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Ukraine’s businesses are struggling to finance trade costs as foreign commercial banks have significantly decreased lending in the country with political crises bringing it to verge of collapse.

Ukraine is facing bankruptcy if it does not get support from the International Monetary Fund. Acting-finance minister Yuri Kolobov announced that Ukraine will need to raise US$35bn by the end of 2015 to boost its economy and payback debt. The country has a long history of poor economic performance, its economy is still smaller than it was in 1992.

Throughout the turmoil, there were concerns that ports might close, triggering defaults on contracts and driving up risk premiums. While there were some delays due to confusion with state authorities, goods are moving through again and port silos are working.

“According to many Ukrainian based commodity traders and producers, goods are continuing to leave the country and state custom and export regimes are working normally. Bank transfers are also being made on time,” says Michael Swangard, partner at law firm, Clyde & Co.

Swangard adds that Ukrainian traders are aware that it is not only in their interests but also in the interests of producers to keep trade moving. Producers in particular need to maintain trade in order to finance spring field works and Ukrainian banks are particularly keen to support short term cash flows, he says.

Earlier this month, ratings company Standard and Poor’s downgraded Ukraine further into junk territory by one notch to CCC. The moved reflected political risk and the ensuring uncertainty as to whether Ukraine would still be the beneficiary of Russian financial support throughout 2014.

Without Russia’s help Ukraine would be hard-pressed to pay back its debt to international creditors. S&P says Russian financial support would be linked to the political survival of President Yanukovych, However last week [February 22], Yanukovych was ousted from office, and he fled Kiev, and has subsequently disappeared. A warrant has been issued for his arrest by Ukraine’s interim government.

Political and social upheaval toppled Ukraine’s government earlier this week, but banks were becoming increasingly reluctant to finance new deals much earlier because of ongoing political instability. Deadly clashes in Kiev have left over 80 people dead.

“We are supporting a higher number of small transactions to support SMEs and private companies that are not able get funding from foreign commercial banks and we will continue to do business on a case-by-case basis,” Rudolf Putz, deputy director financial institutions at the European Bank for Reconstruction and Development tells GTR.

“The cost of trade finance has gone up, but we will still invest in stable companies that are trading regionally and producing goods for local consumption, these businesses are generally stable and have a good credit standing,” says Putz.
He adds that the EBRD is seeing many transactions that were previously financed from foreign commercial banks, but that clients are now looking at the EBRD for guarantees because the bank can assume the kind of risk that commercial banks cannot.