example, there are new people in the board, then a new relationship and understanding should be established between the board members and bank employees.
NV: It’s clear from the bank reports that if the bonds are redeemed, the bank most often doesn’t invest in something else, but leaves liquidity in deposit certificates.
Ajuner: Currently, the bank plans to significantly increase its position in domestic government bonds and has submitted bids for the next auction.
NV: What is your current NPL [non-performing loan] share?
About the bank’s audit, former owners, and privatization
NV: Has the bank’s audit, which was carried out after nationalization, already been completed, are there any results?
Ajuner: The post-nationalization audit hasn’t yet been completed, and it will take several months to finalize it.
NV: We can see from the reports that about UAH 2.7 billion ($74.1 million) funds belonging to former shareholders were written off during nationalization. This is a subordinated debt, and the funds are on accounts in Sense Bank. Why the write-off?
Ajuner: Yes, these funds were written off in accordance with the direct norm of the current legislation regarding the peculiarities of withdrawing a systemically important bank from the market during martial law.
NV: Is the bank ready for lawsuits from former owners? And won’t this become a risk that could affect privatization, as in the case of PrivatBank?
Ajuner: It’s important to start with the fact this isn’t happening now. And if a legal dispute is initiated, it won’t concern the bank, but the state, because it was the state that carried out the nationalization in accordance with the current legislation and its powers. Therefore, the former owners don’t have and cannot have any claims against the bank. And therefore, it won’t have any impact on the bank or the privatization process.
NV: NBU First Deputy Governor Kateryna Rozhkova has recently said in an interview with NV Business that Sense is the bank most ready for privatization and is the first in line. Do you agree with this, and when will the bank be ready for sale?
Ajuner: I agree that we’re the first bank in line ready for privatization. To my mind, there are four critical goals that should be considered, and it’s a question for the shareholder how they’re achieved and balanced against each other. The first is the decrease in the number and share of state-owned banks in the banking sector. The second is that we’re a systemically important bank and it’s very important that the new shareholder could maintain this status, so the shareholder must be serious and strong. The third is an increase in the value of the bank’s capital for the state. The fourth is to ensure exemplary management and governance of the organization.
NV: Prior to that, there were news that investors were interested in Sense Bank. Are there requests to the bank for due diligence?
Ajuner: No. If there is such interest, we see it as a compliment to the bank. But this issue is exclusively up to the shareholder, i.e., to consider and respond to this demand or interest, if it’s serious. To be honest, it’s a bit early to talk about it now.
Read the original article on The New Voice of Ukraine