Banking & Finance
Serhiy Yaroshenko
Ukraine boasts a positive sovereign credit rating from the world’s Big Three credit rating agencies. It has adopted a series of comprehensive reforms aimed at deregulation, introduction of corporate governance, and enabling domestic and foreign capital more affordable, as well as cultivated partnership-based relationships with the IMF, the World Bank Group, and the EBRD. As the banking sector has undergone serious "cleaning" and stiffer prudential regulation subject to gradual relaxation, there have emerged more opportunities for good-faith players to develop their business. As evidenced from several ongoing deals subject to completion and pending regulatory approvals, the banking M&A activity is on the rise.
Banks, insurance and financial companies have played a pivotal role in transforming Ukraine’s economy into a stable market.
Following the stringent "cleaning" measures undertaken by the central bank, Ukraine’s banking sector has become significantly more secure. Through consistent cooperation with the international financial institutions (IFIs), as well as introduction of measures seeking to protect creditors’ rights, as well as expand debt financing options for the sovereign and corporates, including by securities issues, the country has managed to accumulate solid international reserves, lower interest rates and inflation, and stabilise its macroeconomy.
The 2019 marked the revival of the banking M&A with the ongoing sale of full shareholding in a Ukrainian branch of a foreign bank, preceded by a series of high-stake acquisitions earlier.
Despite the business slowdown and global coronavirus recession, the momentum continues in 2020, with another deal being in the process of completion where a domestic investor is to acquire controlling interest in a Ukrainian bank, and some other banks remaining to be considered for sale. Also, the country has been actively using debt finance tools, including domestic government loan bonds, issued in US$ and Ukrainian local currency (UAH), to raise affordable capital for debtors and to secure macro-financial stability. Investing in government bonds appears feasible in view of applicable tax exemptions and other favourable conditions enabling investors to stay flexible and make good yields. In May 2020, the issued UAH government bonds topped an equivalent of US$ 1.6 billion, while the issued US$ government bonds exceeding US$ 200 million.
Gaining access to the Ukrainian financial market brings worthy investment opportunities, especially in view of the eased regulations, and effective mechanisms aiming to protect investments. Among others, through shareholdings in Ukrainian banks investors will be able to recover private farmlands from bad faith debtors and sell those at auctions later.
Nowadays, setting up a bank in Ukraine, which would secure smooth operation of your financial holding, requires depositing of mere US$ 7.5 million. At the same time, buying an existing bank appears feasible at a reasonable price, too.
The sector’s investment attractiveness is premised on the lack of serious competition between domestic investors due to their limited financial capabilities, and the stability of the financial market. The latter has been achieved through countrywide reforms, including:
- rehabilitation of the banking sector;
- enhancement of the corporate governance and protection of investors' rights;
- alignment with the European standards of domestic laws governing securities issue and disclosure of information on Ukrainian stock markets;
- optimization of state regulation and supervision of non-banking financial institutions. Starting 01.07.2020, the country’s Central bank will be regulating the banking and non-banking markets, and will be exercising consistent policies on their regulation;
- introduction of transparent tools for sale of insolvent banks’ assets (property), in particular through an online trading system Prozoro.Sale;
- introduction of the concept of a nominal securities account holder aimed to ease investing in Ukraine;
- introduction of a unified concept of licensing in the of non-banking financial service markets;
- increase of insurers’ assets liquidity, diversification and profitability;
- adoption of Strategy 2025 that seeks to secure more transparent and sound financial market, as well as promote the country’s sustainable growth, including through implementation of binding international instruments.