Business Ukraine 04/2018

issue 04/2018

UKRAINIAN BANKING INDUSTRY IN FOCUS

25 years together

BUSINESS UKRAINE MAGAZINE 04/2018: The Ukrainian banking industry has witnessed the country’s most farreaching reforms since 2014 and is now emerging with a newfound sense of stability along with some welcome profitability. However, the transition process is far from over, with major challenges including the partial selloff of the state’s 50%+ stake in the sector.

Putin deserves a red card not the World Cup Back in 2010 when FIFA awarded Russia the right to host this year’s World Cup, virtually nobody viewed Moscow as an adversary. At the time, Dmitry Medvedev was at the helm in the Kremlin and seemed eager to portray himself as a Western-friendly reformer. In the diplomatic arena, the reset with the Obama White House had yet to unravel and it would be a further two years before Mitt Romney would face ridicule for daring to call Russia America’s number one geopolitical foe. Meanwhile, most Europeans regarded the Russia of 2010 primarily as a source of endless energy supplies, boorish tourists and extravagant oligarchs. The country enjoyed a reputation as a chronically corrupt and vaguely sinister but essentially harmless backwater looming large in the continent’s rear view mirror. With this in mind, it is easy to understand why FIFA felt comfortable naming Russia as a future World Cup host nation.

Many observers even believed the tournament could help Russia’s post-Soviet rehabilitation and argued that it would build bridges with the outside world.

With the benefit of hindsight, such thinking now looks hopelessly naïve. Today’s Russia no longer seeks to ingratiate itself with the victors of the Cold War or pose as a fledgling democracy. On the contrary, it is now an unashamedly revanchist state intent on reversing the verdict of 1991 by invading its neighbors and waging hybrid war against the entire Western world. Despite this dramatic change in tone, the 2018 World Cup goes ahead with barely a murmur. Whereas dozens of countries refused to participate in the 1980 Moscow Olympics in protest at the Soviet invasion of Afghanistan, not a single nation has boycotted this summer’s World Cup. It is hard to overestimate just how big a propaganda coup this absence of an international boycott is for Putin. It validates his entire regime while making a complete mockery of efforts to isolate Russia internationally. After all, what kind of pariah gets to host the greatest sporting spectacle on the planet? The World Cup will do much to normalize Russia among global audiences while

bolstering perceptions that the current sanctions regime is close to collapse.

In recent days we have seen Donald Trump talk of welcoming Russia back into the G8. Elsewhere, Juncker calls for an end to ‘Russia-bashing”, Germany ploughs ahead with its Russian pipeline partnership, and Macron strikes billion dollar deals in St. Petersburg. The World Cup will provide Moscow with an appropriate stage to celebrate this success.

All this is particularly bad news for Ukraine. The Russian invasion of Crimea and eastern Ukraine remains Europe’s only hot war but it has long since lost the ability to shock. Indeed, the lack of a World Cup boycott reflects the fact that to outside audiences, Russia’s hybrid war in Ukraine has become the new normal. This sets an alarming precedent at a time when the Kremlin continues to lay the groundwork for long-term military operations against Ukraine.

Moscow has recently begun building a series of permanent army bases along the Ukrainian border and reconstructed railway lines to provide easy logistical support for invasion forces. At sea, Russia is cranking up the pressure close to Ukraine’s vulnerable Azov Sea coastline. Everything is in place for a major escalation should Russia choose to do so.

One of the Kremlin’s key considerations will be the likely diplomatic reaction to a full-scale conventional invasion. With the international community now seemingly conditioned to accepting the regrettable reality of a Russian military presence in Ukraine, a far larger geopolitical gamble no longer looks out of the question. Russia’s war in Ukraine began as the curtain fell on Putin’s last great sporting triumph, the 2014 Sochi Winter Olympics.

Many in Kyiv will be watching nervously as the World Cup reaches a climax, wondering whether history will repeat itself.

