“Our financial sector is the area that is developing the most rapidly,” says Aequo Partner Yulia Kyrpa of the situation in Ukraine, although she admits there are still challenges ahead.
Kyrpa says that the abolishment of foreign currency restrictions earlier this year is part of a promising pattern, following 2014 reforms to the banking sector and a 2017 Association Agreement with the EU. “The change in the Foreign Exchange law was designed to remove barriers between foreign trade transactions and lending transactions in dividend payments for foreign companies present in Ukraine,” she says. In addition, she adds, the requirement that individual licenses from the National Bank of Ukraine be obtained for certain transactions was also eliminated.
According to Kyrpa, other instruments “broadly used in the West” have been adopted. Among them is a debt-to-equity swap – a new instrument in Ukraine that will let foreign investors lend funds to companies and convert them into equities.
In another change, agrarian receipts will, going forwarded be implemented in an international format. “In the past, these receipts could be used only between residents, while now they can be used between residents and non-residents,” Kyrpa explains.
Still, despite these changes, Kyrpa notes that some procedures in Ukraine remain more challenging than in the West. For example, she says there are still “heavy” requirements for reporting on foreign exchange transactions from Ukraine to abroad, which she believes are designed to limit the outflow of currency from Ukraine to other countries. She is hopeful, however, that these restrictions will be abolished within few years as well, making Ukraine “completely integrated within the Western financial market.”
When it comes to current challenges, Kyrpa says that although the reform to the banking sector was completed in 2017, there are still many distressed debts in the system. The challenge, she says is “to dispose of such distressed debs and make sure that banks that remain in the system operate prudently.”
Further, she says, the consumer lending segment that became stagnant due to the recent crisis has started expanding. Kyrpa reports that the National Bank of Ukraine has created a pilot project, “Go FinTech,” including the establishment of an expert council for direct communication with companies and banks attempting to implement FinTech solutions. She explains that, as a result of the project, “each FinTech solution suggested by market participants can be considered for adoption in Ukrainian legislation.”
Moreover, Kyrpa says, the NBU has partially implemented Remote Bank ID, allowing banks to identify customers without requiring their physical presence. “It is a significant development, prescribed by the EU Directive on Payment Services Directive 2,” she says, noting that the measure has been well-received by banks. Once fully-implemented, Remote Bank ID is expected to allow banks to provide almost all services online. First, though, she says, “it is necessary to bring other pieces of legislation in line and for the banks to develop their internal procedures to implement the regulation in full.”
Overall, Kyrpa says, for the first time in years Ukraine is financially stable, despite the tension in the country related to this year’s presidential and parliamentary elections.