Just when everyone thought the banking acquisition spree that began in 2006 may fizzle out, a new player from Sweden has stirred the waters by announcing its decision to acquire one of Ukraine's top twenty banks.
Swedbank, a leading bank in Sweden and the Baltics, decided to extend its regional reach, when it unveiled a $735m deal to acquire TAS-Kommerzbank, Ukraine's 13th largest bank, with 2,300 employees, $1.14bn in assets and a network of 170 branches.
The deal includes an equity contribution of $50m upon acquisition and an additional $250m in the next three years, based on the bank's performance. According to some analysts, the price over book value Swedbank paid for TAS-Kommerzbank was almost seven times.
It is the highest valuation of a sizeable Ukrainian bank, second only to Index Bank - a smaller bank acquired by Credit Agricole last year.
"TAS is yet another step to enhance growth for Swedbank following our success in the Baltic countries. Ukraine is an important tiger economy with impressive growth rate and positive development," said Carl Eric Stalberg, the chairman of Swedbank.
The Ukrainian bank owned by Serhiy Tihipko, the former governor of National Bank of Ukraine, has recently pursued an aggressive policy of network expansion to gain a foothold in the fast growing retail market.
In contrast to SEB, another leading Swedish bank to enter Ukraine two years ago, Swedbank went for a larger bank with a sizeable pan-Ukrainian network.
Adomas Navickas, partner in the Baltic Investment Company said, "we can detect a similar pattern as in the Baltics where Swedbank took a risk of paying a high premium to enter an emerging market. Yet, has managed to get a suitably high return on its investment."
Swedbank already generates some 20% of its profits in the Baltics with return on equity around 30% compared to 22% in Sweden. It is the number one bank in Estonia and Latvia.
Like previous arrivals Raiffeisen and BNP Paribas, Swedbank is a universal bank that will be strong both in corporate and retail segments. According to Navickas, it may initially focus on the more lucrative retail business, offering mortgages, auto finance and credit card products.
Corporate clients are initially expected to comprise Nordic investors and business to be generated through former owner Tihipko, who is planning to stay on as the chairman of the new bank.
The acquisition will take the total banking assets held by foreign banks over 20%, if last year's tentative acquisition of Ukrotsbank, one of the largest Ukrainian banks, by Italy's Intesa is confirmed.
Such a fast foray by foreign players is not welcomed by everyone. Valentin Landik, member of parliament and owner of large Ukrainian white goods manufacturer NORD, told OBG, "investment in the banking sector is inflationary. The money is not channeled into productive assets. It lands in private individuals pockets."
Proponents of foreign investment in Ukrainian banking sector, however, argue that foreign players act as a trigger for progress, bringing in best international practice, new technologies and know how.
Federico Russo, president of the board of Unicredit Bank in Ukraine, said, "The Ukrainian economy needs to finance growth. It needs access to international capital, which means it needs foreign banks."
Despite political opposition in certain quarters to the fast take-over of Ukrainian banking assets, industry players do not think the authorities are likely to halt the process through administrative measures.
The main barrier, at this stage, will be market forces. There are few sizeable banks left for sale and there are few foreign players that are prepared to enter at current high valuations.
Swedbank was an exception in this regard, because it has regional experience and a success story in the Baltics to show to its shareholders. While no one disputes Ukraine's potential, new banks arriving in Ukraine still need a painstaking assessment of the local risks to see whether valuations match the high entry premium demanded by local banks.