About the author: Peter Dickinson is the publisher of Business Ukraine magazine and a nonresident fellow at the Atlantic Council

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banking industry

Ukrainian Banking Sector

Stability after the storm Three-quarters of Ukrainian banks posted profits in 2017 as the reform process produced results

The Ukrainian banking industry has been through unprecedented upheavals in recent years but the past eighteen months have seen stability finally return to the sector. There was a marked reduction in attention-grabbing bankruptcies and regulator-enforced bank closures in 2017 compared to the many departures witnessed from 2014 to 2016, suggesting that a new equilibrium is now taking shape within the industry. After a prolonged period of crisis management, the Ukrainian banking sector is now looking ahead and plotting a course towards greater competition, more

viable long-term business models, and increasing compatibility with European standards.

Profitability and PrivatBank

Three-quarters of Ukraine’s banks posted profits in 2017, but this impressive performance was still in many ways overshadowed by industry losses connected to the ongoing fallout from the nationalization of PrivatBank. Although this landmark nationalization took place in December 2016, it remained an influential theme for the Ukrainian banking industry throughout 2017, with many of the problems that led to the nationalization reflected in the results of :

About the author: Viktoria Rudenko is the director of the “Top 50 Banks in Ukraine� project

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banking industry

“An overwhelming majority of Ukrainian banks, or 64 out of 82, posted a profit in 2017. The most profitable bank was Raiffeisen Bank Aval with an annual profit of UAH 4.5 billion” : the banking sector as a whole for the year. For example, total loss-

es posted by Ukrainian banks in 2017 were UAH 26 billion, with around UAH 23 billion of this coming from PrivatBank. Perhaps unsurprisingly given Ukraine’s ongoing undeclared war with the Russian Federation, the two other banks that ranked among Ukraine’s top three in terms of losses for 2017 both had Russian state capital: Prominvestbank and VTB Bank.

These losses could not disguise what was an improving overall picture throughout the Ukrainian banking sector. “Many Ukrainian banks began 2017 with positive forecasts and this was proven to be justified. The banking system as a whole demonstrated improved performance,” comments Roman Shpek, who heads the board at the Independence Association of Ukrainian Banks. An overwhelming majority of Ukrainian banks, or 64 out of 82, posted a profit in 2017.

The most profitable bank was Raiffeisen Bank Aval, with an annual profit of UAH 4.5 billion. The overall profit generated by all the 64

banks posting positive annual results was UAH 15.9 billion.

Key positive trends over the past eighteen months include the resumption of lending to the public, the growth of deposit portfolios, and the development of active cooperation between banks and small and medium-sized enterprises, which is fast becoming an important driver of economic growth while also bolstering the expansion of Ukraine’s entrepreneurial middle classes.

State Ownership Issues

The dramatic nationalization of PrivatBank in late 2016 increased the state’s share of the Ukrainian banking system to more than 50%.

In response to this unexpected turn of events, the Ministry of Finance set out to update the government’s existing strategy for the development of the country’s state-owned banks. This new document was initially supposed to be ready by May 2017, but it was subject to repeated delays as policymakers awaited a specific strat- :

Banking Sector Commentary: Rustam Kolesnik Head of the Supervisory Council of Financial Club and General Director of Yuridicheskaya Practika publishing house The Ukrainian banks that have survived the cleanup of the sector have now adapted their business models to the new realities of the Ukrainian economy and the new regulatory requirements they face. Nevertheless, external factors such as judicial practices and legislative changes continue to influence the development of the situation in the Ukrainian banking sector. The first item on the agenda for most banks remains the challenge of troubled assets and this is likely to remain the case for at least one more year. As most disputes require resolution in court, lawyers and bankers alike are interested to see how the work of the country’s new Supreme Court will evolve and whether existing legal trends will prevail. In the legislative field, there are high expectations over the adoption of the new code on bankruptcy and the law on debt management activities. This is expected to open up new opportunities for banks while at the same time creating new niches for legal services providers. At present, it certainly looks like the banking sector will remain the largest single employer of Ukrainian law firms for a long time to come.

