Long-overdue reform of the domestic banking sector is increasingly the objective of the business community in Ukraine, GTR has learnt, as international lenders continue to consider their exposure to risk in a market mired by war and in the midst of currency crisis.

In an exclusive interview, partner at Kiev-based law firm Egorov Puginsky Afanasiev & Partners, Roman Stepanenko, talks to GTR about a corrupt and ineffective business environment in desperate need of change.

“There are currently over 170 licenced banks in Ukraine and only a handful are involved in actual banking activity,” he says. “Most of them do not contribute to the development of Ukraine’s banking system, and we welcome the current intention of the regulator and the government to ensure that smaller banks with bad reputations don’t continue to be subsidised.”

“The key objective is for regulators to limit the number of banks actually licensed and to consolidate the sector around larger institutions, increasing efficiency.”

Stepanenko’s comments come after western multilaterals backed a reform programme set out by Ukraine’s banking regulator, the National Bank of Ukraine (NBU), this week.

NBU is currently running a package of measures aimed at improving corporate governance in Ukraine’s banks and strengthening the protection of creditor rights.

At the second meeting of the Vienna Initiative Ukraine Financial Forum, representatives from the International Monetary Fund (IMF), the European Bank for Reconstruction and Development (EBRD), the World Bank, the European Investment Bank and the European Commission, joined commercial and local private banking sector stakeholders in voicing their support for the NBU’s reform strategy.

According to deputy governor at the NBU, Oleksandr Pysaruk, the bank is currently running a package of measures aimed at improving corporate governance in Ukraine’s banks and strengthening the protection of creditor rights.

“Despite the challenging macroeconomic environment, the NBU is committed to the reform programme, developed as part of the 2020 banking strategy and the IMF-supported programme,” says Pysaruk.

In April this year, a group of lenders led by the IMF agreed to buttress the Ukrainian economy with US$27bn over the next two years, on the basis that the country would significantly cut public spending.

To date, Ukraine has reportedly received US$7bn: an insignificant amount given its current economic condition. The Economist reports that so far in 2014, decline in Ukrainian GDP has been twice what was anticipated by the IMF, with investors fleeing the country. The Ukrainian currency, the hryvnia, has decreased in value by half this year.

Financing trade
Whilst few banks have removed themselves from Ukraine altogether, Stepanenko has seen some international lenders restructure their trade finance activity in an attempt to avoid unnecessary exposure to risk, citing Raiffeisen, BNP Paribas and ING as banks that have, in some instances, curtailed lending to existing Ukrainian clients.

“Most corporates may not be seeing the level of proceeds that they were before this year’s crisis, but they’re still able to service their debts,” Stepanenko tells GTR. “We are seeing more capital flight and as a result we may see more foreign banks leaving, to the extent they’re able to, because in the adverse market conditions we now have it’s not an easy task.”