OVERVIEW BY SECTOR
BANKING & FINANCIAL
THE BANKING SECTOR. THE CURRENCY CONTROL
REGIME. THE ANTI-MONEY LAUNDERING SET-UP.
By Calyon Bank Ukraine
BANKING SECTOR • Ukraine has about 181 active banks (Russia: 1300).
Two are state-owned: the savings bank - Oschadny
• This report is based on data provided to the National Bank and UkrExImbank, previously named Vnesheconom-
of Ukraine (NBU) by the banks, as of 30 September 2008. bank (VEB) - External Economy Bank. As of 30 Sep-
tember 2008, state banks constitute only 8% of the
• Early October 2008, as a consequence of a raiders’ attack assets and the 6.6% of capital of the banking system
on Prominvestbank (PIB) and a massive run on its depos- of Ukraine.
its, the National Bank of Ukraine had to provide funding
and to takeover the management of this bank. In addition • Based on 30 September 2008 figures, western capital
the international financial crisis did hit Ukraine at the same controls more than a quarter (±30%) of the capital of
time and raised further worries about banks. Other runs the Ukrainian banking sector, and ± 33% of its assets.
took place, the interbank market dried up and, at the initia- If one adds CIS and offshore owned banks, such pro-
tive of the bankers, those events necessitated the set-up portions amount to 43% and 47%. Those banks rely
by the Regulator of harsh measures, including the ban to heavily on foreign funding, especially for the western
withdraw a deposit before its maturity, the freeze of hard banks, funded by their group. Global foreign funding
currencies’ loans outstandings, for what is lent to non-ex- of banks is in the ± 35 bn USD at the end of 2008,
porters (i.e. individuals and non-exporting corporations). with the majority of it provided to western banks.
• Such quick fixes, the measures taken by the authorities • Historically, Credit Lyonnais Bank Ukraine, now
and, as a consequence, the support provided by the IMF Calyon Bank Ukraine, came in 1993. Six other
to Ukraine, have led to a stabilization of the market early western banks came during the late 1990s: ING,
November 2008. Citibank, Raiffeisen, HVB, Unicredito and PKO.
If ProCredit Bank Ukraine started in 2001, as
• This document, based on data as of the end of the 3rd MicroFinance bank, the recent wave started in 2005:
quarter 2008, is thus to be considered as a snapshot, at SEB purchasing Bank Aggio, Raiffeisen purchasing
that time, of such banking sector in Ukraine, after 10 years Aval, BNPP purchasing 51% of UkrSibbank, Credit
of quasi uninterrupted growth in a favourable environ- Agricole purchasing Index bank, OTP (Hungary)
ment, and /or as a basis of the further structural changes purchasing the “historical” Raiffeisen. 2008
that will be the consequence of the world crisis impact on acquisitions: Unicredito – UkrSots bank, Bank of
Ukraine, given its banking sector’s situation today. Cyprus – AvtoZAZ bank, Intesa – Pravex bank.