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banking industry

: egy document for PrivatBank. The overall new government strategy

for state-owned banks was finally unveiled in February 2018. It outlined the ambitious objective of reducing the state’s market share from the present level of around 55% to approximately 24% in the medium-term. This will necessitate a series of complete and partial selloffs of banks currently under full state ownership.

The first scheduled sale will be that of Ukrgazbank. The Ministry of Finance currently plans to offer a 20% stake to international financial institutions in 2018, with the remainder of shares scheduled for sale to a strategic investor in 2020. By 2022, the state also aims to oversee the return of PrivatBank to the private sector. This is an ambitious timeline given the ongoing legal battles taking place around PrivatBank, but it reflects the government’s view of nationalization as a short-term solution to the extraordinary challenges posed by the bank’s perilous position in 2016.

The government plans partial selloffs of Ukraine’s two other stateowned banks, Oschadbank and Ukreximbank. According to the updated government strategy unveiled early this year, by 2022 the state’s stake in Oschadbank will decrease from 100% to 55%, with an international financial institution set to acquire a 20% share and 25% of the bank scheduled for sale via IPO. Ukreximbank looks destined to emerge from the selloffs of the coming years with the largest share of state ownership still in place, with a stake of around 80% set to remain in government hands.

Russian Departures Delayed

The past year saw a marked deceleration in the process of bank closures that has dominated the headlines since 2014. After three years of radical shakeups that saw the industry’s NBU regulator shut down banks in record numbers, only nine banks left the market in 2017. Meanwhile, banks with Russian capital operating in Ukraine spent much of the year seeking to sell up but were frustrated in their efforts to find buyers and secure a green light from the national industry regulator. A deal involving Latvia’s Norvik Bank for the sale of Sberbank’s Ukrainian subsidiary appeared to be in place

in March, but Ukraine’s National Bank then rejected the transaction.

Attempts to buy the Ukrainian bank by Belarus IT entrepreneur Vitkor Prokopenya also ran aground late in 2017.

It was a similar story for Prominvestbank, the Ukrainian subsidiary of Russia’s VEB. Ukrainians Maxim Mikitas and Pavel Fuchs emerged as potential buyers in 2017 and even applied to the Antimonopoly Committee, but the NBU did not approve this deal either. NBU officials said their negative assessments of these proposed sales were due to the failure of the candidates to comply with the requirements of Ukrainian legislation.

Meanwhile, Russia’s VTB Bank did not manage to attract any potential buyers at all. As a result, in late 2017 the bank’s shareholders announced a large-scale reduction of its business operations in Ukraine. In line with these plans, the bank aims to reduce its Ukrainian presence to just one or two representative offices in Kyiv by midsummer 2018.

Innovations Ahead

Banks operating in Ukraine will face a number of challenges in the second half of 2018 as the NBU’s cleanup of the sector moves to the next stage and focuses on improving the performance potential and credibility of the Ukrainian banking industry. This process will include the ongoing transition to the new standards of IFRS 9 reporting.

Market participants have repeatedly stated that this innovation will significantly affect their work. For example, some banks will have to form additional reserves to cover future risks, which may lead to noncompliance with NBU regulations. In recognition of this, the NBU has agreed to establish a transition period for adaptation lasting until 30 June. The end goal, according to NBU officials, is to oblige banks to develop more viable and sustainable business models.

Other innovations such as the introduction of new LCR (Liquidity Coverage Ratio) regulations aim to strengthen the Ukrainian banking system’s immunity to the shocks of potential future financial crises. This move will bring Ukrainian banks closer to the norms of existing EU legislation governing the banking sector.

Banking Sector Commentary: Ruslan Cherniy Managing Partner at Financial Club and Chief Editor at FinClub news agency Ukrainian bankers have been longing for stability and it has finally come. The shocks of the past four years are now over and the NBU has embarked on a new chapter. As a consequence, the actions of the regular are becoming more predictable. All that is left for the banks to do is to rebuild customer confidence in their services. This will allow Ukrainian banks to attract the massive volumes of savings that migrated from bank accounts and were hidden in mattresses during the peak crisis years of 201415. According to some estimates, there could be tens of billions of dollars in cash floating around in Ukraine and available to be translated into bank deposits. Ukrainian banks also need to encourage the country’s business community to return capital that has been withdrawn or moved overseas during the turbulence of recent years. This is realistic given the high interest rates on offer and the anticipated increases in state guarantees for the reformed banking sector.

