Interview of Yevhen Berezovsky, managing director of PJSC “AgroComBank”



Yevhen Berezovsky is considered one of the innovative bankers on the financial market. From 1995 to 2005, he built a career at Alfa-Bank, where as a result of many years of work, he obtained the position of senior vice president of Alfa-Bank Ukraine, managing, in particular, relations with large corporate clients. Berezovsky was also a member of the board of the “Astrum Investment Management” investment company and the state-owned Oschadbank. In addition, he is a co-owner of the iBox network of payment terminals.
Now Berezovsky heads the small Agrokombank, concerning which the banker has big plans. Including the creation of a new format of electronic money and the construction of a money transfer system. In an interview for Forbes, Yevhen Berezovsky talked about how the transaction business will be developed in 2016, about new technologies in banking and risks for the financial system.

- What do you think is happening with the transactional business in Ukraine today?

- Today, transactional business in Ukraine is more a story that everyone is talking about than a story that is actually happening. This is the most obvious and easiest niche to move into when you can't lend: because resources are expensive, capital is not enough.

- For several years now, banks have considered that the payment and cash service takes a significant part of their income...

- I also consider the payment and cash service to transactional business, but there are a lot of different products in the transactional banking business that help the enterprise to work and structure its operations. This is cash management, and the possibility of treasury management of the holding’s accounts, and the possibility to buy services and products from the bank in a single package, including collection, salary projects, acquiring and so on. Now it is possible to talk about business for individual clients not for for legal entities. Legal entities gravitate towards those banks that lend to them, and in order to force the enterprise to switch to a bank that does not lend to it, transaction instruments must be of a qualitatively different level. On the other hand, a loan is an excellent tool for keeping a client, even with bad payment and cash service.

Not the least cause of the crisis in the financial sphere was that everyone thought that corporate lending was easy, and you could give out money, collect money and make money from it. But corporate business is for large banks with significant capital; banks that can afford large customers and can afford to incur losses in situations where liquidity problems arise. And the shareholders of large banks must be responsible and must understand that in the event of a crisis with large clients, the risks of non-returns will appear. Banks should give customers an opportunity to get out of the crisis. And this requires huge capital.
Over the past year, the NBU had been trying to clarify which banks exist in Ukraine? Although the result was obvious from the very beginning – in fact, there are state banks, there is a small group of banks with foreign capital, and 2-3 Ukrainian banks, and that’s all.

- Which of the Ukrainian banks are present in the business? For example, “Privat”?

- “Privat” – definitely. It is the world’s champion of innovation among banks. The way they work is admirable. I’m confident that they have an outstanding team: “Privat” has created a management model in which there is no dependence on a person, on the subjective human factor, but at the same time the system works perfectly. Although from the point of view of corporate business, “Privat” is a bank not for lending, but for service. Therefore, it occupies a monopoly share in many sectors of the financial market: in Internet banking, in acquiring, collection.

- But during the crisis of 2007-2009, many international banks invested in the capital of enterprises, and, possibly, Ukrainian banks are simply copying the generally accepted model of behavior in the world...

- I have a different opinion on this. It is necessary to separate what you do in the post-crisis period, when you enter the capital and sign over part of the rights to yourself to control the post-crisis exit of the enterprise to normal work. And that's normal. But this has nothing to do with the fact that you are engaged in corporate financing from the very beginning, issuing loans to the enterprise with significant risks, which, in fact, is quasi-capital. And it is carried out with the expectation that this operation will “work” – and the bank will earn additional money from the further sale of assets. On the West, this is done by huge international banks or niche investment houses, which are specialized in their activities and well versed in certain industries.

- How does this model differ here from the one on the West?

- On the West, all the banks that play with this are large, they have huge capital. As soon as the Ukrainian bank starts to take risks with the borrower, it must understand that they will be together in good times and in bad times. And the issued credit funds are no longer ordinary working capital for three months or a year secured by something. Such risks have a dramatic impact on the bank, and the foray of commercial banks into client capital has ended badly for many.

I consider that after 2008 it was necessary to continue to deal with traditional banking and the current loan portfolio. But many banks went into the capital of enterprises, into potentially overmargin schemes.

- But, for example, PrivatBank and PUMB somehow overcame this period...

