Banking System and Major Banks in Ukraine

Introduction

Ukraine has two-tier bank industry which consists of the central bank – the National Bank of Ukraine and commercial banks. The National Bank of Ukraine (NBU) is responsible for ensuring of stability of the national currency Hryvna (UAH) and determining monetary policy of Ukraine. Commercial banks are subject to the NBU licensing, operate under the authorization and supervision of the NBU, and are governed by its regulations.

Whether you are doing business in Ukraine or want to open bank account for your investment or personal needs, it is extremely important to choose the right bank. Due to lack of stability in Ukrainian economy, one of the key criteria should be bank’s financial stability. However such factors as bank’s division network, qualified stuff, reasonable commission rates and flexible internal regulations have to be taken into account.

This article provides overview of Ukrainian bank system and information on major banks acting in Ukraine.

Overview

Ukrainian Bank system has two levels:

  • Ukrainian Central bank – the National Bank of Ukraine (NBU)
  • Commercial banks

Whereas the NBU is a state regulatory body, authorized to conduct monetary policy in Ukraine, supervision and control over commercial banks, the commercial banks provide banking services to customers.

All the banks are subject to the NBU licensing and supervision. In addition, all the banks are members of the Deposit Guarantee Fund of Ukraine, which guarantees deposits (money on current, deposit accounts) up to 200,000 UAH per person in case of insolvency of the bank. The deposits of legal entities are not guaranteed by the Deposit Guarantee Fund. The Oshadbank is excluded from this fund, as Ukraine guarantees its deposits directly according to art. 57 of Law of Ukraine “On Banks and Banking Activity”.

Additionally, on the 20th of December, 2016 Ukrainian Parliament has adopted law on 100% guarantees of retail deposits in all the state banks (including Ukreximbank and Privatbank).

Below you can find information on the role of the National Bank of Ukraine, statutory banks’ requirements as well as overview of key banks, operating on the territory of Ukraine.

National Bank of Ukraine (NBU)

The National Bank is responsible for securing stability of national currency Hryvna (UAH), maintaining the stability in the banking system and price stability.  Among main functions of the NBU are the following:

  • determining and implementing the monetary policy of Ukraine
  • issue of the national currency of Ukraine on a monopoly basis
  • acting as the creditor of last resort for banks and to organizing the refinancing system
  • exercising the foreign exchange regulation, establishing the procedure of performing transactions in foreign currency
  • organizing and exercising foreign exchange control over the banks and other financial institutions
  • regulating activities of the payment and settlement systems in Ukraine
  • determining the procedure and forms of the payments, including at interbank level
  •  exercising banking regulation and supervision
  • licensing of banking and others

The highest governing body of the NBU is the 9-member Council. Four members are appointed by the Ukrainian Parliament (Verkhovna Rada) and another four – by the President. The Head of the National Bank of Ukraine is nominated by the President and appointed by the Verkhovna Rada, acts ex officio as the 9th member of the Council. The Council is responsible for developing the principles of monetary policy of Ukraine and control over their implementation. Since 19th of June, 2014 Valeriya Hontaryeva is head of the National Bank of Ukraine.

Over the last several years due to economic crisis in Ukraine and significant fall of Ukrainian Hryvnia, the National Bank of Ukraine has been tightly regulating currency market of Ukraine with strict temporary measures which blocked foreign currency and foreign investments outflow from Ukrainian economy. In spring of 2016 National Bank of Ukraine has declared gradual elimination of strict currency control rules and by now has already terminated/eased number of currency control restrictions. Nevertheless, currency controls in Ukraine is still very strictly-regulated. A lot of temporary anti-crisis restrictions, aimed to decrease out-flow of currency from the country, are effective.

Among others, restrictive measures of NBU are aimed to ensure bank’s stability. Among others, it is temporary prohibited for the banks pre-term repayment of subordinated loans to non-residents unless repayment is made with the purpose of increase of share capital for the respective amount. Some of foreign capital banks has already converted their subordinated loans to share capital for the last several years. Additionally, banks which violate the NBU economic normative dimensions, are obliged to follow restrictions of the NBU as prescribed in Regulation # 129 as of 24th of February 2015, for example prohibition of pre-term repayment of deposits to essential bank’s owners, prohibition to pay dividends or distribute profit etc.