Taking a broad view, the return of trust to the Ukrainian banking system is in my opinion the biggest single task facing the industry today. This is something that all of the country’s banks have a potential role in fulfilling. Returning public trust to the industry is more important than working on other major but more specific issues like the large volumes of problem loans within the Ukrainian banking system that have been inherited from previous years. Improving public trust is not only about improving the individual services that banks offer. This also means providing consistency. Customers need to see that the Ukrainian banking industry is stable and is being run by management that is fully accountable.

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4

13

Alfa-Bank

6

5

PrivatBank

6

FUIB

7

UkrSibbank

7

10

Ukreximbank

9

4

OTP Bank

5

8

9

Credit Agricole Bank

12

14

Pivdenny

14

16

TAScombank

16

15

Prominvestbank

10 11 13

11 8

Kredobank

Ukrsotsbank

19

Credit Dnepr Bank

17

26

Vostok Bank

19

18

ProCredit Bank

15

25

Megabank

20

22

Idea Bank

22

24

Industrialbank

24

27

Piraeus Bank

18

21 23

25

12

Sberbank

21

MTB Bank

36

Globus

Kirill Shevchenko

244

Viktoria Mykhaile

Philippe Dumel

Profit (million UAH)

Ukrgazbank

Volodymyr Lavrenchuk

Statutory Capital (million UAH)

3

Raiffeisen Bank Aval

3206

Volume of deposits from customers (million UAH)

3

2

2

Andriy Pyshnyy

Volume of issued loans (million UAH)

Oschadbank

Number of ATMs

1

Financial and operations indicators (as of 1 January 2018)

Number of branches

1

Bank

Chairperson of the Board

Position in 2017

2018 edition of annual Ukrainian banking sector ranking produced by Financial Club

