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Case Title:

Raiffeisen’s Strategic Dilemma in Ukraine

Publication Year : 2010

Authors: Chaudhuri S, Chakraborty J

Industry: Banking, Insurance and Financial Services

Region:Global

Case Code: GGL0073IRC

Teaching Note: Not Available

Structured Assignment: Not Available

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Abstract:
On 1 June 2006, Raiffeisen International Bank-Holding AG, the third-largest Austrian Banking Group, entered into an agreement with the Hungarian OTP (Orszagos Takarek Penztar) Bank Ltd owing to the disposition of 100% of its shares in Raiffeisen Bank Ukraine, a majority-owned (95.3%) subsidiary of Raiffeisen International that had been operating in Ukraine since 1998. In a bid to tap the burgeoning retail market in Ukraine, the CEE (Central and Eastern Europe)-focused Austrian bank had earlier acquired a 93.5% stake in the Joint Stock Post Pension Bank Aval (Bank Aval), the second-largest bank in Ukraine. While it was planned at the outset to merge Bank Aval with Raiffeisen Bank Ukraine, analysts were embarrassed to find that the latter was being sold to the Hungarian banking giant for 650 million euros. Having a GDP (gross domestic product) growth rate close to 3% and a low level of bank intermediation (53.3%) among the CEE countries in 2005, Ukraine was the most prospective and highly potential banking market. Raiffeisen International had strategically planned to maintain and expand its market leadership in Ukraine and the acquisition of Bank Aval was seen as the latest manifestation of that. Together with Bank Aval and its Ukrainian subsidiary, Raiffeisen International would have created the biggest bank in Ukraine. The planned merger would have enabled the Austrian banking giant to garner an 11.9% market share in the Ukrainian banking sector. But the sale of Raiffeisen's Ukrainian subsidiary was viewed by the analysts as a conflicting strategy not similar to the one they had adopted in Russia in connection with the purchase of Impexbank in 2005. Analysts were sceptical about the outcome of Raiffeisen bank's spin-off strategy in Ukraine, which was primarily conducted to eliminate merger costs and save time overrun. Since the Raiffeisen Bank Ukraine primarily serviced the country's corporate clients, it remains to be seen whether the Austrian bank's corporate business in Ukraine becomes recessive owing to the sale of its Ukrainian unit along with the unification of two major retail-focused banks. It also remained a moot point whether Raiffeisen International would be able to do justice to its global status in Ukraine. Despite all these criticisms, the planned sale of Raiffeisen Bank Ukraine has met with little surprise from senior figures in the Ukrainian banking industry who described it as a sensible move given the price Raiffeisen paid for Bank Aval and the price to book ratios currently being achieved. This case is intended for MBA/PGDBM students and was designed to be part of the strategic management curriculum.

Pedagogical Objectives:

  • To understand the expansion strategies of Raiffeisen International
  • To analyse the benefits and drawbacks of conflicting strategy undertaken by Raiffeisen International in Ukraine
  • To study the impact of Raiffeisen International on the Ukrainian banking sector.
  • To understand the trends and developments in the Ukrainian banking sector

Keywords : Raiffeisen International; Austria; CEE (Central and Eastern Europe); Impexbank; Russia; CAGR (compound annual growth rate); Market share; Credits; Deposits; ROA (return on assets); WTO (World Trade Organisation); Retail; CIS (Commonwealth of Independent States); GDP (gross domestic product); CBR (Central Bank of Russia)

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