Reviving Ukraine’s Banking Sector: Further reforms crucial to attract much-needed FDI
Additional reforms across the Ukrainian banking sector can play a crucial role in consolidating the country’s strengthening economic recovery.
Ukraine’s banking sector has been severely impacted by the economic turbulence over the past 3 years. In 2016, however, the sector showed notable progress with a cleanup of the banking system. In addition to significant IMF support, positive developments included the cancellation of mandatory registration for foreign investments, gradual relaxing of foreign currency control measures, and positive moves for the liberalization of cash payments and initial measures for allowing repatriation of dividends.
Disappointingly, Ukraine has been unable to attract significant levels of Foreign Direct Investment (FDI) in recent years. The lingering pace of reforms, a weak judicial system, insufficient protection of creditors’ rights, and the country’s blurred international image have been major obstacles to enticing FDI.
Unrestricted repatriation of dividends by foreign investors and relaxation of foreign currency control by the National Bank of Ukraine (NBU) would help to boost economic development. Currency liberalization is a set of well-defined actions that would lead to the improvement of the economic situation in Ukraine. This would contribute to the ease of doing business in Ukraine, which would help to draw foreign investors.
Based on the Currency Liberalization Survey conducted among AmCham Member companies, the Chamber’s Banking and Financial Services Committee developed 10 Key Steps of Immediate Liberalization of Currency Regulation. These include the adoption of Resolutions of the NBU, and realistic deadlines for their implementation. Among the most important steps are the repatriation of unrestricted dividends, cancellation of mandatory currency sale, free transfer of funds from the sale of shares, corporate rights or other assets, and the prohibition of the foreign currency purchase if the resident has currency on his/her accounts.
Creditors’ Rights Protection
Ukraine has deficient protection of creditors’ rights. In order to fix the problem a powerful legislative framework would ensure decent protection of creditors’ rights and resumption of lending. In turn, this would renew confidence in the banking system. It is imperative to restart lending to small and medium enterprises. This is fundamental for the country’s economic recovery and the creation of new jobs.
The adoption of the relevant legislative framework on protection of creditors’ rights, in particular Draft Law #6027 “On Amendments to Some Legislative Acts of Ukraine on Increasing Trust between Banks and Their Customers” dated March 3, 2017, would benefit both consumers and creditors, protecting consumers against violation of their rights while boosting the investment potential of Ukraine.
Recovering Ukraine’s Lending
The American Chamber of Commerce in Ukraine remains committed to being a reliable partner of the Government and other stakeholders in the process of the country’s economic recovery and development. Additionally, in the banking and financial sphere, our efforts will focus on facilitating the development of financial instruments such as financial restructuring legislation, factoring and leasing. We are determined to contribute to the establishment and development of a competitive environment for banking and other financial services.
In order to transform today’s emerging positive economic trends into a sustainable economic recovery, we will continue actively supporting Government institutions and Ministries by providing our proposals and expert recommendations.
Strong economic recovery, in its turn, together with the return of lending in the banking sector, will expedite a rapid increase in Foreign Direct Investment and continuation of the important reforms in banking and finance sector that have started, but which still require significant further efforts to be successfully completed.