Position in 2018

banking industry

Top 50 Banks in Ukraine

2869

74502.54

148302.25

43722.72

558.52

33621.91

60709.84

13318.56

504

2128

37795.07

188

124

28223.62

326

672

6154.52

4468.58

41366.44

12179.76

654.72

38117.63

208565.76

206059.74

-22965.91

25495.60

36900.19

3294.49

785.83

922

22221.40

634

67581.29

52280.58

35784.72

5069.26

623.79

1467.44

Petr Krumphanzl

2244

7105

Serhiy Chernenko

166

690

Jean-Paul Piotrowski

154

299

19393.16

24983.06

1222.93

1109.50

Alla Vanetsyants

105

252

15855.11

16321.16

1339.05

82.42

Vladimir Dubei

80

21

10782.64

11444.18

Oleksandr Hrytsenko Tamash Khak-Kovach

Grzegorz Shatkovski

Ivan Svitek

Elena Malinska Andriy Rozhok

Vadym Morozhovskiy

66

86

102

232

23

251

578

43

103

33

23

57

Mikhail Vlasenko

83

26

119

402.18

19335.92

16545.99

-3094.64

8263.45

1521.00

-445.71

608.00

153.16

6496.42

50918.09

-7656.01

6589.97

620.00

76.98

6496.42

445.04

82.54

1093.27

487.26

258

33833.73

11150.96

12465.46

132.45

135

1484.86

3544.95

435.00

75.78

300.00

6.53

Serhiy Naumov

18

23

32

2248.97

917.65

12288.35

307

Serhiy Mamedov

10642.42

6186.02

929.41

12891.95

105 44

5742.65

25266.53

38730.04

27

Mikhail Bukreyev Yuriy Kralov

4118.98

6548.79

111

Irina Knyazeva

15323.34

12128.24

163 10

7856.64

151

Oleksandr Shipilov

Viktor Ponomarenko

17420.99

88584.21

7

2604.72

2367.89

1786.57

1232.31

2962.10

2957.35

1773.80

1957.25

298.74

607.80

2531.35

139.07 5.83

30.00

Ranking Methodology: The “Top 50 Banks of Ukraine” ranking is an annual nationwide banking industry survey produced by the independent information agency “Financial Club”. The ranking is currently in its seventh year and is based on a range of information including quarterly and annual financial reports together with detailed operational information provided by individual banks. This information is assessed and the overall ranking is calculated in cooperation with an expert council featuring a number of leading executives from the Ukrainian banking sector.

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28

17

VTB Bank

30

20

Universal Bank

30

Investments and Savings Bank

29 31

32

33 42

A-Bank

Clearing House

Unex Bank

33

46

35

34

Citibank

37

35

International Investment Bank

39

40

Crystalbank

41

-

Motor Bank

34

36

38

40

42

43

44

-

31 -

45 -

-

49

45

48

47

-

46

48

49

50

First Investment Bank ING Bank

Ukrstroyinvestbank Avangard Bank

MetaBank Alliance Altbank Vernum Bank Concord

-

AP Bank

-

Center

-

-

Sky Bank Cominvestbank

Statutory Capital (million UAH)

Profit (million UAH)

Pravex Bank

Volume of deposits from customers (million UAH)

23

Andriy Kiselev

Volume of issued loans (million UAH)

27

Forward Bank

Number of ATMs

29

Bank

Financial and operations indicators (as of 1 January 2018)

Number of branches

26

Chairperson of the Board

Position in 2017

2018 edition of annual Ukrainian banking sector ranking produced by Financial Club

Position in 2018

banking industry

Top 50 Banks in Ukraine

21

0

969.32

1542.32

540.75

-639.34

Taras Kyrychenko

53

170

Yuriy Kandourov

212

0

Konstantin Vaisman Irina Starominska

Viktoria Andriyevska

Oleksandr Omelchenko

Anna Dovgalska

32

27 5

33

26

3941.16

23

3377.68 644.57

36

1

0

Vadym Kachurovskiy

Serhiy Nuzhniy

39

Yulia Frolova

10

Yevvheniy Panchenko

4

Ihor Volokh

2

Valentyn Menyailo

10

Rustem Haliev

10

Vladimir Honcharuk

44

Serhiy Shepanskiy

Ilya Klimovich

1

4

34215.78

-4112.40

5171.24

3102.67

99.48

3731.14

500.00

1779.47 576.40

1252.43

323.19

298.11

510.39

-347.04

292.00

86.05

230.00

9.33

1.13

200.00

1008.44

17

1987.28

8247.22

202.10

75.78

9

371.93

882.31

0

7

4876.12

16748.31

1

Vadym Chykhun

Svetlana Korchinska

-110.20

5543.90

11

23

377.21

968.37

0

35

Leonid Grebinskiy

546.60

27

Mark Appelman

21

3674.38

4

40

Konstantin Ludvik

3335.85

4248.74

34 1

2832.75

75

Irina Kolesnik

Anna Mykulyshka

547.79

12

7118.96 440.89

125.17

5143.68 723.04

852.37

655.24

1048.73

0

430.86

460.67

0

296.14

16 1

10

339.94 87.14

307.58

0

182.83

0

170.67

3

40

480.57

308.99

202.43

432.52

162.48

76.84

172.44

799.37

1101.95

80.47

731.30

200.01

200.52

200.18 1.57

43.80

208.50

100.29

200.62

25.78

200.00

1.74

200.00

64.29

220.08

1.14

205.00

200.00

210.00

8.98

1.55

5.28

200.10

-19.05

250.00

5.82

120.00

1.70

Ranking Methodology: The “Top 50 Banks of Ukraine” ranking is an annual nationwide banking industry survey produced by the independent information agency “Financial Club”. The ranking is currently in its seventh year and is based on a range of information including quarterly and annual financial reports together with detailed operational information provided by individual banks. This information is assessed and the overall ranking is calculated in cooperation with an expert council featuring a number of leading executives from the Ukrainian banking sector.

