Successes and Failures of SME Banking in Ukraine over the Past 10 Years

Robert Kossmann20 October 2016

Ukrainian Banking Forum 2016

Raiffeisen Bank Aval today:

§ #1 in SME lending in Ukraine *§ 220 000+ SMEs** or 20% market share ***§ 570+ branches across all regions

* Source: SME Banking Club based on bank supplied data** companies and entrepreneurs *** acc. to GfK research on legal companies

РБ А

валь

SME loan portfolio

31.12.2015

РБ А

валь

Банк 1 Банк 2 Банк 3 Банк 4 Банк 5 Банк 6 Банк 7 Банк 8 Банк 9 Банк 10

SME clients

Failures in SME Banking in Ukraine

1. Good PR (everyone is #1) but no real priority:§ Not enough organization level capacity§ No long term strategy§ No SME culture

2. Know How:§ No HQ staff with adequate competence§ No SME dedicated risk management => no risk tools§ No SME dedicated staff

3. Inadequate risk appetite (focus on big tickets mainly)4. No transparent reporting (Corporate/Retail only)5. Lack of investments in marketing, IT/OPS, Staff

Failed: Just 5% in SME Lending

5

10

10

23

25

34

0 5 10 15 20 25 30 35 40

УКРАИНА

РОССИЯ

КАЗАХСТАН

ГРУЗИЯ

БЕЛАРУСЬ

АРМЕНИЯ

Удельный вес, %

5%WHY???

95% of business loans in Ukraine provided to Corporates

Failed: Voice of the Customer

Branches Digital

The future of Retail Banking is SME

85%employees work at SME companies and entrepreneurs

Personal cards

Salary projects

Personal deposits

Be Unique: Мій бізнес, Академія бізнесу

SME needs marketing investments

A Successful SME Bank is:

1. Be in your TOP 5 priority list2. SME Culture and Leaders. At least B-1 position (for

large banks) or Board Member (for small banks)3. SME Risk Management (People and Tools)4. Well-trained SME managers5. SME is not just loans => internet-banking, daily

business banking, deposits, non-financial services

A Financially Successful SME Bank is:

1. RORAC: 25-30%2. 30,000+ SME customers*3. CIR: 40-45%4. Risk to income: 10-15%5. Loan NII /GI: 35-50%

Keyprofitdriversaretypicallydepositsandtransactionbanking,representingbetween50-60%oftotalSMEbusinessprofitability

* Including Micro and entrepreneurs

5 Recommendations

1. Invest in digital but don’t forget about branch network2. Build branch network based on long-term relationship

with SME customer3. The future of Retail Banking is based on your SME

Banking strategy4. SME is different. Find your market niche5. Be Unique. Find your value proposition