Table 1. Western owned banks, as of 30 September 2008 (USD/UAH rate – 4.8610)
Rank by Rank by
NameEng Group Country Assets, M$ Capital, M$
2 Raiffeisenbank Aval RZB Austria 10 812 2 1 178
3 Ukrsibbank BNP Paribas France 8 936 3 989
4 Ukrsotsbank UniCredit Italy 7 972 4 761
9 OTP Bank OTP Hungary 5 083 15 363
14 Forum Commerzbank Germany 3 402 14 395
20 Swedbank Swedbank Sweden 2 566 17 300
22 ING Bank Ukraine ING Netherland 1 778 30 153
23 Erste Bank Erste Austria 1 712 18 282
24 UniCredit Bank Ukraine UniCredit Italy 1683 28 168
25 Pravex Intesa Sanpaolo Italy 1 375 27 171
32 Kredobank Ukraine PKO Poland 1 018 47 80
35 Swedbank Invest Swedbank Sweden 895 33 123
39 Calyon Bank Ukraine Credit Agricole France 793 44 86
40 Citibank Ukraine Citi USA 757 35 116
41 Index-Bank Credit Agricole France 751 45 83
44 Procredit Bank ProCredit Germany 605 59 54
52 Volksbank Volksbank Austria 447 51 71
56 SEB Bank SEB Sweden 375 58 57
59 Home Credit Bank PPF Czech Republic 356 55 66
63 Faktorial SEB Sweden 300 64 44
86 International Mortgage Bank IMB USA 199 48 75
120 Plus-Bank Getting Holding Poland 105 75 34
155 Ikar-Bank Societe Generale France 44 155 13
174 Privatinvest PPF Czech Republic 19 167 11
• The past three years have been marked also by a mas- 10 banks account for 49% of these assets, and the
sive coming of regional and neighbouring countries banks top 50 account for 88%. (There is still a significant
with a business model dwelling on relatively cheap exter- number of “pocket banks”).
nal funding for further development of consumer, car and
mortgage lending. Such banks established presence via • Deposits of population, representing more than a half
2nd Tier banks like Universalbank (EFG Eurobank Er- of the bank deposits, amounted to USD 43 bn at the
gasias), Piraeus Bank (both – Greece), Credit Europe end of September 2008. A 25% growth over 9 months
Bank (Turkey), Russian Standard Bank (Russia). in 2008 to be compared to a 55% increase in 2007,
a 46% increase in 2006, a 76% increase in 2005 and
• Separate group is represented by leading Russian a 29% increase in 2004. In 1999 amount was USD
banks moving to Ukraine to follow their clients and 1bn only. Individuals in Ukraine are coming back to
touch the ground in retail business outside Russia. banks, after having experienced losses in the 1990’s.
Alfa-Bank, VTB Bank and Sberbank aim at reaching They still have for their savings no other choice but
the Top 10 list (Alfa – No.10, VTB – No.11 already) banks because of today’s quasi inexistence of other
and handle business of every kind and complexity. investment possibilities at other types of financial in-
stitutions or in other non-banks financial instruments
• Some Ukrainian banks have managed to attract capi- (quasi no mutual funds, no significant outstanding
tal from portfolio and venture investors changing also in life insurance products, very illiquid stock market,
the map of the industry (Delta – 50% Russian money) very illiquid fixed income market).
• Total bank assets: +/- USD 155 bn (9/2008), +/- USD • The loans to GDP ratio in Ukraine should be in the
119 bn (12/2007), +/- USD 67.4 bn (12/2006), +/- USD +/- 80% range at the end of 2008. Even if not yet at
49 bn (06/2006), +/- USD 42 bn (12/2005), +/- USD western European levels, such ratio did increase sig-
25 bn (12/04), +/- USD 19 bn (12/2003). Overall 6 nificantly over the last years. At the end of Septem-
times growth (USD) over the last four years. The top ber of 2008 loans to corporations in Ukraine reached
6 Uniting Leading Companies from over 50 Nations Across the Globe
Table 2. CIS and off-shore owned banks, as of 30 September 2008
Rank by Assets, Rank by Capital,
NameEng Group Country
Assets M$ Capital M$
10 Alfa-Bank Ukraine Alfa-Bank Russian Federation 4 824 9 514
11 VTB Bank VTB Russian Federation 4 211 11 484