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About the interviewee: Andriy Pyshnyy is Chairman of the Management Board of Oschadbank

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Provides Blueprint

for the New Ukraine

banking industry

Oschadbank Progress The unlikely tale of how Ukraine’s giant state-owned bank went from symbol of Soviet stagnation to industry leader and flagship of banking sector innovation

When Ukraine’s banking executives gathered recently in downtown Kyiv for the 2018 edition of the sector’s annual TOP 50 awards ceremony, pride of place went to stateowned Oschadbank, which took the number one position in the most prestigious industry ranking for the third year in a row. Given the bank’s former reputation as a symbol of Soviet-style stagnation, this achievement would be noteworthy in any circumstances.

It is all the more remarkable in light of the dynamic changes currently taking place in the Ukrainian banking industry.

No other single sector of the Ukrainian economy has experienced greater upheavals than banking since Ukraine’s 2014 Revolution of Dignity. Amid this fundamental shift in the country’s banking culture, Oschadbank has defied expectations that it would be left behind. On the contrary, the bank has transformed itself in ways that few would have thought possible just five years ago.

The unlikely story of Oschadbank’s reinvention offers valuable lessons for the wider Ukrainian reform process, while also serving to counter doubts over the feasibility of overhauling Ukraine’s vast array of inefficient state-owned enterprises.

“When I first announced the goal of becoming Ukraine’s number one bank back in 2014, I am sure that many of my colleagues regarded me as a madman,” says Oschadbank’s Management Board Chairman Andriy Pyshnyy. “At the time, the country was in danger of being consumed by chaos, but I set out this goal in all seriousness. Within eighteen months we had indeed become number one. We have now completed a hat trick of first place finishes, which shows how well our team rose to the challenge.”

According to Mr. Pyshnyy, teamwork was the key reason for the success of the radical changes taking place at Oschadbank since www.bunews.com.ua

2014. Appointed to lead the bank in the fateful days of spring 2014 as post-revolutionary Ukraine reeled from the impact of Russian military intervention in Crimea and the east of the country, Pyshnyy’s team immediately recognized the opportunities presented by these historical challenges. “The country as a whole was experiencing cardinal changes and a window of opportunity for transformation and modernization was opening. It was clear that the crisis would push our competitors in the banking sector to modernize and become more efficient.

I saw it as our task to take on a leadership role in the process.”

Startup Culture

Unlike many state-owned enterprises in the former Soviet sphere, Oschadbank’s progress has not relied on the largesse and relatively bottomless budgetary possibilities provided by state contracts. Mr. Pyshnyy takes particular pride in pointing out that the bank’s most striking post-2014 growth has actually come in the commercial banking sector via what he refers to as internal startups. This startup culture is perhaps best reflected in the bank’s embrace of digital innovation. Prior to 2014, Oschadbank was still very much stuck in the paper and ink era of late twentieth century banking, with just 13,000 online banking clients and a rudimentary range of available internet services. Today, this figure has risen to 2.8 million users, while Oschadbank is recognized as the country’s number two online banking institution. Eye-catching Oschadbank-led innovations include a cashless payment system introduced on the Kyiv metro transport system that was recently recognized as a global leader at the 2018 Google Developers Conference in California. A similar bank card payment scheme is : 19

Oschadbank Management Board Chairman Andriy Pyshnyy offers a tour of the bank’s flagship premium banking center in Kyiv’s central Vozdvizhenska district.

Oschadbank’s recent entry into the premium banking market has proved so effective in attracting well-heeled clients that Mr. Pyshnyy says if this flagship premium branch alone was to register itself as a separate bank, it would immediately qualify as one the top twenty banks in Ukraine on the basis of its deposit portfolio.

: now being rolled out for Lviv trams.