- As far as I know, Privat did not go into capital, but focused on retail and transactional business. PUMB also did not invest in anyone’s capital. Although many other banks, including small ones, invested.

- And what can be an alternative model of development of the financial system?

- I like the transaction bank of the alternative models. For many, this is a bank that is active on the Internet. An officeless bank that delivers credit cards remotely. But a transaction bank is a complex thing: it is built on understanding the needs of clients – individuals and on very high-quality, innovative service.

We built the transactional part of the business based on iBox. Now iBox is serviced by one of the largest banks, Alfa-Bank. At Agrocombank, we also focus on transactional business, avoiding risks of credit and deposit business. We will gradually connect the terminals, there are 5,600 ATMs, to banking products of Agrocombank. We expect good synergy between the two businesses and the emergence of new products. For example, the electronic money system. We are currently working on obtaining the appropriate license from the NBU. In parallel, we also register our own system of international money transfers.

And after the launch and adjustment of these products, we will begin to develop lending to individuals – thanks to the accumulated knowledge about customers and their needs.

- What, according to your observations, is happening with competition in the field of transactional business and banking know-how?

- Alfa-Bank is a major player in the segment of banking technologies. Oschadbank is actively developing new products, and if they continue in the same spirit, in a couple of years they will become a powerful competitor for the largest banks in the transaction business. Serious investments in IT are necessary for the development of this area, but in a few years, it will happen, and then we will see how two ambitious players – Privat and Oschadbank – will compete fiercely in the market of retail services.

As for competition in the terminal business, here we communicate regularly with the National Bank of Ukraine and wait from it to take steps that will remove “greyness”, non-transparent work with cash, etc. from the market.

- How do you assess what is happening with the NBU today?

- Our communication with the NBU impresses me very much, because there are many interesting young people now who came from business and who think and act in a new way.

- You head a bank from the fourth group according to the NBU classification. The National Bank declared increased attention regarding this group and the possibility of closing several players. Please explain – what is the meaning of such a position?

- Last month, at a meeting with the banks of the third and fourth groups, Valeriya Gontareva and Oleksandr Pisaruk said very clearly that they do not want to close all small banks. But at the same time, a number of requirements are defined: banks must disclose beneficiaries, have real, not “drawn” capital; plus the bank must have a clear business model. If the bank meets these approaches, the regulator will have no questions. It is transparent, clear and meets the current moment. Yes – it's not secret – there are banks that are engaged in converting money into cash and “gray” schemes. But these are not real banks.

- “Not banks” in a reputational or direct sense?

- And in the literal sense too. Some of these banks could simply become financial companies. For example, if a bank specializes in collection or acquiring, it does not have to be a bank in the broad sense: a finance company license is sufficient. Moreover, bank’s overheads are much more expensive. There are financial companies in Europe that specialize in collection, for example, Euronet, which is engaged in acquiring and ATMs.

- But your bank will be engaged in both collection and acquiring, while remaining a bank...

- We need it! We plan to deal with products that require a bank. But if there was an opportunity to obtain a license for acquiring and collection in Ukraine, then we would think about another business model – whether it is worth doing banking and whether it would be more appropriate to switch to the format of a financial company.

Building firstly a transactional business inside the iBox, we understand how to build that business inside the bank. Our planned investments are approximately $5 million in 2016.

- How do you explain that the legislative field of the financial market in Ukraine is so different from the EU’s?

- No one here was engaged in market analysis and structuring. Only in the last year, the NBU began to ask: why not to separate the collection business, for example, into a separate license. I hope the legislation will become more liberal in the future.

- How many merchants do you have now, and which of them are the most popular?

- The iBox company has more than 1,000 merchants. In the first place on the volume of payments, of course, are mobile operators. The second – are games, and the rates of growth of both operators and the volume of payments are huge. Finally, a sector of the economy that is being created by 3G. After all, many applications make sense only with 3G, and this direction will be only developed.

- By the way, about the future. In the late 1990s, Priva" actively participated in all payment projects to be the industry leader 10 years later. Now Privat is in the development of e-government. As you are building an innovative business, do you see the role of your bank in the future e-government system?

- We will significantly simplify the opportunity for market players to work on it. But we are not yet involved in e-government projects.