20 September 2012
Dmitry Zinkov interview to ‘Invest Gazeta’: ‘Reincarnation’
What drives a banker deciding to lead a financial institution which lately was quite troubled gathering herds of concerned depositors around its branches? Dmitry Zinkov, Chairman of Nadra Bank, has a philosophical answer to that: “I got interested in the challenge the bank wanted to pose to the market.” His further comment is more pragmatic: he thinks that Nadra bank today is the most exciting project in Ukraine’s banking market. In July 2012, Mr. Zinkov was officially appointed as the Chairman of the Board of this bank. Prior to that, he spent 12 years with OTP Bank (prior to 2006 – with Reiffeisen Bank Ukraine). Whereas in the 90s working with a foreign bank was a peak of any banking professional’s career expectations, today the situation is different.
“My profound conviction is that now the time has come for banks with Ukrainian capital,” says the banker. Strategies of the country’s largest business groups attest to the fairness of this conclusion. The past two years have seen the completion of business assets consolidation at SCM, Smart-Holding has started to actively develop Unex Bank and acquired Forum Bank from German stockholders, while Group DF is looking at Nadra Bank’s regaining leadership positions in the market.
THE RISKY ACQUISITION
The official news about Nadra bank acquisition by Dmitry Firtash’s entities was broken in May 2011, although rumors about the emergence of a new stockholder started circulating back in the fall of 2008. It was then that the bank met with problems: savers were queuing in front of ATMs while borrowers, conversely, took their time to repay their loans. Mr. Igor Guilenko, ex-owner and ex-chairman of the bank, abandoned his business and fled to an unknown destination. As of early 2009, the bank, with its 24.4 billion UAH worth of the credit portfolio would rank 9th in Ukraine. Private loans accounted for almost 70 percent of all issued credits. The private deposits share in the bank’s savings portfolio was even higher – 77 percent or 9.5 billion UAH. As of today, private savings equal just 2.6 billion UAH while reserves against credits devaluation exceed 4 billion UAH.
- What role does the bank play in Dmitry Firtash’s assets portfolio?
- Nadra Bank is one of Group DF’s core businesses. The bank is and will remain an active player in the financial market: in three years we must rank not lower than within Ukraine’s banks top-10. Later, we are looking at making it to the top-5.
Talking about cooperation with the Group’s businesses, the bank will obviously take part in its investment projects. We will finance the projects that will be commercially lucrative to the bank on market terms and conditions.
- What goals has the shareholder set for you?
- The key goals apply to the retail segment development, i.e. reanimation of the branches network, sales activation, customer base expansion, and, most certainly, rise in profitability. We clearly realize that to meet the business development plans, the bank must quadruple the retail deposits total – up to 8 billion UAH – within three years. Alongside that, we are planning to more than double our customer base winning at least 1.5 million active customers. This equals some three thousand customers per each branch. In this case, each branch will be generating a serious margin for the bank. Another priority is fostering the corporate business and, first and foremost, attraction of agribusinesses and trade financing.
- Do you personally believe that it’s all practicable?
- I wouldn’t say that it’s easy to achieve. This is a real challenge. Yet, I do believe that serious and goal-focused efforts, primarily related to the products line completion, marketing and promotion, will yield tangible results. Restoring savers’ trust in Nadra Bank is critical.
- What is the share of soared loans in the bank’s credit portfolio?
- Objectively, the soared loans proportion in the total breakdown is above the market average index. However, it does not result from pitfalls at the loans issuance stage, rather the reason behind it is that bank was in a sort of suspended situation for several recent years. In 2009 – 2010 when the bank’s future was murky, while some bureaucrats would not hesitate to declare its demise, some part of borrowers took advantage of it. Sitting back and watching how the situation will roll out, many suspended repayment while the bank went on accruing interests, fines and penalties. That is why now, as parties negotiate, their positions are way too distant from each other. The trade-offs are quite possible, however, and we pursue our efforts to this end. The number of customers failing to pay back for objective reasons is quite comparable to those of other banks.
- Recently, a group of Ukraine’s largest banks has publicly addressed the Prime Minister in connection with reluctance of one of MPs to repay his debt. How many resonant names are there in Nadra bank’s debtors slate?
- Looking back at 2009, Nadra bank was the first to publish the list of troubled borrowers. No new effort was necessary – conversely, the workload shrank by a half. Still, there are some people that are impossible to come to terms with.
- What is a share of credits issued to Group DF businesses in the bank’s total portfolio?
- The companies forming the Group enjoy the complex banking services at Nadra on market terms and conditions. At the same time, by having a sizeable proportion of other corporate clients we are meeting all NBU’s requirements applying to concentrations and limits.
Six years ago, in October 2006, Igor Guilenko presented a new image of the bank. Changing a logo, slogan and corporate design cost the bank dozens of million dollars while the whole rebranding effort is frequently showcased in literature as one of the best examples in the banking market. The results ripened before long: foreign investors were quite eager to pay high premiums to acquire Nadra bank. Ukrainian owners took time expecting bids to go up. In the fall of 2008, it became obvious that those expectations were doomed to never come true. Today, Nadra bank is among leaders in terms of its brand awareness. However, due to the crisis-induced problems, this brand awareness is marked with a minus sign.