The bank’s new focus on services for small and medium-sized businesses (SMEs) has brought similarly striking results. Launched in 2017, Oschadbank’s SME support program involves cooperation with 52 Ukrainian regional and municipal authorities alongside international partners including the Frankfurt School of Finance and Management and the European Bank of Reconstruc-

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tion and Development (EBRD). These SME efforts go beyond the provision of banking services to include an element of entrepreneurial evangelism that aims to foster the growth of the country’s middle classes via training and educational initiatives. Oschadbank’s approach seems to be working – the bank entered the top ten for the first time in this year’s national ranking for services to SME clients, immediately occupying the

number two position.

Few elements of the Oschadbank overhaul have been as seemingly incongruous as the bank’s entry into the elite world of premium banking. Transforming a brand best known for pension payments into a slick provider of wealth management services was no easy task, but the end product is hard to argue with. The bank entered the premium services sector in spring 2017

Partial Privatization Plans

Earlier this year, Oschadbank finalized the details of a development plan for the coming five years. Approved by the Ukrainian government, Mr. Pyshnyy says this development plan will allow the bank to transition from the modernization phase towards consolidation of its leadership positions across the Ukrainian banking industry. “Our modernization efforts over the past three years have demonstrated the bank’s ability to develop in new directions and to deliver on our growth targets. The goal now is to become number one in all areas. This may not sound like a very modest objective, but recent experience suggests it is entirely realistic.” Plans include doubling the bank’s SME loans portfolio to UAH 5 billion, expanding into new service sectors, and significantly increasing the Oschadbank share in retail banking segments like mortgages and the car loans market.

The key strategic goal on the horizon is the planned sale of a 20% stake in the bank to an international financial institution by 2020, which is a key element of the November 2016 memorandum establishing a framework for Oschadbank’s current strategic cooperation with the EBRD. “As we approach this target, the bank’s financial results coupled with the prospects of the market and the broader Ukrainian economy will all be taken into account to help determine the details of the deal,” says Mr. Pyshnyy. “The end of 2020 is already quite close so we should not lose any time in moving forward with preparations.”

Mr. Pyshnyy anticipates that the proposed partial privatization would mean significant further changes to the corporate culwww.bunews.com.ua

ture within the bank, including everything from business practices to credit policy.

However, he is unfazed by this process and points to the successful existing cooperation with the EBRD as an indication of the adaptability his bank can call upon. Nor does he share the unease of many analysts over the Ukrainian state’s unusually large stake in the country’s banking sector, which currently stands at over 55% of total banking assets. “I agree that it might appear to be a cause for concern, but I think it is also important to take a closer look at the specifics of the banks involved. There are four state-owned banks that are currently engaged in some form of partnership with international financial institutions. This sets certain standards and creates a basis for greater competitiveness and commercialization. State preferences have also been limited or cancelled, so everyone is now able to compete. Thanks to a combination of international partners, the efforts of the industry regulator, and the internal procedures of the banks themselves, I don’t see any risk of the state directly controlling the banking system. Everyone understands that when it comes to banks like PrivatBank, privatization should be the ultimate objective once the economic environment is suitable, but I don’t regard the current situation as posing any immediate threat to market competition.”

Changing Mentality

The move towards partial privatization will represent another stage in Oschadbank’s evolving corporate identity, but it is in many ways a relatively minor departure compared to the huge leaps of the post-2014 period. The new team’s experience over the past four years offers important insights into the process of transforming a classically unwieldy and cumbersome stateowned colossus where habits and mentalities dating back to the Soviet era had often become deeply engrained. “Attitudes did not change overnight,” Mr. Pyshnyy reflects.

“Communicating the new philosophy of the bank was probably one of the hardest tasks we faced. Many of our employees had been with the bank for twenty years or longer.

They had developed a passive approach to their professional lives and had grown used to the idea that nothing much would happen for the foreseeable future. We had to put across the message that things had

changed in fundamental ways.”