Commercial Banks in Ukraine

Commercial banks are engaged in granting loans to businesses and individuals, cash transfers and payment services, currency exchange, and other banking transactions and services. Most of banking services are available in Ukraine, however, many of Ukrainian banks significantly reduced crediting over the last several years due to high level of inflation and economic instability in Ukraine. Nowadays most of Ukrainian banks move towards implementation and constant development of internet banking services.

In Ukraine there are 98 banks (as of December 01, 2016), including 3 state-owned banks (the Savings Bank (Ощадбанк), the Ukrainian Export-Import Bank (Укрексімбанк) and recently nationalized Privatbank) and two more banks with state share (Ukrgazbank, PJSC “Rozrakhunkovyii Tsentr”). There are 25 banks with controlling share of foreign Bank Groups and 13 banks which assets are more than 0,5 % of banking system.

Banks may be incorporated as public joint stock company or cooperative bank. Commercial banks require a license from the NBU to operate. The NBU establishes requirements for capital adequacy, minimum statutory capital requirements and minimum regulatory capital requirements. Banks are obliged to disclose and publish wide scope of information, including information on available bank’s services, financial reporting, bank’s governing bodies, ultimate beneficial owner(s), related parties, shareholders with more than 10 % of share capital, bank’s divisions network and others.

Capital Requirements to Banks

In accordance with Law of Ukraine “On Banks and Banking” at the time of registration Ukrainian bank is obliged to have UAH 500 mio share capital (approximately USD 20 mio). The NBU establishes requirements as to minimum ratio coefficient of basic capital to total Bank’s assets as well as regulatory capital to Bank’s obligations.

Banks, which obtained bank license after 11th of July, 2014, have to ensure regulatory capital minimum in amount of UAH 500mio, whereas those who obtained license before 11th of July, 2014 have to ensure their regulatory capital in amounts under the schedule:

UAH 120 mio – by 17th June, 2016

UAH 200 mio  – by 11th of July, 2017

UAH 300 mio – by 11th of July, 2018

UAH 400 mio – by 11th of July, 2019

UAH 450 mio – by 11th of July, 2020

UAH 500 mio – by 11th of July, 2024

Today, Ukraine’s banks are required to prepare accounts based on International Financial Reporting Standards (IFRS) and publish it on regular basis. In addition, Banks are subject to mandatory annual external audit.

Choosing a Bank

Overview of major banks in Ukraine

When opening a personal bank account or business bank account in Ukraine, it is extremely important to opt the most suitable bank for you. Choosing wrong bank may lead to difficulties in day-to-day operations, delays in settlements with counter-parties, costly and time-consuming interactions with the bank or even huge losses in case of bank’s insolvency.

First of all, due to instability of Ukrainian banks’ system and frequent insolvency of Ukrainian banks (including big ones), one of the key criteria should be bank’s financial situation. Over the last several years the National Bank of Ukraine was working at reformation of bank system of Ukraine and only in 2015 twenty nine banks in Ukraine were recognized by the National Bank of Ukraine as insolvent and already twelve in 2016. Therefore while choosing a bank, you should check information on banks with insolvency proceedings and at the stage of liquidation. Note that some Ukrainian banks have aggressive marketing policy as well as wide spread division network, however their loan portfolio can be quite poor.

According to report, published by the National Bank of Ukraine as of 1st of July, 2016 (based on bank’s financial returns), the following banks are top 15 under capital base criteria:

  1. Privatbank (state-owned)
  2. Oschadbank (state-owned)
  3. Ukreximbank (state-owned)
  4. Ukrgazbank (state-owned for more than 90 %)
  5.  Raiffeisen Bank Aval (Austrian Capital, Raiffeisen Bank International AG)
  6. Ukrsotsbank (ABH Holdings S.A.)
  7. Sberbank (Russian Capital, International Sberbank Group)
  8. Ukrsibbank (French capital, Paribas Group)
  9. PUMB (Ukrainian capital, SCM Group)
  10.  Alfa-Bank (ABH Holdings S.A.)
  11. Prominvestbank (Russian capital, owned by Russian state Corporation “Vnesheconombank”
  12. Credit Agricole Bank (French capital, the Credit Agricole Group)
  13. OTP Bank (Hungary Capital,  OTP Bank Plc.)
  14. VTB BANK (Russian capital, VTB Group)
  15. CitiBank (American capital, Citigroup Inc.)

