cleansing" on the part of the regulator led to enormous changes in the structure of the
market itself. In 2016, the Ukrainian banking sector entered a completely new reality,
which can be given both positive and extremely negative assessments.
The Ukrainian banking sector can be characterized by three internal problems:
1) business models illness;
2) the excessive "connectedness" of the bank’s business with its shareholders;
3) incompetent application of high-tech solutions.
It is important to note that there are many external problems that negatively affect
the banking sector, such as macroeconomic instability, corruption, the lack of rule of
law, the war in the east, financial flows opacity, regulator's policy and the decline of
the local capital market (in many respects looks like a stranger from Stone Age).
Building an effective banking business model in Ukraine is very often a complex
and costly process. However, it is the rethinking of the business model and the clear
structuring of core and non-core businesses that is the only right step towards the
survival of commercial banks on the Ukrainian market.
Traditionally, banking institutions have tried to build universal financial
hypermarkets with a large number of related businesses (which were often prompted
by the loan portfolio of the bank). A few years ago, it was possible to observe bank
monsters who tried to actively enter into such segments as real estate, construction,
insurance, microcrediting and Fintech. In most cases, such projects could be safely
classified as adventures of shareholders and top managers.
So, the first problem of Ukrainian banking institutions was the lack of a clear
model of core and non-core businesses and the reluctance to carry out further
liquidation of non-core businesses. The global financial crisis of 2007-2008 revealed
this deep problem in the banking sectors of developed economies. In Germany, banking
institutions such as Bayern LB and Nord LB have become leaders in the reorganization
of business models on the principle of core & noncore businesses (from English -
profile and non-core businesses). In Ukraine, this problem became tangible only in
2014.
But it was not always this way. At first, these banking institutions, like many
others, being in a greedy euphoria, entered a virtually pernicious relationship with
derivatives. The construction of multi-level financial holdings and entry into complex
segments of the capital markets were not the right solutions for the generation of value
added. Through such adventures, systemic risks only increased. In the end, after high-
profile scandals, bankruptcies in the market, state intervention, these financial
institutions realized that they could survive only when they reconsider their business
models and commercial philosophy as a whole.
This meant fully concentrating on those areas that generate high added value and
in which the bank is able to apply its technological know-how.
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