First Ukrainian neobank — monobank — is only three years old. Is it really worth over $1B?

Recently, one of the founders of monobank Oleg Gorokhovskyi said that the bank’s estimated value is more than $1 billion. The editors of AIN.UA asked market participants whether the bank can actually have such a high valuation.

First, we asked Oleg Gorokhovskyi how a $1+ billion valuation arose – whether it was their calculation or real proposals from buyers. Gorokhovskyi said to AIN.UA that at the moment, he is not ready to share some details of this valuation.

Theoretically, the monobank’s value can be higher than a billion dollars. Sure, if there is a buyer who is ready to pay or invest such an amount. If there are any real investment or purchase offers, it is unknown. The Alfa–Bank Ukraine officials declared in the past that they were thinking about buying monobank, but then they abandoned such an idea. According to the information of AIN.UA, it was not an idea only; there were negotiations. But both parties deny it. According to our info, there was also an interest in monobank from one of the Ukrainian telecom providers. But it did not convert into a deal.

Why more than $1B

One of the sources of AIN.UA, who works in a large investment company and has worked with fintech startups, said that a $1 billion valuation of monobank could be true. And he speaks not of a long-term perspective but about now, at current numbers. According to him, we may find an example in the East — the Russian Tinkoff bank. Its capitalization is $20 billion, the total number of customers is 13 million, and its revenue is about ₴70 billion.

The revenue of Universal Bank, whose license is used by monobank, is much lower. But monobank already has nearly 4 million clients, and the main thing is that the bank is only three years old, not 15 like Universal Bank. In addition, the bank has very recently launched services for individual entrepreneurs (FOP) and is going to introduce new features soon to expand its service portfolio and earn more. For each bank, it is lending that generates the majority of income.

Another example is not so illustrative, but it shows the great interest of investors in fintech — Kaspi.kz. The Kazakhstan company has more products for users by only 10 million customers and a capitalization of $23 billion on the London Stock Exchange. Future achievements play a role here: investors believe that Kaspi.kz will develop and will be able to multiply the number of users.

The same can be said about monobank: the project is rapidly gaining users. It has created the second most popular banking application in the country after only three years. Interest in fintech can be seen both in Europe and in the United States: Revolut ($33 billion), Monzo (£1.24 billion), Chime ($25 billion), Klarna ($45 billion), Afterpay (bought for $29 billion), Checkout ($15 billion) and so on — the list can be very long. All of these companies are worth tens of billions of dollars. And they will be worth even more.

So, the focus on the future is very logical.

“Do you remember Universal Bank five years ago? It was a bank from the third ten. Now it is one of the most profitable banks in the country; it belongs to TOP 10 largest banks by assets,” said another source of AIN.UA in the banking industry. “And it’s all thanks to monobank. Now you can hear the phrase “OK. I’ll send money to your mono” so often as people say: “OK. I’ll send money to your Privat”. It means a lot.”

Even today, monobank, after several years of work, is the largest bank in Ukraine by the number of new clients. PrivatBank is the second.

Universal Bank (monobank) is growing rapidly: in the first half of the year, it is the third-largest in hryvnia inflows — ₴3.1 billion, only state-owned PrivatBank (₴7.9 billion) and Oschadbank (₴4.3 billion) have more according to calculations of minfin.ua (and data from the NBU). Although in the current half of the year, about half of Ukrainian banks faced a foreign currency outflow, Universal Bank is the second after Raiffeisen Bank in attracting funds in foreign currencies — $33.6 million. For comparison, the currency outflow of PrivatBank in the first half of 2021 amounted to $111.2 million.

Another reason why the interviewees of AIN.UA consider monobank to be a billionaire project is a different evaluation approach. “This is more a technological company rather than a normal bank. Hence the figure,” AIN.UA source said. Gorokhovskyi agrees with this: in his opinion, monobank cannot be evaluated as an ordinary bank — by the capital. Following that, the multiplier is no longer 1-3, like by banks, but 7-9, like by technological companies.

