Never ending banking. Reconsidering the Western banks’ approach to reputation management in developing markets on the example of Ukraine

Reconsidering the Western banks‟ approach to reputation management in developing markets on the example of Ukraine 14th International Conference "The Sustainability Imperative: A Strategic Role for Reputation Management” Reputation Institute 19-21 May 2010 Rio de Janeiro, Brazil

Never ending banking?

Post-Soviet shocks After the series of economic and financial shocks which hit the post-Soviet economies in last decades, the trust in banking system has reached such a low level in Ukraine that the citizens preferred to keep their savings at home „under the mattress‟

“You can do as you please, but I am “ off

The coming of Western banks to the Ukrainian market was meant to correct such a situation

The active expansion of Western banks on Ukrainian market after Orange revolution took place without taking into account expectations and awareness of consumers During 2005 – 2009 foreign banks‟ share has grown from 17% to 44%

Consumers had no experience what so ever of work with bank loans and financial services

The domestic branches of Western banks actively issued bank loans in foreign currency to Ukrainian clients The business model used by the foreign banks was based on extracting profit from the difference between the interest rates for consumer loans and the interest paid for resources attracted in the foreign European markets.

The Western banks have got the reputation of “kind uncles” who materialize the dreams of the clients such as purchasing whatever they want Banks‟ communications were focused on describing the opportunities to their clients and neglected to inform them about the responsibilities

After the onset of the global financial crisis the majority of Western banks have suffered This was caused not only by the negative colossal losses economic developments but also by numerous in Ukraine past mistakes in banks‟ communications with their customers and their reputation management on this market

GfK Ukraine: by the end of 2008 the level of distrust in banks in Ukraine has almost doubled from 28,4% to 56,2% Ukraine‟s GDP in 2009 dropped by the record 13,9% Consumers easily stopped repaying and servicing their loans

Not prepared for such a challenge the Western banks are considering and developing various exit strategies for the Ukrainian market

Today banks do not issue credits, because they are not trusted anymore The reputation damages has been done also to Ukraine financial market. Bankers tried to solve the problem at the expense of more capable borrowers by increasing the interest rates on their loans. Additional reputation damage has been done by the National Bank of Ukraine‟s directive to freeze the withdrawal of deposits for 7 months. After the freeze has ended, customers began actively to withdraw their deposits. Clients did not trust banks. Clients did not make deposits

Ukrainian Customer 2009: Relation to banking services (deposits and loans) Such low numbers for popularity of banking services are mostly the result of the impact the crisis had on the households and of the spectacular drop of banks‟ reputation, including those with foreign capital

The Ukrainian branches of Western banks face a tremendous task of damage control:

Bringing to consumers the better understanding of the risks of making the loan which could hit the short-term performance of banks Still it guarantees long-term stability and prosperity of credit institutions The best information source in this case could be the banking association, which is able to take on some negative aspects of the massage

Educate clients Lobby own interests in Government Communicate profitably with large debtors The Great Piggy Bank Advanture is an interactive experience that brings basic savings and investment concepts to life in fun way. The Disney Attraction includes a series of games that teach guests how to set goals, save and spend smartly, stay ahead of inflation and diversify investments.

Questions?

New Concept Group T. + 38 044 289 4517 F. + 38 044 287 5316 http://www.nc.ua blog.nc.ua 72 A Velyka Vasylkivska Street 03150 Kyiv Ukraine

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Never ending banking. Reconsidering the Western banks’ approach to reputation management in developing markets on the example of Ukraine

by NC Group on May 21, 2010

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Never ending banking. Reconsidering the Western banks’ approach to reputation management in developing markets on the example of Ukraine — Presentation Transcript