The law on raising the bank profit tax from 18% to 50% in 2023 and to 25% in the following years was adopted without discussions with banks, it is discriminatory and has long-term negative consequences for the investment and business climate in Ukraine, said Oleksandr Pysaruk, Chairman of the Board of Raiffeisen Bank (Kyiv).
“Excessive profits of banks cannot be determined based on the results of one year. Retrospective taxation of excessive profits for 2023, as well as an increase in bank profit taxes in the future, is unreasonable and discourages bank shareholders from investing in this business,” the head of Ukraine’s largest bank with foreign capital said in an interview with Interfax-Ukraine.
Pysaruk emphasized that he supports the need to temporarily raise the bank profit tax in the current circumstances and has publicly stated this. According to him, the version of the law approved in the first reading to increase the tax to 36% for 2024-2025 was discussed with banks and was fair.
According to the banker, the retroactive taxation approved without discussion at the end of the year creates a very dangerous precedent and tax uncertainty for all economic agents, especially for foreign investors. “Retrospective is bad in itself, but when retrospective is linked to 50% instead of the existing 18%, it is a shock,” he added.
Commenting on the 50% rate, Pysaruk explained it as a desire to collect an additional 0.3% of GDP from banks as part of the revision of the program with the IMF, when state-owned banks are already paying large dividends.
“In fact, the payers of this record-high tax are private banks, of which the largest tax burden falls on banks with foreign capital. And the retrospective taxation is compounded by disproportionate and discriminatory treatment of private shareholders of the banking system,” the banker stated.
He noted that the problem is also the unfair singling out of banks from the rest of the economy in terms of raising their income tax to 25% on a permanent basis in the coming years.
“Why are they the only ones to receive the tax increase? Why 25% and why permanently? Why not 28%, 22%, or 20%? … This is an example for investors and business in general: if you are transparent, you will be taxed even more. And at the same time, you leave a bunch of economy that does not pay taxes or pays little,” Pysaruk said.
In his opinion, the tax on banks starting in 2024 should have been discussed as part of the preparation of the National Revenue Strategy prescribed in the program with the IMF, which the Ministry of Finance is obliged to present by the end of this year and which declares the expansion of the tax base.
The head of Raiffeisen Bank also emphasized that banks are a cyclical business, and its profitability should be assessed over a fairly long period of time, on average 7-10 years. According to him, in the period from 2013 to 2023, the total return on equity of Ukrainian banks (excluding PrivatBank and its nationalization) was 69%, i.e. approximately 6% per annum in hryvnia, while the cost of capital in any year after 2013 exceeded 20% per annum.
“That is, the last ten years have been unprofitable for bank shareholders. The situation is much worse for foreign shareholders of Ukrainian banks who calculate their total income in euros. Over the past ten years, the banking system has suffered a total loss of 52%, approximately -8% per annum in euros,” Pysaruk said.
He explained this by the large losses of Ukrainian banks in 2014-2016, the almost fourfold devaluation of the national currency and the inability to receive dividends for several years.
“Today, the banking business in Ukraine is unprofitable. The cost of capital is very high due to high inflation and very high risks in the country. And I’m not even talking about the war,” stated the Chairman of the Board of Raiffeisen Bank.
In his opinion, the adopted law will discourage strategic banking investors from participating in the privatization of state-owned banks, which is necessary given their high market share.
“We may be left with a banking system with an excessive share of state-owned banks for a very long time,” Pysaruk said.
He added that this approach also does not stimulate foreign direct investment in other industries. “This is a very bad story for a country that needs external assistance both during the war and afterwards for development,” the banker said.
Commenting on the impact of the increased tax directly on Raiffeisen Bank, the Chairman of the Board said that in the short term there will be no significant impact, as the bank has excess capital and liquidity. “We will pass the NBU’s stress test without any problems and will continue to support our clients,” Pysaruk said.
At the same time, he believes that some other banks that are not as well capitalized may face problems.
“The National Bank will probably have to mitigate its plans to recapitalize banks, because it was the party that agreed to this decision. Because taxing banks in such a cruel, unfair way and then demanding capital is an additional horror story for investors,” the banker said.
He added that, combined with the NBU’s further increase in capital buffer requirements in line with EU standards, the higher corporate tax will reduce banks’ ability to generate capital to meet the increased demand for loans as Ukraine develops after the war.
Pysaruk also suggested that some banks may appeal to an international court because the adoption of such a law violates the provisions of intergovernmental agreements on investment protection, citing Spain as an example where banks challenged the windfall tax.