16 KreditPromBank KreditPromBank Cyprus 2 911 19 273
26 VA Bank Kardan Group Israel 1 368 26 186
28 Universal Bank Universal Greece 1 274 37 107
33 Delta Bank Icon Private Equity Russian Federation 977 34 118
37 Sberbank of Russia Sberbank of Russia Russian Federation 802 24 217
38 Kyivska Rus Sharp Arrow Holdings Cyprus 802 56 63
43 BTA Bank BTA Kazakhstan 632 73 35
46 MorTransBank Marfin Popular Bank Cyprus 550 77 34
48 Renaissance Capital Renaissance Capital Russian Federation 534 83 31
50 BM-Bank Bank of Moscow Russian Federation 477 50 73
51 Piraeus Bank ICB Piraeus Bank Greece 471 40 97
53 Credit Europe Bank Credit Europe Bank Turkey 434 52 70
65 AvtoZAZbank Bank of Cyprus Cyprus 283 89 27
76 UBDP Bank of Georgia Georgia 232 79 34
83 Misto-bank Trasta Komercbanka Latvia 210 94 25
89 Petrokommerzbank Ukraine IFD Capital Russian Federation 190 82 31
125 Trust Russian Federation 95 124 17
135 Russian Standard Bank Russian Standard Bank Russian Federation 77 178 9
162 CreditWest Bank CreditWest Bank Turkey 31 152 14
169 Rada-Bank Russian Federation 23 179 8
USD 75 bn, after a 33% growth for the first 9 months no bullet proof possibility to hedge UAH interest rates
of 2008, after a 65% growth in 2007, and a 52% via UAH short-term interest rates derivatives). This
growth in 2006. Loans to individuals progressed even limits therefore the capacity of the banking sector to
faster: outstandings at the end of September of 2008 borrow/lend UAH at a fixed rate for one year and over
amounted to USD 42 bn, an amount multiplied by 6 tenors.
when and if compared to outstandings of December
2005 (USD 7 bn). • The banks’ funding in foreign currencies, i.e. USD
and EUR mostly, has, over time, developed signifi-
• The share of UAH loans and deposits which had been cantly. Historically, a few trade finance lines for up
in the +/- 60% for a few years declined today to 55%. to one year transactions where in place. Second,
Banks in Ukraine are prevented to have significant some Export Credit Agencies as Hermes, Sace,
foreign exchange positions against the domestic cur- Coface… accepted to open credit lines and later
rency, but individuals and corporations are not. The increased their potential exposures by taking up
very rapid pace of the development of the lending ac- to 7 years (now) equipment financing related hard
tivity having exceeded the pace of the development currency risks on some banks, (UkrEximBank, Raif-
of the availabilities in the domestic currency… banks’ feisenbank Aval, Prominvestbank, UkrSotsbank…)
hard currencies lending and borrowings increased From 2003 on, but for increasing amounts over
even faster - a situation that endangers the borrow- time, some top ten “big banks”, first, and, second,
ers, the lenders (banks) and thus Ukraine. 2nd tier banks succeeded to be funded for up to
one year tenors via the European syndicated loans
• Lending rates were at +/- 12 to 13% on average in market (USD 1.9 bn for 9 months of 2008, USD 4.0
foreign currencies (up), and at +/- 16% on average bn raised in 2007, USD 1.5 bn in 2006,). Exception:
in UAH (up), but below inflation, expected to be over early 2007 Raiffeisen Bank Aval raised USD 300 m
20% in 2008. The money market in UAH is not devel- (maximum amount) via a two years syndicated loan
oped (no UAH relevant T-bills issuance and activity, (the longest tenor). In addition, starting in 2003 also,
Ukrainian Banking System - Assets Growth
140,000 22,895 4. Venture and CIS
Assets, Mio USD
100,000 50,774 3. Western Capital
60,000 2. Ukr. Private
12,380 1. Ukr. State
2006 EO 2007 EO 2008 3Q
and so far only some banks from the top ten ones, • Cards: 62 m as of the end of September 2008 ver-
were able to tap the Eurobond market for up to USD sus 50m a year before. Visa and Master debit cards
350 m transactions and up to 10 years tenors (USD mostly, but 21 m of credit cards.
