Ukraine president orders Oschadbank to cancel commissions

Ukrainian President Petro Poroshenko sent a letter to the CEO of the State Savings Bank (Oschadbank, OSCHAD) requesting that it “immediately revise” its decision to charge commissions on cash payments on utility and maintenance bills, the president’s press service reported the morning of Nov. 12. “The president stressed the need to take immediate steps to abolish the decision,” according to the release.

The same day afterwards, Oschadbank issued a press release stating the bank’s management board approved a decision to postpone the commission’s introduction. At the same time, the bank explained that Ukraine’s legislation prohibits the banks to charge fees for services that are below their costs.

Earlier, Oschadbank’s board ruled to charge a commission of UAH 3 (USD 0.12) for cash payments of utility and maintenance bills, active as of Dec. 1. Oschadbank is the only bank in Ukraine that charges zero commission for cash payments of utility and maintenance bills.

Alexander Paraschiy: Unfortunately, this illustrates the “independence” of our state banks and of politicians’ “non-interference” into the business activity of state enterprises in Ukraine. Though by Ukrainian norms, what can be considered to be a rude violation of corporate governance standards is often explained as nuances of Ukrainian policy-making.

We estimate that a utility commission of just UAH 3 per bill could generate more than UAH 200 mln in additional annual revenue for Oschadbank. The initiative will not be appreciated among Ukraine’s low-income majority, which is used to paying all its bills at the state bank’s cash offices. And they are likely to blame the president and his Cabinet, further hurting their abysmal popularity.

Oschadbank’s swift reaction is understandable since it remains heavily dependent on state support, enjoying a UAH 17.8 bln equity injection from the state in 2014-2016 and asking for several billions more in 2017. As it looks now for the power brokers, it’s easier to continue the bank’s policy of making capital injections at the expense of taxpayers and maintaining the bank’s appearance as a social subsidizer, even though it brings losses to the bank.

These events confirm our view that Oschadbank is not a business entity, but an arm of the Ukrainian government. In turn, it bears the same default risk as the government does. We continue to believe that OSCHAD Eurobonds should trade at a zero spread to Ukraine’s sovereign curve.