The Ukrainian Bank System

The Ukrainian banking system is small. The total capital of all commercial banks was about 3 per cent in 1997, Compared to about 40 per cent in Central and Eastern European countries, and over 80 per cent in the advanced economies. The National Bank of Ukraine is the central bank. At the beginning of 1998, there were 277 commercial banks in Ukraine, of which 186 were actually in operation. Some 21 of these banks were in various rehabilitation programs and 44 were marked for liquidation by the NBU.

The “banks-banks” system was the system of the “first wave” in former Soviet banks.

New commercial banks are banks of the “second wave”. Foreign banks are banks with 100 percent foreign capital.

The system banks are: Oshchadnyi Bank, U’krEksImBank, Prominvest Bank, Ukrsotsbank, Ukraina Bank and the Agricultural Bank. Oshchadnyi Bank and U’krEksImBank are still state-run; the others are private with minor stakes held by the government. These 5 former Soviet banks dominate the Ukrainian banking system, accounting for 46% of all banking system capital and 48% of total assets.

The bank system is generally slower than the new commercial banks to adopt new types of banking activities in order to meet the requirements of a market economy. Nevertheless, it gives its superior financial resources. They have been able to acquire, albeit selectively, new methods of operation, new activities, and more qualified management. These banks continue to work with state organizations and enterprises and serve social needs. They are serious competitors for the new commercial banks: in 1997 bank system extended 47% of total lending and took 51% of all deposits.

New commercial banks of the “second wave” did not grow from the old structures. Many of them are too small to be stable in early 1998, about 75 banks had less than 1 million of dollars in statutory capital. There are also large banks that can

offer true banking services: 8 of the new commercial banks have more than 20 million in statutory capital, accounting for 20% of total statutory capital and 26% of total banking system assets. About 45 banks’ capital is 6 to 20 million, accounting for 31% of total capital.

Banks of the second wave are growing rapidly and expanding their activities, though constrained by a shortage of capital. Their main clients are collectively owned enterprises, including small businesses. At the beginning of 1998 there were 7 banks consisted of foreign capital: CS First Boston Ukraine, Society General Ukraine, Credit Lyonnaisse, Incombank Ukraine, Bank Kredytowo-Depozitowy, Kreditanstalt Reiffeisen Bank, and 1NG Barring Ukraine. The share of foreign capital in total of the Ukrainian banking system by early 1998 had reached 12%. Foreign capital also enters into the Ukrainian banking system as partial ownership. In August 1997, there were 13 banks with partial foreign participation; by February 1998 there were 22. Although foreign banks usually restrict the range of their clients to joint ventures and foreign firms operating in future.

The Ukrainian Bank System