1.2 bn for 9 month of 2008, USD 6.4 bn in 2007,
USD 3.5 bn in 2006). • UAH “bonds”: for corporations, even if the “investors’”
market in Ukraine is quasi inexistent, there has been
• Depending on the tenor and on the counterparty, the a UAH corporate “bonds” development over the last
cost of such hard currencies funding in 2008 was years. Notes in UAH for up to 2 years are being pro-
from +/- 1% all in to +/- 5% all in (over LIBOR). The posed to investors, i.e. mostly local banks and non-
2008 worldwide credit crunch is impacting Ukraine, residents, notes issued by locally owned corpora-
including its banks, especially its non-western owned tions, including some banks.
portion. But for banks, because also of the tight regu-
latory environment, such consequences were so far • The consumer loans market “exploded” over the last
much less severe than for other CIS countries (Rus- years. For instance +/- 300 000 cars have been fi-
sia and Kazakhstan especially). nanced by banks in 2007 (60% of new cars’ sales).
Top players: Privatbank, DeltaBank, UkrSotsbank,
• Total equity of Ukrainian banks as end of September Prostofinance (a consumer finance company owned
2008 amounted to USD 18.9 bn, a 32% increase over by SocGen). Mortgage loans developed also at a fast
the first 9 months of 2008, after an increase of 63% pace, and 2 securitization deals have been conduct-
in 2007, and an increase of 70% in 2006. All banks’ ed so far (Ukrgasbank, UAH 50 m; Privatbank, USD
capital adequacy ratio slipped from 17% at end of 134 m). In both cases, consumer and mortgages, the
2002 to +/- 12% today, but has been stable over the majority of the financing is in hard currencies (USD
last 3 years. mostly). In the USD 42 bn loans to individuals out-
standings at end of 09/08, consumer finance repre-
• The banking sector is a +/- USD 10 bn per year busi- sents the biggest share. Cars were, so far, for a still
ness today: the turnover / net banking income (NBI) at to grow middle class, much more “affordable” than
banks in Ukraine, i.e. the addition of interest margins housing related borrowings.
on loans and deposits, of fees, of foreign exchange
and securities related gains amounted to USD 8 bn • The domestic clearing system is excellent. Ukraine is
as of 30 September 2008 (+ 2/3 over same period in a country where cheques do not exist and … trans-
2007). Total NBI 2007: USD 7 bn. Banks’ NBI versus fers are the rule.
GDP is in the 5% plus range. It is a high figure that re-
sults from intermediation costs that are still in the 6 to • If banks involvement in financing in the economy
7% range versus a 2-4% range in the western world. remains relatively low, expensive and should be im-
Such cost for the economy in Ukraine results from proved, the daily service provided by banks and es-
some deficiencies: weak, even if improving, legal en- pecially the long time established in Ukraine Western
vironment and enforcement capabilities, small size banks is good, cash management systems provided
of banks (i.e. economies of scale would help), high by such banks being up to date also.
structural costs… But the development of the banking
sector and of its NBI has been significant over the last • The National Bank of Ukraine regulates the banking
years. In addition, today banks in Ukraine are much activity, banks being subject to very significant con-
more profitable: as to the end of September 2008 the straints in their day to day activities, even if the NBU
banks’ net profit was USD 1.37 bn (2007 banks’ net enforcement capacity is not perfect. As highlighted
profit: USD 1.32 bn). by the NBU, the Banking sector is faced, mostly
8 Uniting Leading Companies from over 50 Nations Across the Globe
for its non-western owned portion, with challenges: are provided (before 29.10.2008 there were no limi-
fragmentation, capital adequacy, insider loans, tax tations in amount of wire transfer from individual’s
games, insufficient provisioning… bank account, if relevant documents confirming the
source of foreign currency were provided).
