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Ukraine’s banking sector: still very weak, but some signs of improvement

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Ukraine has been undergoing a reform process, and the banking sector is certainly among the areas that have seen remarkable progress. The authorities started to tackle related-party lending (a long-standing structural impediment), resolved many undercapitalized banks and managed to restore a degree of confidence in the sector, as witnessed by the stabilization of deposits. As part of the banking sector clean-up, the country’s largest credit institution was nationalized. This step contributed to considerable changes in the ownership structure, with the share of the state in total assets rising to about 50%. After the severe recession of 2014–2015, macroeconomic stabilization achieved with international support in 2016, if sustained, could pave the way for a resumption of lending. Yet, nonperforming loans (NPLs) have skyrocketed, credit risk is still very high, related-party lending is still a problem, resistance to reform remains stubborn, and economic recovery fragile, subject to political uncertainty. Further sound economic policies, progress with structural reforms (in particular with regard to the rule of law and corruption) and efforts to reduce NPLs appear essential to make a sustained banking recovery possible.

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  • Stephan Barisitz & Mathias Lahnsteiner, 2017. "Ukraine’s banking sector: still very weak, but some signs of improvement," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 33, pages 69-77.
    • Handle: RePEc:onb:oenbfs:y:2017:i:33:b:2
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    File URL: https://www.oenb.at/dam/jcr:77ec635e-e461-49c6-958b-066b7a9d792d/07_Barisitz_Lahnsteiner_fsr33.pdf
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    1. Stephan Barisitz & Zuzana Fungáčová, 2015. "Ukraine: struggling banking sector amid substantial uncertainty," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 29, pages 72-92.
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    Cited by:

    1. Mathias Lahnsteiner, 2020. "The refinancing of CESEE banking sectors: What has changed since the global financial crisis?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/20, pages 6-19.

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    More about this item

    Keywords

    banking sector; geopolitical risk; credit risk; related-party lending; pocket banks; nonperforming loans; recapitalization; IMF; Ukraine;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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