Cleaning up the Ukrainian banking system and reforming the public banking sector have become the main hallmark of successful changes in the country following the 2013-14 Revolution of Dignity.
Nowadays, the Ukrainian banking system’s integrity is safeguarded not just through the relevant laws together with regulatory and oversight institutions, but through the recently adopted governance principles and structures at banks. The most significant changes have taken place in the state-owned banking sector, which now accounts for up to 60% of the entire Ukrainian banking system. Consequently, the financial position and performance of these banks and the competence of their leadership and management are crucial to the overall health and competitiveness of the banking system.
What are these changes about? First and foremost, they are about the introduction of a corporate governance model based on international standards. The first step in this direction was the formation of Supervisory Boards at state-owned banks, with majority membership made up of independent directors. Independent directors are selected from a global pool of candidates on a strictly competitive and transparent basis with the assistance and participation of Ukraine’s international partners and an international recruiting company with an impeccable reputation.
Oschadbank’s Supervisory Board, on behalf of and in agreement with which I lay down these thoughts, is established in this way. Six of its nine members are independent, and the other three are representatives of the state: one appointed by the President, one by the Government and one by the Parliament. Several hundred candidates from all over the world took part in the competitive selection of independent members of Oschadbank’s Supervisory Board. Only six were selected. We are all proud that our competence as experts has passed an unprecedented competitive selection process in the history of the Ukrainian banking system.
The newly elected Supervisory Board, according to its mandate, immediately began its work. From the management of the bank, we have received the most detailed information on performance of business areas, and we can see significant progress of the bank on its way towards modernization. A week after the appointment, the first meeting was held. We discussed the results achieved already and the tasks that lie ahead for the bank. Four weeks later, the assessment of the bank’s top management competencies began. This week, we are holding a strategic session with the management to analyse the 2018-2022 strategy in detail.
In accordance with the principles of corporate governance, once the members of the Supervisory Board are appointed, it is common practice to conduct an immediate assessment of the bank’s current management. This is done in order to ensure that a proper and professional team is in place to achieve the bank’s strategic goals.
The assessment is mandatory, even if the bank’s management has valid contracts, as in the case of the Oschadbank’s Management Board. That is why, at the meeting of the Supervisory Board on June 20 this year, with a representative of the NBU present, we decided to conduct such an assessment. To do this, we engaged international recruitment company Pedersen & Partners. It has an impeccable reputation. It is familiar with the strategy and structure of the bank. It has international experience in the selection of senior bank managers and has passed competitive selection in accordance with the Law of Ukraine “On Banks and Banking”.
This procedure is being carried out for the first time in the history of not only of Ukrainian state-owned banks, but also of all Ukrainian state-owned companies. All members of the bank’s Management Board and key executives are included in the scope of the assessment. Andriy Pyshnyy, the Chairman of the Management Board, was the first to undergo this procedure. The results of his competence assessment were considered by attendees of the Supervisory Board meeting on July 25.
It is important to note that Oschadbank’s development strategy for 2018-2022, which really defines the set of competency requirements for top management, was approved by the government in February 2018. So, we do not only assess the progress in the bank’s activities, according to a significant number of facts and reports, but first of all, we determine whether the management is able to meet the new requirements, keep the dynamics of changes, and the carry the bank towards achievement of its strategic goals.
Therefore, based on the received materials and findings, the Supervisory Board decided to confirm the professional suitability of the Chairman of the Management Board Andriy Pyshnyy and his compliance with competency requirements, and to extend his term of office for the next five years. We have high confidence in the current CEO’s ability to deliver the business strategy 2018-2022.
Oschadbank has changed radically in recent years, starting with the modernisation of the network of bank branches, new corporate culture and investments in the bank’s human capital and customer service, and ending with modern online services and new business areas such as e-commerce, support for small and medium-sized businesses – something that did not exist in this bank before. We see and analyze these changes, but the goal of the assessment is different. The new approach to corporate governance has completely changed the paradigm of the bank’s operation. This is a new reality. It is important for us to understand which top managers are ready to implement such changes. With whom we, as the Supervisory Board, are ready to share the responsibility for achieving the set goals. A lot has been done, and we will do even more together.
The next stage of the process – the assessment of the rest of the members of the Management Board and key managers of Oschadbank, is now underway. As the Supervisory Board, we will continue to act strictly in accordance with the established procedures. The rules are and will be clear, understandable and transparent. For any existing position, the incumbents who do not fulfill the competency assessment in a manner satisfactory to the Supervisory Board will not have their contracts extended. Any new or vacant position will be filled via a competitive selection process.
Why is this approach used? Because the bank is systemic. The soundness of the bank, and by extension, the banking system depends considerably on its stability. Therefore, the process of selection of the bank’s management must be prudent and cannot be based on the logic of revolutionary expediency – to change everyone at once and just for the sake of changes.
The bank’s tasks set out in its development strategy until 2022 give us no time to waste. The problems of state-owned banks have been accumulating for years. So-called toxic assets built up over the years because of the political dependence of and political interference in credit decisions of the state-owned banks, because their corporate governance was politically dependent on top state officials. That is why the reform of the state-owned banking sector was carried out in cooperation with our international partners. These changes aim to achieve one thing – the commercialization, effective operation and profitability of state-owned banks, and the increase of their market value as an asset. Today, when independent supervisory boards are now working at state-owned banks, a maturity exam is being taken not only by them, but also by the entire Ukrainian banking system and the country as well.
We must pass this exam. We have a chance. A chance for strong, efficient, competitive and reliable state-owned banks, and hence a big chance for the strong economic development of Ukraine.
About the author: Sevki Acuner is Chairman of the Oschadbank Supervisory Board