“Businesses Can Only Expect Short-term Loans during the War,” Andriy Volkov Says

Andriy Volkov, a founder and managing partner of the Investohills Group, believes that working capital loans provide the foundation for the wartime credit portfolio of banks.

“These are rather short-term lines of credit ranging from several months to a year, for which collateral is required,” he indicates.

According to Volkov, one can hardly speak of investment loans for fixed assets of businesses.

“There may be loans for energy security (for purchasing electric generators), refurbishing destroyed properties or repairing the equipment, on which the regular process cycle depends. Nobody grants loans for expansion projects or to launch new lines of business. And there is no demand for them,” the financier emphasized.

He also indicated that the attitude toward collateral and the approach toward its valuation had changed substantially.

“The assets used to be deemed liquid earlier, such as properties, equipment, and vehicles, often raise a red flag for banks now. Firstly, the value of all assets went down. Secondly, all such assets are, in fact, uninsured. It is because the military risk is the major insurance risk now, but insurance companies do not cover it and consider such incidents an exception from indemnity payment. In addition, huge expensive collateral items cannot be reinsured abroad because insurers are faced with major difficulties trying to buy hard currency due to the imposed foreign exchange controls. For this reason, almost any collateral is currently illiquid and uninsured in the eyes of banks,” Volkov elucidates.   

In addition, according to him, the assessment of borrowers strengthened considerably. Currently, new loans are only available for reliable and well-tested clients.

“Banks usually refuse to grant loans to questionable borrowers and businesses. The collateral is now playing a far less important role in loan repayments. A borrower has to compensate a bank for the notional gap between the loan amount and its portion that can be secured with collateral. In other words, a company must operate at a high margin, with stable proceeds, and be reliably solvent in principle,” the Investohills founder says.

Banks also compensate for the growing credit risks by increasing interest rates –at least 25% for new hryvnia loans and 7 to 9% for hard currency loans. Hard currency loans are a rarity because they are only available for exporters on tailor-made terms.

According to Volkov, most active borrowers include companies in the fuel and energy sector, agricultural producers, and retail businesses that cannot exist without topping up their working capital.

“The steel industry has stopped operating for understandable reasons; the construction sector is stagnating, while the logistics sector is hardly developing. Thus, these sectors hardly use any credit resources,” the financier indicated.

He predicts that the lending standards will become more stringent soon.

“In addition, the financial condition of many sectors keeps deteriorating, which will affect the lending policy and the approaches toward assessing borrowers. The NBU also urges banks to be realistic about assessing their credit risks by enhancing their regulatory requirements and trying to stave off bankruptcies in the banking sector,” Volkov summarized.