The Chairman of the Board of Raiffeisen Bank, who was formerly the First Deputy Governor of the National Bank of Ukraine and then worked for the IMF for three years, also expressed regret that the Fund had agreed to such a tax increase. According to Pysaruk, this is due to the program’s basic assumptions, which are under threat, of ending the war in mid-2024 and a certain level of international assistance.
“The IMF has to draw up a macroeconomic model and calculate the debtor’s ability… to repay the loan. And this tax was probably needed for such a model to be developed. But the price of the issue is exactly this: in order to save this program and continue it, laws are being introduced that reduce Ukraine’s already low investment attractiveness and may hinder plans to attract private foreign capital to rebuild Ukraine after the war,” the banker said.
According to the National Bank of Ukraine, as of October 1, 2023, Raiffeisen Bank ranked 4th in terms of assets (UAH 196.35 billion) among 63 banks operating in the country. Its net profit in January-September this year amounted to UAH 6.14 billion compared to UAH 2.39 billion in January-September last year.
In October 2005, the bank became part of the Austrian banking group Raiffeisen Bank International AG. Currently, Raiffeisen Group owns 68.21% of the bank’s shares, while the European Bank for Reconstruction and Development owns 30%.
The Supervisory Board of Raiffeisen Bank appointed Sebastian Rubaj for the position of the Deputy Chairman of the Management Board of the Bank. He will assume his duties on this position starting from September 4, 2023.
Sebastian Rubaj will be the Chief Retail Officer.
Before the appointment for this position Sebastian Rubaj (46 years old, from Poland) was a Deputy Chairman of the Management Board in FUIB from September 2014 to April 2023.
Starting from 2007, he held the position of the vice-president, and starting from 2009 – the position of the Chairman of the Management Board of Renaissance Credit Bank. He was also the Board Member of Sygma Bank (Poland) and has experience of working in the Polish branch of PricewaterhouseCoopers.
He got the education in the area of finances and banking in Cracow University of Economics and Hogeschool Brabant Breda.
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Raiffeisen Bank JSC was registered on March 27, 1992, from October 2005 it became a part of the Austrian Banking Group Raiffeisen Bank International AG. As of June 30, 2023, Raiffeisen Group owned 68.21% of the bank’s shares, and the European Bank for Reconstruction and Development owned 30%.
A wide range of banking services is provided to 2.9 mio customers of Raiffeisen Bank via the network, which includes 300 branches around Ukraine, as well as Raiffeisen Online and Raiffeisen Business Online applications and other remote channels 24/7.
Net unconsolidated profit of Raiffeisen Bank (Kiev) for January-June this year amounted to UAH 3 billion 118.67 million, which is five times higher than in the same period of 2022, according to the unaudited report of the bank on its website.
According to it, in the second quarter of this year, the bank increased the financial result to the second quarter of last year by 39.6% – up to UAH 1 billion 57.54 million.
It is indicated that Raiffeisen Bank’s net interest income for January-June 2023 increased by 53.0% to UAH 7 billion 907.76 million, including in the second quarter – by 43.8% to UAH 3 billion 955.68 million.
As follows from the report, net commission income for the first six months of this year increased by 82.6% to UAH 1 billion 267.64 million, including in the second quarter – twice, to UAH 639.79 million.
At the same time, net profit from foreign currency transactions decreased by 12.8% to UAH 903.49 million in the first half of the year, while the loss from decreased utility increased by 7.9% to UAH 3 billion 127.34 million.
According to the report, in January-June this year, the bank’s assets grew by UAH 5.84 billion, or 3.5% – to UAH 172.10 billion.
Such growth is explained by a significant increase in investments in securities – from UAH 25.41 billion to UAH 34.17 billion, cash and funds with the NBU – from UAH 32.04 billion to UAH 38.15 billion and loans and advances to banks – from UAH 39.08 billion to UAH 42.26 billion.
At the same time, loans and advances to customers decreased from UAH 61.69 billion to UAH 50.25 billion.
Raiffeisen Bank’s customer funds for the first half of 2023 increased from UAH 143.61 billion to UAH 146.50 billion, while the bank’s capital increased from UAH 17.06 billion to UAH 20.17 billion, including retained earnings – from UAH 1.58 billion to UAH 3.14 billion.
In a press release on Tuesday, the bank added that its gross revenues for the first six months of 2023 grew by 48% to UAH 10.4 billion, the amount of taxes paid amounted to UAH 1.1 billion, and its portfolio of government bonds grew by almost UAH 10 billion.