• For 10 years now the Ukrainian banking sector has de-
veloped at a fast pace, especially over the last 5 years. Above-mentioned restrictions do not apply to transfers
No significant failure did exist during those 10 years. related to medical treatment abroad, transportation of
The significant western banks presence today, espe- sick people; cash reimbursements related to death, ex-
cially in the retail banking area, will, within the next 10 ecution of court decisions; expatriation (moving out of
years, make such a sector globally efficient, because Ukraine) of Ukrainian citizens.
it will be much more industrialized and aligned with
the western best practices. But today’s world financial For more details, please ask your banker.
crisis, and probable recession to come, which would
impact a bit more Ukraine, will put a lid on the develop- For commercial operations/companies
ment of the Ukrainian banking sector, and could entail
a significant reshuffling of it over the next year or two. The following administrations are involved in the cur-
rency control process:
• Customs – it controls the export/import of goods and
In Ukraine, Currency Control is very strict and complex. valuables.
It is governed by laws and by regulations of the Nation-
al Bank of Ukraine (NBU). Since regulations change • Banks – authorised by the National Bank of Ukraine,
frequently, therefore, please consult your banker. control all operations and inform the NBU and State
Tax Administration (STA) in case of violations.
The purpose of Currency Control is to prevent the il-
legal export and import of valuables, goods, services, Main types of activities subject to Currency Con-
and the transfer of funds abroad, as well as to control trol and some key rules or constraints:
the timely settlement of payments for goods and serv-
ices under external trade contracts. • Export/import of valuables, goods and services:
For individuals Exporting companies should receive payment within
180 days after shipment of goods.
Import/Export of cash:
Importing companies can pre-pay 100% but should
Residents and non-residents may export and/or im- receive goods or services within 180 days (except for
port without declaration the equivalent of EUR 10 000. space related goods for which 500 days are set).
Amount exceeding equivalent of EUR 10 000 should
be accompanied with a written declaration. For • Capital market operations (sale/purchase by non-
amount exceeding EUR 10 000 the confirmation from residents of domestic securities; sale/purchase by
the bank evidencing that funds were withdrawn from residents of foreign securities; dividend payments
the individual’s account should be presented. abroad, etc.).
Funds @ disposal (possibility to withdraw cash wired • Non-resident UAH investments and divestments (divi-
from abroad without account opening): dends, sale of shares…) must be channelled via such
non-resident investment account at a bank in Ukraine
Disposable funds are limited per transaction and per and via a broker (banks usually have the latter capacity).
day to the equivalent of UAH 50 000 (applicable for
residents and non-residents). • Cross-border loans (loans granted by non-resident
• Currency purchases.
Wire transfers in foreign currency are limited to equiv-
alent of UAH 15 000 per month without account open- Main documents used to perform Currency Control:
ing as well as without supporting documents (before
29.10.2008 UAH 15 000 per day was allowed). For sales/purchases of goods – trade contracts, cus-
toms declarations, invoices.
Wire transfers in foreign currency are limited to the
equivalent of UAH 75 000 per month if made from For services (including royalties) – Contracts and doc-
current account and relevant supporting documents uments proving that services were provided. When
such services provided by same foreign supplier ex-
ceed equivalent of EUR100 000 it is required to obtain Following entities are involved in the state level of fi-
in addition from a designated state entity a certificate nancial monitoring:
on price relevance.
• central executive authorities and the National Bank
For capital market divestments incl. dividend pay- of Ukraine which, pursuant to the law, regulate and
ments – investment agreement and a document proving supervise the activity of legal entities engaged in fi-
that investment was made and registered in Ukraine. nancial transactions,
• State Committee of Financial Monitoring or Finan-
If shares are sold by a non-resident, or if a divestment cial Monitoring Unit (FMU): a more than 300 persons
originally was made in kind and the proceeds are to staffed central organ of the executive branch whose
be repatriated, an “estimation certificate” issued by a head is nominated by the President of Ukraine.
licensed Ukrainian appraiser is required. In addition,
cash divestments of investments made in kind must Financial transactions subject to compulsory fi-
have been made possible by a treaty between Ukraine nancial monitoring:
and divestor’s country.
