Oschadbank supervisory board to prolong contract with CEO for 5Y

The supervisory board of state-controlled Oschadbank
(OSCHAD) decided to renew the tenure of the bank’s board chairman, Andriy
Pyshnyy, for five years, the bank announced in an Aug. 2 press release. The
board confirmed Pyshnyy’s “professional suitability and competence” following
the results of an independent assessment made by an international recruitment
company. The assessment “includes all parameters, both professional,
qualification, leadership and psychological,” the bank wrote, also noting that
all the bank’s top managers will undergo the same assessment.

The bank also stressed that current legislation does
not require arranging a competition in selecting the bank’s CEO “if there are
valid contracts with the management.” Pyshnyy has been Oschadbank CEO since
March 2014.

Oschadbank, as well as its peer Ukreximbank (EXIMUK),
gained new supervisory boards in May 2019, consisting of six independent board
members and three members appointed by state representatives. This occurred
after Ukraine’s parliament adopted a special law on new
principles of corporate governance in
state-controlled banks in July 2018.

Alexander Paraschiy: It looks
like the supervisory board chose the path of least resistance in its personnel
policy, which is not necessarily the best way for the bank. Definitely,
leadership and psychological qualities are important for the top manager. But
extending a CEO’s tenure for a second lengthy term must take into account the
bank’s financial results. Here we see lot of things that could have been done
more efficiently.

For instance, Oschadbank is still a
“champion” in NPLs, whose share in its gross loan portfolio is
non-declining (72% as of June 2019, up from 67% in June 2018 and 64% in August
2017). Secondly, the bank is operationally inefficient as its cost/income ratio
is close to 100% and its operating cash flow (before assets and liabilities
change) was negative in both 1H19 and 2H18, meaning the only source of the
bank’s liquidity growth was an increase in its deposit base. Its
cash-net-interest-income is also not in the best shape, falling 53% yoy to UAH
1.39 bln in 1H19.

Over the last years, the bank was efficient in
enhancing the quality of its customer service, as well as pursuing litigation
against Russia and some borrowers. But the results were not enough to turn the
bank around.

All in all, we are not optimistic about this decision
by Oschadbank’s supervisory board for the bank’s financial prospects. At the
same time, we remain bullish on the bank’s Eurobonds, which bear risk
comparable or even lower than thatof Ukraine’s sovereign bonds.