According to Yevgen Sysoyev, the co-founders of monobank managed to make a high-frequency product with probably one of the highest return rates of users in the world. Their product is very much loved by users.

“Technological sophistication makes it possible to give the best service with a great unit economy. The world’s neobanks with millions of loyal customers are valued at “billions” of dollars. So, I think that if monobank ever has any round (because they are profitable), it would definitely be valued at over $1 billion. The number of users was publicly announced. Financial figures of the partner bank Universal Bank are publicly available in the statistics of the NBU. Everything is available.”

Sysoyev says companies that are worth billions have several options:

  • IPO (as People.ai, Ajax, GitLab are planning);
  • M&A for global strategists, who themselves are worth more than tens of billions and can afford it, or for syndicates of major global investment firms.

Why less than $1B

However, not everyone agrees with this evaluation. The representatives of the banking sector questioned by AIN.UA told that according to financial data, Universal Bank and monobank together cost about $500–600 million in 2020.

Minfin.ua quotes Yevhen Dubohryz, an expert at CASE Ukraine and former deputy director of the NBU’s Financial Stability Department, as saying: “I would value the bank, provided it has a monobank project, at ₴9.6–11.7 billion ($350–430 million), or ₴2.4–2.9 billion in equity capital. Without monobank, Universal Bank, judging by the financial indicators, will cost as much as its license (200 million hryvnias — editor) or even less,” says Dubohryz.

All respondents agree that monobank is a huge bank, valued at hundreds of millions of dollars, but not yet a billion. The government desires to sell the unusually big PrivatBank for $3 billion, and it does not help either: the bank has billions of hryvnias of profit and over 10 million clients. This indicates that banking assets in Ukraine are not very attractive.

The most detailed commentary explaining why the bank cannot be worth so much was given by investment analyst Ivan Uhlianytsia:

“In general, monobank itself, despite its strong team, I would not say that it has any great advantages over other banks in this part. The main difference of monobank from the rest of the market, what distinguished PrivatBank too, is its readiness to undertake regulatory risks and go through the disputed area. In principle, this is a typical story for so–called tech companies (Airbnb, Uber, and the like), which is just regulatory arbitrage.

In terms of banking and the actual subject to sale, it has relatively high portfolio growth. But it is not very different from other small Ukrainian banks. They also have high growth rates, i.e., monobank is not unique in this part.

The return on equity (ROE) is relatively high but not very different from many Ukrainian banks that do not call themselves fintech companies.

It is worth mentioning that this eventually high ROE and profit have been achieved by reducing the provisioning of the loan portfolio, from 18% in 2019 to 15% in 2020, and about 11% in the first half of 2021. At the same time, additional provisioning to the previous level would no longer lead to profits in the first half of the year but losses.

But as the loan portfolio of individuals quickly turns around and losses on it appear much faster than on loans to legal entities, monobank has a little time and maneuvering space here. It is necessary either to sell at the desired price or then replenish the capital with own funds and partner funds, resulting positively for the owners.

Additionally, speaking about the rest of the banks and a slight increase in profitability at the moment, we most likely will not and cannot have a sustainable situation at such a polarization of the ownership of deposit resources, the cost of loan funds, the cost of National Bank funds, etc.”

Why “not for sale”

Gorokhovskyi himself said that monobank is not for sale but did not answer AIN.UA why he is not ready to sell it.

In the opinion of ICU investment analyst Mykhaylo Demkiv, the bank is too early to sell: “The bank has not yet reached its maximum point and will continue to grow,” he said in a commentary to minfin.ua.

Ivan Uhlianytsia believes that there are no local and foreign companies that are willing to pay over $1 billion for the banking asset in Ukraine. Just from the point of view of willingness to acquire but not from the point of view of financial capabilities.

However, there is interest in monobank, which is only confirmed by the news from Alfa-Bank Ukraine.

“There is nothing surprising in the interest of companies in monobank. A hugely successful project with a large number of satisfied users and a base that is growing. Who would refuse such an asset?” he concluded.