The leader in banking area is Privatbank, which is the largest not only by capital base criteria, but also holds the most deposits from Ukrainian population. Privatbank has wide-spread banks divisions, numerous bank products and very well-developed internet banking base. Note that based on the report of the NBU as of 1st of October, 2016, 52,24 % of all loans of Privatbank were ranked as 3-5th risk category (3rd group – essential risk group, 4 th group – high risk risk group and 5 the group – realized risk group).  In addition, this bank currently has the biggest loan portfolio from the National Bank of Ukraine – UAH 21,087,303,000.  Recently Privatbank was nationalized. On the 18th of December, 2016 the Cabinet of Ministers of Ukraine has adopted decision on nationalization of Privatbank to stabilize banking system of Ukraine and defend state interests.

The NBU publishes statistical information on banks (based on financial reporting), but does not make official ratings of banks; all the ratings are made by private institutions under various criteria. According to Forinsurer Rating, in Ukraine the most reliable banks are the following:

Among these 15 banks 3 are state-owned banks, one with Ukrainian capital and all the others – foreign capital banks.

Traditionally big part of foreign capital banks in Ukraine occupied Russian capital banks. In 2013 their share in financing of Ukrainian economy amounted 12 % from its total financing (Russian subsidiaries mostly financed Russian businesses in Ukraine). Over the last three years due to annexation of Crimea by Russia and war in the East of Ukraine, there has been essential outflow of clients from Russian subsidiaries in Ukraine. In 2015 Ukrainian Government has terminated securities trading licenses of all the banks, which are controlled (have decisive impact) by Russia. In addition, U.S. Treasury Department OFAC has imposed number of restrictions on some of Russian banks, including their Ukrainian subsidiaries Prominvestbank, VTB and Sberbank (however due to sectoral scope of the above-mentioned OFAC sanctions, they did not make huge influence on activity of these banks in Ukraine).

Taking into account the above-mentioned, in our opinion the best is to choose one of the banks, owned by reputable European Bank Group. Among European banks leaders are Raiffeisen Bank Aval, Ukrsibbank, Credit Agricole Bank, OTP Bank, CitiBank, Credobank, ING BANK and some others. Note that some of these banks do not work as retail banks and are oriented only on large companies (for example Citibank).

In addition, when choosing a bank you should pay attention to bank’s branch network, internet banking facilities, commissions and fees rates of the bank as well as level of bureaucracy in the bank. Unfortunately lack of flexibility of many Ukrainian banks leads to costly and time-consuming procedures necessary to complete daily banks operations. Additionally, due to very dynamic change of Ukrainian legislation, especially the NBU regulations, some bank’s officials just do know current legislation or do not bring the bank’s internal proceedings in compliance with the law changes.

Summing It Up

 

In Ukraine there is large scope of commercial banks (currently there are more than 100), however it is not easy task to choose suitable bank for you. Low level of stability of Ukrainian banks system and lack of effective regulatory mechanisms from the NBU caused numerous insolvency proceedings during the last economic crisis starting from 2013.
Over the last years NBU is gradually decreasing number of banks is Ukraine and increases capital requirements for the banks. Currently there are a lot of restrictive measured aimed to stabilize bank system and economy as a whole. Due to instability of Ukrainian bank system and strict currency controls, in Ukraine there is very low level of trust to banks among population.

According to the NBU, Ukrainian bank system started to recover in 2016 and starting from May of 2016 banks show tiny but positive financial results. Starting from Spring, 2016 the NBU has started gradual elimination of restrictive measures, the next upcoming review is scheduled for September, 2016.

While choosing a bank, it is necessary to check its financial situation as well as pay attention to bank’s branch network, internet banking facilities, commissions and fees rates of the bank and level of bureaucracy in the bank. In the current situation, the reasonable solution would be choosing a bank among members of reputable European bank group. Among European banks leaders in Ukraine are Raiffeisen Bank Aval, Ukrssibbank, Credit Agricole Bank, OTP Bank, CitiBank, Credobank, ING BANK and some others. Note that some of these banks do not work as retail banks and are oriented only on large companies.

 

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