Despite wartime challenges, Ukraine is accelerating reforms to bring its banking and insurance sectors in line with EU standards by 2028 to boost investor confidence and deepen economic integration with Europe, the head of Ukraine’s central bank said.
The European Union launched formal negotiations with Ukraine on Monday, opening the first of six topics in the EU accession negotiations, covering justice, rule of law, public procurement and financial controls.
Ukraine hopes to open other areas for negotiations later in the summer.
“We have a massive European integration plan,” Governor Andriy Pyshnyi told Reuters. “We believe that war and the transformation we are experiencing do not mean we should slow down. Rather, it means we should use it to accelerate progress.”
Despite the shock of Russia’s February 2022 invasion, the banking system successfully withstood many challenges during the war, from changing economic conditions to blackouts and cyber threats.
Currently, the company is profitable, stable, and liquid, with nonperforming loans near historic lows. Pišny said banks are well capitalized and the central bank is actively seeking to implement the reforms needed for EU integration.
He said that Ukrainian banking regulations are currently about 78% compliant with EU regulations and requirements, up from about 50% before the invasion.
The level of consistency in the insurance industry is lower, at around 55%. Pishny said the central bank is overhauling Ukraine’s insurance industry to make it more transparent, stable and attractive to investors.
seeking foreign investment
For Ukrainian bankers and insurance companies, compliance with EU regulations is crucial as the country seeks to attract billions of dollars in foreign investment to recoup wartime losses.
The EU is Ukraine’s main ally, providing it with most financial and military support, and is Kiev’s main trading partner. In June 2022, four months after Russia’s full-scale invasion, the EU granted Ukraine candidate status.
President Volodymyr Zelensky is pushing hard for Ukraine to quickly join the European Union, seeing it as part of broader security guarantees needed to end the war.
Pishny said the central bank is working on an ambitious legislative program that includes more than 50 new laws and legal bills that will strengthen Ukraine’s financial framework to meet EU standards, while officials are also developing policies to enhance capital adequacy and operational resilience.
He said Ukraine’s economy shrank by nearly 30% in the first year of the invasion, but recovered by about 10% in subsequent years. Private capital will be key to helping the country rebuild, he added.
Rebuilding will cost nearly $588 billion
The government and the World Bank estimate that recovery and reconstruction in Ukraine will cost nearly $588 billion over the next decade.
Pishny said international financial assistance will reach $53 billion this year, $42 billion next year and $22 billion in 2028.
“In other words, if security risks are reduced, the amount of international financial assistance will be reduced,” Pishny said.
“We need private capital. And private capital needs infrastructure,” he said, adding that officials were also working on new legislation to jump-start Ukraine’s stock market.
The International Monetary Fund, one of Ukraine’s main international lenders, last week completed its first review of the country’s $8.1 billion loan program, paving the way for a second $690 million loan package. The IMF board is expected to finalize the deal next month.
Pišny said the central bank also continued to lift wartime foreign exchange restrictions to support the economy, businesses and new investment, moving from strict emergency controls to a more nuanced, risk-based approach.
“These are like pieces of a puzzle that will allow the free movement of capital to be restored as quickly as possible,” Pishny said. “Free movement of capital is part of our commitment to join the EU.”
(Reporting by Olena Hammash; Editing by Jane Harvey)
