Ukraine’s PrivatBank uses technology to shield itself from war and liquidity crunch

▶ State-owned bank migrated its data to the cloud in a record 43 days amid Russian attacks, executive says

Ukrainian banks made a strong recovery amid a severe liquidity crisis compounded by dwindling consumer confidence and a surge in withdrawals following Russia’s invasion last year, a top official with the largest state-owned lender has said.

The recovery was bolstered by technological advancements, Mariusz Kaczmarek, chief operating officer of Dnipro-based PrivatBank, told The National.

“We were fighting against death and we realised it was better to try and fail than not to try at all and eventually be destroyed,” Mr Kaczmarek said.

“Servicing Ukrainians during those difficult times was our priority … creating a trust and ensuring they can rely on us. There were a rampant withdrawing of funds and people fleeing the country but soon they realised that the country is much stronger than they anticipated. They gained confidence and started to bring back their funds in their accounts.”

Founded in 1992, PrivatBank is the largest retail lender in Ukraine that is focused on servicing individuals as well as small and medium businesses.

It operates two data centres – one in the capital Kiev, while the location of the other in Ukraine’s eastern region remains undisclosed. They house confidential data including customer information, financial records, security data, regulatory compliance data, back-up and recovery data.

After the Russian invasion, there was an imminent risk of an attack targeting these data centres to jeopardise the bank’s crucial operations. It could severely disrupt a financial system that facilitates more than half of Ukraine’s ATM cash withdrawals, Mr Kaczmarek said. Therefore, after the invasion in February 2022, PrivatBank migrated its operations on Amazon Web Services cloud in a record 43 days.

However, navigating the intricate migration process was not easy. It posed significant challenges for the government bank as it was bound by stringent regulations prohibiting the placement of sensitive consumer data on third-party platforms and inhibiting the relocation of data centres beyond national borders.

“Can we move our thousands of servers somewhere else to the West? It was impossible to move them using trucks because of the traffic and frequent air strikes. We were also not allowed to put the clients’ sensitive financial data on third-party cloud,” Mr Kaczmarek said.

“As the whole country was at risk, we obtained a special waiver allowing the migration of our operations to the AWS cloud. It commenced on March 10 [2022] and we completed it in [a] record 43 days.”

The cloud migration process was executed at war-scale, considering that for a financial institution, this task typically takes more than a year but was completed in less than a month and a half, according to AWS.

“The move aimed to safeguard our bank, ensuring operational continuity by preserving vital traces, should any harm befall our physical infrastructure,” Mr Kaczmarek said.

With a workforce of about 18,000, PrivatBank has the largest network of ATMs in Ukraine. It serves more than 18 million retail customers and 1 million SME clients. Nearly half of all payments in the country passes through its systems. Out of more than 1,200 PrivatBank branches, nearly 80 per cent have remained opened every day since the war broke out. Besides, the bank managed to restore 80 per cent or more ATMs and terminals during the peak of conflict last year.

Throughout last year, 23.8 billion in Ukrainian hryvnia ($630 million) was issued to SMEs, which led to an increase in the net loan portfolio to legal groups by 58 per cent.

“Following the onset of a fullscale conflict, the population’s loan demands decreased. To support business lending, the government enhanced participation conditions in its programmes, specifically targeting the agricultural sector and vital businesses crucial to Ukraine,” Mr Kaczmarek said.

“There was also [a] rise in clients’ funds that maintained a consistently high level of liquidity, mitigating potential risks associated with the ongoing conflict.”

In an attempt to cover increased credit risks under war conditions, PrivatBank last year formed reserves in the amount of more than 14.5 billion Ukrainian hryvnia.

Last year, its net profit dropped almost 14 per cent on an annual basis to 30.25 billion Ukrainian hryvnia. “Despite the war, 2022’s net profit was not too bad. Our profit was about 60 per cent of the entire financial sector,” Mr Kaczmarek said.

“Because of bank’s resilience and pretty stable financial conditions in the market, this year we are forecasting much better financial results.”

PrivatBank, which opted for a hybrid work model, is still following the same policy due to the ongoing war.

“We are keeping our people as much dispersed as possible because we don’t know where the rockets can hit and typically, they are targeting main buildings and crucial infrastructure,” Mr Kaczmarek said.

“We are encouraging everyone to work remotely, to prevent scenarios where a large number of our employees might be in a single building susceptible to destruction in the event of an air strike.”

We are keeping our people as much dispersed as possible because we don’t know where the rockets can hit MARIUSZ KACZMAREK PrivatBank chief operating officer