A lack of loans is currently hampering Ukraine’s economic recovery. However, one bank has succeeded in defying the banking sector’s informal industry-wide financing freeze by concentrating its efforts on the SME sector. Thanks to a focus on small and medium-sized enterprises (SMEs), ProCredit Bank grew its loan portfolio by 50% in 2016, representing an increase of approximately EUR 100 million. The bank is on course to post similar progress in 2017, with a 25% loan portfolio rise already achieved in the first seven months of the year.
ProCredit Bank General Manager in Ukraine Viktor Ponomarenko is clear that the key to this success is the bank’s SME specialization. “We’ve been able to concentrate our attention almost exclusively on the needs of the SME sector,” he says. “When you have this level of specialization, it enables you to offer higher quality of service than when you are trying to meet the diverse needs of a wider market. It also gives us a flexibility that some larger banks do not possess. We understand our customers and provide services that are specifically adapted to the current Ukrainian business environment. We are fast, too. New SME customers who have joined the bank in the past few years tend to appreciate the speed of our decision-making.”
This tailored approach has made ProCredit the go-to bank for many of the country’s entrepreneurial classes as they seek financing for the investments necessary to prosper in a changing business environment. Many Ukrainian companies are currently facing the challenge of upgrading their operations in order to enter new international markets. This is particularly relevant within the context of the Ukraine-EU Association Agreement (EUAA), which provides Ukrainian companies with free trade access to EU markets but obliges them to bring their operations into line with European Union regulations.
As the bank’s client base has expanded in recent years, Mr. Ponomarenko has noted a growing number of companies seeking financing in order to tap into these EU opportunities. “A very visible portion of our customers have expanded their operations or invested in areas directly related to EUAA free trade. It has created lots of opportunities and incentives for financing. Based on my own personal interaction with medium-sized Ukrainian companies, I can confirm that most of them are currently thinking about upgrades to meet EU standards. Since 2015, we have begun cooperation with hundreds of well-known Ukrainian brands in the medium-sized company category. These companies have already succeeded in selling themselves to Ukrainian consumers. They now require additional investment before they can begin the process of exporting to EU markets. The process is already underway.”
Within the SME segment, ProCredit Bank has further identified three priority areas: agriculture, production, and renewable energy. These three sectors all have major growth potential and look particularly well placed to benefit from the repositioning currently underway across the Ukrainian economy. “All these industries are crucial to Ukraine’s transition,” says Mr. Ponomarenko. “In the coming years, we expect them to play a very important role in the development of the Ukrainian economy. We are already noticing that manufacturing companies are increasingly ready to invest in fixed assets. This will allow them to upgrade and expand their operations. There is a gradual shift away from the tendency to use financing primarily as working capital, which only maintains existing levels of production. Now we are witnessing more investment loans and longer term planning.”
This specialist focus requires considerable niche knowledge and equally specialized staff. ProCredit Bank employees do not begin communicating directly with clients until they have completed a year of selection and training, with much of this preparation undertaken at the German-based bank’s international affiliates throughout Central and Eastern Europe.
Mr. Ponomarenko acknowledges the challenges of identifying staff with the requisite understanding of fast-evolving sectors such as agriculture and renewable energy, but says the bank has so far been able to resolve this via a combination of targeted recruitment and specialist training. He believes this will become less of an obstacle as more and more Ukrainians recognize the benefits of expertize in these growing sectors. “The issue we face at the moment is the fact that many intelligent and educated Ukrainians are not particularly motivated to develop their careers in this direction. However, once they come to appreciate that renewable energy will play a key role in the future of the Ukrainian economy, we will see more and more people becoming engaged in the industry.”
The impressive figures posted by ProCredit Bank have served to highlight the potential of the SME sector and inevitably attracted the attention of other major players in the Ukrainian banking sector. Mr. Ponomarenko says he welcomes the prospect of more competition and sees growing attention towards SMEs within the banking industry as both inevitable and healthy for the Ukrainian economy as a whole. “Competition already exists and this is important in order to help maintain the quality of services on offer. Ultimately, market demand is too large to be met by just one or two banks. Ukraine needs a larger number of banks offering professional services to SMEs in order to create a balance between demand and supply.”
Despite the striking growth rates posted by ProCredit Bank over the past two years, Mr. Ponomarenko is confident that there is still considerable room for additional increases in the bank’s loan portfolio. “Our record of growth gives us reason to expect further growth. There is definitely a market for new loans,” he says. The bank is currently working to make sure it is institutionally prepared for additional expansion in 2018. “The demand is there. We want to attract new customers and we have the capacity to accommodate new customers,” Mr. Ponomarenko concludes. “We are preparing for additional growth. We are hungry for customers."