Economics /1. Banks and banking system

Professor Petrashko L.P., postgraduate Tsivyna M.S.

Kyiv National Economic University named after Vadym Hetman, Ukraine

The Motives of Enter of the International Banking Groups at the Financial Market of Ukraine

In light of internationalization and globalization processes and transformations that are taking place in the global financial services market the questions of the global banking groups’ penetration in new markets still remains relevant. The capture of new banking markets, including the banking services market of Ukraine is increasingly becoming a strategic benchmark for international bank.

In the period of economic growth there was the active inflow of foreign capital to the banking system of Ukraine (from 2005 to 2009 the number of banks with foreign capital increased by 64%) [4]. As for today, at the banking services market of Ukraine there operates the banks, which has foreign investors that are residents from Cyprus, Russia, Austria, France, Italy, Hungary, Sweden, Poland, Germany and others. There are following international banking groups, presented in Ukraine: Deutsche Bank Group, BNP Paribas Group, VTB Group,  Raiffeisen Group, Citi Group, Erste Group, ING Group, Credit Agricole Group, UniCredit Group, OTP Group, Piraeus Bank Group, Intesa Sanpaolo Group, Swedbank Group, Alfa Group, SEB Group.

The penetration of Western finance capital on the Ukrainian banking market and the markets of other CIS countries is carried out mainly through the strategy of buying shares, mergers and acquisitions (purchase) of local banks and turning them into subsidiaries financial institutions or the creation of non-bank institutions. Usually, the financial institutions, which parent countries are some European countries, can open the representations before generating the subsidiary, because of the desire to explore the new market and because of the risk of imperfect Ukrainian legislation system and the unstable economic and political situation in the country. However, the process of opening the branch or the representative office is expensive.       

According to the result of 2011 French banking group BNP Paribas Group is in the list of top 10 banks operating in Ukraine. This group entered the Ukrainian market in 2006 by purchasing the controlling shares of PJSC “Ukrsibbank” (today the share in the authorized capital of the bank is 99,9%) [2]. The strategy of entering the Ukrainian market was the acquisition of the systematic large bank, which had already held a significant market share and had developed its own retail network and broad customer base. For any international bank, including the group, which is being studied, the usage of this strategy has many strengths:

·               reduction of legal risks caused by the imperfection of the legislative framework of Ukraine, because the establishment of representation is legally complex and costly process;

·               fast orientation in the new business environment due to the fact that the bank, whose shares are purchased, has been already adapted to the conditions of the internal market; 

·               getting a substantial share of the market even at the moment of entry;

·               increasing the bank's assets by the process of consolidation;

·               saving resources for promotion the new brand;

·               already existing developed system of branches;

·               existence of the bank’s own customer base in Ukraine, which is expanding by adding data about clients of the parent company;

·               ability to respond quickly to market changes, having the majority of shares abroad and a single management and control system under the subsidiaries made by the parent company.

At the stage of making a decision about the purchasing a bank in Ukraine the motive of BNP Paribas Group’s entry the national market was the expansion of retail business. Because entering new perspective sales market is often a solution to the problem of limited growth opportunities of the bank [1].

At that time, the Ukrainian market has high growth rates and development of economy in general. Also there was a boom of growth in relatively young banking segment of Ukraine. That is why another motive of BNP Paribas Group’s conquest the Ukrainian market was the existence of limited number of financially reliable banks in Ukraine. Also the motivating force was the fact that the competitiveness of the banking system of Ukraine is very low, that allows foreign banks to take a favorable competitive position.

BNP Paribas Group while entering the market took into account the synergistic effect of the profits increasing [1]. So the chief motive of the group’s development of banking services market in Ukraine was the obtaining of additional revenue and maximizing group’s income. The main target market for the group became the retail sector of businesses. The operating activities in this sector allowed the bank to receive the desired income. Because Ukrainian subsidiary of BNP Paribas Group –PJSC “Ukrsibbank” is second be the size of the retail loan portfolio with a market share of 11,2%, and it is in the top 5 banks in Ukraine by the size of retail deposit portfolio [2; 4].

So the international banking groups commonly use the strategy of mergers and acquisitions to enter the Ukrainian market of banking services. This strategy has such advantages as having market share, customer base, relatively easy process of adaptation to the economic environment, which is new for the bank, and others. The motives of  entering the banking market of Ukraine are receiving additional profits by operating activities in strategically targeted banking sector and by selling products that are competitive and new for the national market. 

References:

1.                 Kudrina E. Feeder for growth // Comp&nion. - 2006. - ¹8. (in Russian).

2.                 Moshenets E. Problems of French banks will come to Ukraine // [Electronic resource] – Access mode:

http://finforum.org/page/index.html/_/economics/problemy-francuzskih-bankov-pridut-v-ukrainu-r28726 (in Russian).

3.                 Official website of BNP Paribas Group // [Electronic resource] – Access mode: http://www.bnpparibas.com/en

4.                 Official website of National Bank of Ukraine // [Electronic resource] – Access mode: http://www.bank.gov.ua/