- Is rebranding on your agenda?
- We have concluded that it does not make sense to change the brand ranking third in the brand awareness rating. Overcoming the negative perception of the recognizable brand is a lot easier than carrying a new brand onto the market, creating its awareness making sure that it’s all the way positive. The period of negative dominance is already left behind: all those who wanted to withdraw their money from the bank have already done so. The available 2.6 billion UAH worth of people’s savings is about the money from people who understand that the bank has survived a crisis and is on the right operational track now.
- Did you estimate the amount needed for a potential rebranding?
- We did. September and October will be spent to build up a team. My priority is to enhance the existing team by adding up new managers capable of lending more dynamism to the bank, and to engage the expertise and experience from both the Ukrainian and foreign markets that would help the bank restore its leadership in the retail market.
- You have worked for quite a while with foreign investors. What are the advantages of a Ukrainian shareholder?
- I feel very comfortable working with Nadra bank. It is easier to find a common ground and to explain our realities to a domestic investor who has a clear understanding of the environment we live and operate in and knows how question are addressed here. On top of that, a domestic investor is not prone to raise hysteria over legislative fluctuations, political instability and preparation for elections, they don’t have excessive expectations about the performance quality and judicial decisions.
The potential dynamics of Nadra’s development is unique. The bank may and will move forward quite fast because the shareholder has ambitions and resources and most importantly– there is a good deal of understanding between the management and the owner. It allows addressing problems promptly and finding understanding at the very beginning of the dialog.
- Where are the banks with Ukrainian capital inferior?
- Foreign banks have passed a longer path of business processes optimization. In many cases it helps avoid risks and errors in performing operations, in servicing customers, in keeping files and records. This experience will be extremely relevant here. At the moment, we are working on a series of It projects putting together a ‘credit factory’, a centralized data storage, introducing CRM and e-banking.
THE NETWORK GAMES
One of Nadra Bank’s priorities is activation of sales within its own network. On top of conventional credits and deposits, branches offer insurance products and railroad tickets. The bank so far does not plan to open points of crediting in retail shops though previously Nadra did have this kind of a proposition. In 2006-2007 a Nadra’s subsidiary Dogmat Ukraine operating under a Eurocredit brand was a nation’s leader in consumer lending. Unable to withstand the crisis-evoked problems, Dogmat Ukraine wound up its operation leaving the bank with troubled debtors.
- Some time ago, you founded a group of companies around OTP bank comprising an asset management company, a leasing company, consumer lender, etc. Are you eyeing repeating this endeavor?
- The market features demand for financial services which are best rendered not via a bank but rather via specialized financial companies. In case with Nadra bank, talking about it is premature, however. First, the potential of the bank must be realized in full. Retail crediting will not be divested into a separate company.
- Will investment business be developed?
- Our plans are focused on building a purely commercial bank.
- What is your strategy of developing Nadra’s branch network?
- The bank’s network and geography is one of its core assets. During the crisis, fewer than a hundred branches were closed and today we have 536 branches in 290 municipalities. It is my deep persuasion that having a large network for a bank like Nadra is a must. We want to work and be active in the mass customer segment. We have millions of our countrymen who don’t want, cannot or don’t know how to use the Internet. Therefore, to provide them with basic routine services, we have to keep the branches.
- That is to say, you disagree with those who argue that online and other remote services channels squeeze good old-fashioned branches out of the market?
- We are developing e-banking and other remote services but we have no intention to abstract from Ukrainian realities and we want to be in line with the country’s development level. We have to do what is in demand today while being prepared to offer those services to the market which will be wanted in a specific point in time.
- The bank’s commissions share is below 20 %. Is it a manifestation of the networks’ stability?
- To make sure that the bank does not depend on borrowers, the share of its non-interest revenues must be equal to the total of direct costs of its branch network. This is one of the key objectives and I see a huge growth potential here.
- Will the shareholder undertake additional funding of the bank and if yes, in what amount?
- We are working in line with the plan approved by the shareholder and the National Bank. Before the end of the year, we intend to draw 1.3 billion UAH worth of a subordinated borrowing which will help raise the crediting volumes.
- Based on the current year performance, what are your plans to enlarge assets base in 2013?
- In 2012 –2013 we plan to retain the private lending share, while launching our ‘credit factory’ in 2013 will enable issuing over 4 billion in new loans before 2015. As far as the corporate business is concerned, in 2013 we estimate the credit portfolio enlargement by 20 percent. Within three years, we are committed to forming an agribusinesses crediting portfolio totaling 1 billion UAH and to restore leadership in classical trade crediting.
- Still, you succeeded Nadra with multiple problems not only in financial but also in reputational terms. Was the actual totality of problems in line with what you had expected it to be?
- Totality of problems is not the right description of the current situation. I would rather call it a totality of priorities. The picture was crystal clear long before my arrival in the bank. The most important thing today is to organize the work with the soared portfolio, to develop the crediting arm and to focus on attracting liabilities. Ukrainian banks today have a lot of advantages vis-à-vis their foreign competition.
Dmitry Zinkov, 43.
Holds degree from Kiev National Taras Shevchenko University. Started career in banking with INKO bank. In 2006, became Chairman of OTP bank. In 2012, moved to the position of Nadra bank’s Chairman of the Board.