A financial transaction shall be subject to compulsory fi-
For cross-border loans – loan agreement, NBU regis- nancial monitoring if its amount equals or exceeds UAH
tration notice, and local bank’s consent to service such 80 000 or its equivalent in foreign currencies and if such
a loan. financial transaction also has one or more of the specific
features stipulated in the Article 11 of the Law, i.e. if certain
For currency purchases – contracts, invoices and cus- objective criteria are being met, reporting is compulsory.
tom declarations as mentioned above. Purchased For-
eign Currencies must be transferred within five banking Financial transactions subject to internal financial
ANTI-MONEY LAUNDERING SET-UP IN UKRAINE 1. Nonstandard or complicated financial transaction
that has no evident economic sense or obvious le-
Anti-Money Laundering measures are regulated by the gal aim.
Law “On prevention and counteraction to the legaliza-
tion (laundering) of the proceeds from crime” of 28 No- 2. Noncompliance of financial transaction with the ac-
vember 2002, #249-IV. tivity of legal entity.
The Law specifically excludes tax crimes from the list 3. Repeated financial transactions, the nature of which
of crimes subject to it. Laundering in Ukraine is related gives to believe that their aim is to evade the proce-
to prostitution, drugs, arms, terrorism and other crimes. dures of compulsory financial monitoring.
This “understanding” of the Law is still not perfect, i.e.
authorities are inclined to include tax crimes also. Internal financial monitoring can also be applied to
other financial transactions, when entity involved into
The system of financial monitoring consists of two lev- initial financial monitoring has grounds to believe that
els: the initial and the state level. such financial transaction is aimed at legalization of
Following entities are involved in the initial level of fi-
nancial monitoring: Reporting to the FMU on a financial transaction subject
to internal financial monitoring is the result of an as-
• anks, insurance and other financial institutions; sessment which is based on subjective criteria.
• payment organizations, members of payment sys-
tems, acquiring and clearing institutions; ***
• commodity, stock and other exchanges; On 1 January 2006, changes to the previously men-
• professional operators in securities market; tioned Law came into force, in order to cover also the
• joint investment institutions; “terrorism” related activities. Based on a list provided
• gambling and pawn institutions and legal entities in- in October 2006, subjects of initial financial monitoring
volved in any kinds of lottery; are required to prevent for up to two days a financial
• enterprises, institution that manage investment funds operation to be executed, if a participant or beneficiary
or non-governmental pension funds; of a transaction is a person included in such list. The
• communication companies and associations, other FMU has the right to extend such time to up to 5 days.
non-crediting institutions that transfer funds;
• other legal entities that process financial transactions Subjects of the initial level of financial monitoring are
according to law. also obliged to “know their customers” and able to
10 Uniting Leading Companies from over 50 Nations Across the Globe
prove it. I.e. in their files there should be the evidence legalization (laundering) of the proceeds from crime”
that such entities, banks and other financial institutions has been approved in the first reading by Ukrainian
have identified, according to the identification rules pre- Verkhovna Rada on 25.09.2008. Said draft law in many
vailing in Ukraine, the ultimate/beneficiary owners of aspects respects international AML practice, as for in-
companies, including banks that are their customers. stance the addition of other sectors as law firms to be
subject to the initial level of the financial monitoring. But
*** it substantially increases the volume of transactions
After more than 5 years of implementation, the anti- that are subject to compulsory financial monitoring and
money laundering set-up in Ukraine resulted in about 4 mandatory reporting to the FMU.
m transactions being reported to the FMU by the entities
involved in the initial level of the financial monitoring. Also, it essentially enlarges the FMU authority in terms
of FMU requests for additional information sent to the
But a very low volume of judgments was rendered as a FMU and enables FMU’s inspections performed at the
consequence of such reporting (for example, 844 judg- entities involved in the initial level of the financial mon-
ments for 9 months of the year 2008). itoring. This is a questionable move for a country in
which counter powers need still to be developed and in
At the same time, a new Draft Law 3062 dated which the independence of State Regulators/ Supervi-
19.08.2008 “On prevention and counteraction to the sors still are questioned.