Finance and investments

The financial system of Ukraine is the direct integrator of all branches of the national economy and provides their efficient functioning and interaction. The financial system includes both state and non-state enterprises, which operate in the following conditions: absence of unitary financial sector development strategy, record high inflation, escalation of political infighting of the key political forces before the Presidential elections, limited external sources of financing and growing cost of credit resources.

The financial industry had very high growth rates in all sectors for the last five-seven years. Thus, not only increase of overall bank assets, but also growth of natural persons’ deposits volume was observed in the banking sector. The value of Ukrainian banks was one of the highest in Europe, having influenced over the investment attractiveness of the country and the volumes of foreign investments. In turn, it led to escalation of credit portfolios, where the basic mass was represented by long-term mortgage and automobile loans in foreign currency.

The stock exchange market, stimulated by high interest of foreign investors and excellent financial results of Ukrainian industrial companies, occupied the second place in the world according to the national stock index rates of growth. Nevertheless, the volumes of the Ukrainian stock market are still rather small, which helped to level in part the negative impact of the world economy downturn on the economy of Ukraine on the background of low integration of stock market with real sectors of national economy.

The insurance segment, joint investment institutes, non-state pension funds also showed considerable rates of growth. The above-mentioned sectors were actively developing in Ukraine owing to qualitative changes in the psychology of the Ukrainian consumers, which try not only to protect themselves, but also to obtain benefit.

The structural and qualitative changes on the financial market of Ukraine, which started in the second half of 2008, forced to view the problems of this segment and the ways of their solution from a different angle. As the external sources of financing were absent, the financial structures turned to internal resources. At the same time, the global outflow of natural persons’ funds from the banking system took place, which worsened the situation. The downfall of the Ukrainian stock market started on the background of foreign capital withdrawal by investors from the financial system of Ukraine and caused liquidity crisis. The solution for this problem was the increase of deposit rates and volumes of interbank crediting. The increase of deposit rates has positive effect as population brought money to the banks; however, the financial sources on the interbank market became more expensive and remained difficult of access.

At the moment, the certain stabilization of the financial sector can be stated. This stabilization was connected with cooperation with the IMF, which resulted in the decision about stand-by credit allocation under stabilization programme (up to date, Ukraine has obtained three tranches at the total amount of USD 10.5 mlrd). it turn, it caused the decline of social expenditures budget item, decrease of the country’s external debts, introduction of temporary administration to several bank institutions, nationalization of two banks, elaboration of financial institutions refinancing strategy and discontinuation of national currency devaluation. The prior problem still is non-payment of credits and interests for their usage, which stipulated the demand for collector services. The cost of credits both for natural persons and legal entities has grown considerably. Besides, the financial institutions pay more attention to examination of borrowers. The liquidity crisis caused the growth of interest rates on deposits and their strengthening on the current level.

Nevertheless, the above-mentioned changes in the financial sector will help not only to refine weak market players, but also to force the branch leaders to elaborate clear strategy of business reformation and development to determine its reliability and efficiency. Taking into account large investment potential of Ukraine, represented by huge domestic market and cheap labour force, the market re-entry by the foreign investors is expected.

In the nearest time, the revival of the stock market of Ukraine is expected in the forefront of currency fluctuations; however, the growth of gap between the official rate of hryvnia and its real value increases currency risks and volatility of currency income. The strengthening of the Ukrainian currency, its revaluation as a result of the NBU policy will provide mitigation of currency rates, downfall of fluctuations and will refine the speculators from the market, which are aimed at extra profits in short-term period.