“Raif’s lending dynamics reflect the existing demand for loans and the creditworthiness of customers. Since the beginning of 2023, the bank issued UAH 48.2 billion of new loans, of which UAH 32.6 billion – to industries that are critical for the country (agribusiness, retail, pharmaceuticals, fuel supplies)”, – indicated the financial institution, specifying that UAH 13.5 billion of loans were directed to agrarians.
It is noted that as of June 30, 2023, the bank formed UAH 14.6 billion of reserves, and the share of non-performing loans (NPL) amounted to 16.3% at the end of June.
It is also specified that the funds of corporate customers at the end of June 2023 amounted to 63.1 billion UAH and increased year-on-year by 14 billion UAH, or 29%, while the funds of retail customers increased by 11.2 billion UAH, or 16% – to 81.6 billion UAH.
As of the end of June 2023, the capital adequacy level of Raiffeisen Bank amounted to 25.38% with the minimum value of 10%, and the tier 1 capital adequacy level amounted to 19.03% with the minimum value of 7%.
Raiffeisen Bank JSC was registered in Ukraine in 1992 and is the largest bank with foreign capital in Ukraine, ranking 4th among 65 Ukrainian banks in terms of total assets at the beginning of June. Since October 2005, the bank became part of the Austrian banking group Raiffeisen Bank International AG. As of March 31, 2023, Raiffeisen Group owned 68.21% of the bank’s shares, while the European Bank for Reconstruction and Development owned 30%.
Raiffeisen Bank has allocated UAH 40 million for the project “Zahystok: Bezpechna Osvita” (Bezpechna Osvita) launched by the Kyiv School of Economics (KSE Institute) and the KSE Foundation to provide school shelters for 30,000 school children.
“The full-scale war violates one of the main rights of children – to get an education,” the bank’s press service said in a statement on Thursday.
It is pointed out that the Zahystok project was created by the KSE last September and includes activities ranging from physical sheltering in schools to creating innovative educational programs in the robotics, AI and STEM industries.
According to the KSE website, the project has raised $1.4m against a stated goal of $3m. Farmak, FUMB, Dragon Capital, OKKO and Kyivstar are also among the benefactors.
During the project period more than 8 thousand school and pre-school pupils returned to their desks, while the KSE Charitable Foundation increased its goal from 100 to 300 equipped stores across the country and plans to return another 10 thousand schoolchildren to their schools by September 1 this year.
The basic condition for schools to be allowed to return to offline classes is the availability of a shelter that meets KSE’s requirements. The KSE Foundation installs modern shelters in accordance with all sanitary and safety standards.
It is specified that everyone who cares can join the collection. You can make a contribution in your personal Raiffeisen Online cabinet in the section “Payments/Assistance to Ukrainians” or at the KSE Foundation website.
For their part, each school without a secure vault for students may file an online application to set up a vault on the KSE’s website.
Since the beginning of the war the KSE Foundation has raised $50.4 million for various projects.
Raiffeisen Bank is planning to send its profits for 2022 less dividends in the amount of UAH 1.572 billion to the bank’s reserve fund.
According to a report in the system of the National Securities and Stock Market Commission (NSSMC), the relevant decision will be considered at the remote gathering of the bank’s shareholders on April 28.
It is pointed out that the bank plans to deduct UAH 700 th from the profit for 2022 to pay dividends to the owners of the bank’s preferred shares before sending them to the reserve fund.
According to the National Bank of Ukraine, Raiffeisen Bank on the size of assets as of January 1, 2023, was in 5th place (187.26 billion UAH) among 67 operating Ukrainian banks.
Raiffeisen Bank’s profit for January 2023 was UAH 742 million, up 62% from the same period in 2022 (UAH 457 million), the bank’s press service said Thursday.
According to the report, the bank’s income in January amounted to 1.8 billion UAH, which is 1.6 times more than in January 2022 (1.1 billion UAH).
Including net interest income amounted to 1.4 billion UAH, or 78% of the total income.
It is indicated that the fee and commission income increased by 28% up to UAH 270 billion, indicating the growth of client operations, including remote service channels.
The trade result grew by 30% year-on-year and made up UAH 124 mln.
Besides, in January the bank allocated UAH 380 mln. to provisions for possible credit and operational risks caused by war, that is 4.7 times more than a year before.
The share of NPLs in the loan portfolio of the bank by the end of January was 14.8%, while the loan portfolio decreased slightly to UAH 72 bn.
According to the message, funds of corporate clients in Raiffeisen Bank increased by 6 billion UAH to 61 billion UAH, and funds of individuals – by 1% to 6 billion UAH.
It is noted that half of the 300 operating branches of Raiffeisen Bank are equipped with generators and backup communication channels.
