Ukraine’s banking sector is in much better shape now than it was four years ago, before the National Bank of Ukraine cleansed the sector of half of its banks, leaving less than 100 institutions.
The liquidated “pocket banks” were cash cows for corruption — the owners of the banks were also the owners of the companies that the banks financed, using the money of depositors. Many of these loans were never paid back, with taxpayers on the hook for at least $20 billion in losses.
The most striking case involved Ukraine’s largest bank, PrivatBank, which was formerly owned by billionaire oligarchs Ihor Kolomoisky and Gennadiy Bogolyubov. The two allegedly siphoned off $5.6 billion from the bank to fi nance their business empires. The pocket banks eventually went insolvent, declaring bankruptcy when the institutions could no longer sustain the fraud.
The economy is suffering the consequences. The money that fueled corruption would have been better spent on productive investments in Ukraine. It wasn’t, and so the economy is still struggling, forcing millions of Ukrainians to look for better lives abroad.
The sector is finally moving in the right direction, yet obstacles remain to increased lending. Much remains to be done to restore trust. Many simple financial transactions are still tangled in red tape, and smaller businesses, operating on tight margins, are especially hurt.
In this issue, we take a look at the practical problems faced by these people – problems with money transfers, an unstable exchange rate and difficulties importing and exporting goods and services.
The National Bank of Ukraine and administration of President Petro Poroshenko should be at the forefront of solutions, yet change is agonizingly slow. For starters, state-owned banks, which make up half of the assets of the banking sector, should face quick privatization.
The central bank still has some “weeding out” of weak or suspect banks. The successful transformation of Ukraine’s banking sector is crucial for Ukraine’s economic growth. Banks are the nation’s financial arteries. They have to be healthy, ensuring the swift, efficient and effective circulation of capital.