Mr. Pyshnyy thinks that regional visits were particularly effective communications tools allowing the new team to engage directly with local representatives of the bank. In his first two years as Chairman of the Management Board, he visited three-quarters of regional branches, including some that had not seen a CEO of the bank since the latter years of the Stalin era. These meetings allowed a direct dialogue to take place and gave regional teams a feeling for the new institutional direction the bank was taking.

“Sometimes we would talk for one and a half hours or longer as I explained our vision for the bank, then we would discuss everything from strategy to implementation in detail,” he recalls.

What advice would Mr. Pyshnyy offer to any colleagues who find themselves tasked with transforming one of Ukraine’s many inefficient state-owned enterprises? “It is not something that is easily summed up in a few sentences, but there are a few key lessons I would share. One of the most important things to realize is that you will have to deal with the existing workforce. You cannot replace everybody at once, so you must make maximum use of the available staff. For us at Oschadbank, this led to the somewhat paradoxical situation where the hardest stages in the modernization process in 2014 and 2015 were actually carried out by people who had no experience of such things and in most cases probably did not even believe that change was possible. This requires communicating your objectives in a clear and concise manner while making sure to involve people as much as possible. It also means winning the trust of your employees. This leads me to one more obvious but important piece of advice – make sure you avoid stealing.”

Another key point might be to avoid burnout. Four years after setting out on their Oschadbank odyssey, the new Oschadbank team remains highly energized by the challenges they face and are showing no signs of slowing down just yet. “We set ourselves the task of becoming the evidence that Ukraine is changing. That was the kind of time it was in 2014, and that remains the goal,” Mr. Pyshnyy offers. “Who wants to become trapped in a mundane working routine? It is far more interesting participate in a bigger story. We want to be able to look back and feel that this was our story too.”

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and already has over 40 premium banking branches nationwide including Ukraine’s largest dedicated premium banking center in Kyiv’s Vozdvizhenska district. This flagship branch is a million miles away from the bank’s old associations with inertia. It boasts an ultra-contemporary interior design complete with modern art exhibits and its own secure underground parking. The bank’s premium rebranding has proved effective in attracting an impressive number of well-heeled clients. Mr. Pyshnyy quips that if Oschadbank’s flagship premium branch alone was to register itself as a separate bank, it would immediately qualify on the basis of its deposit portfolio as one the top twenty banks in Ukraine.

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PRAVEX BANK continues along

European-integration trajectory

Ukrainian member of Italy’s Intesa Sanpaolo banking group is engaged in ongoing upgrade process with comprehensive rebranding

PRAVEX BANK is currently at the next stage of bringing its visuality to the standards of European banking group Intesa Sanpaolo which is the only shareholder of the bank. This ambitious rebranding process, which began with the unveiling of a new visual identity for PRAVEX BANK in late 2017, aims to bring to the Ukrainian market the full range of banking products on offer to PRAVEX’s Ukrainian customers. It is the latest chapter in a relationship between PRAVEX BANK and Intesa Sanpaolo that dates back ten years to the Ukrainian bank’s acquisition by the leading Italian banking group in 2008.

Leading Euro Zone Banking Group

Intesa Sanpaolo entered one of the biggest international markets in Ukraine at a time when the country’s banking sector was rated by many as being arguably the most attractive prospect in Europe.

With the Ukrainian banking sector once more gaining momentum following far-reaching reforms since 2014, efforts have recently been stepped up to strengthen PRAVEX BANK’s corporate identity as part of the Intesa Sanpaolo banking group and enhance the services the bank is able to offer in Ukraine.

Intesa Sanpaolo is ranked among the top banking groups in the euro zone and enjoys in Italy a position as market leader in all business sectors (retail, corporate, and wealth management), boasting 12 million customers serviced through a network of over 4,600 branches distributed throughout the country.

Internationally, Intesa Sanpaolo has a considerable strategic presence with approximately 1,100 branches and 7.7 million customers, including subsidiaries operating in the commercial banking sectors of 12 countries spread throughout Central and Eastern Europe, the Middle East, and North Africa. The bank also maintains an international network of specialists in support of corporate customers across 25 countries, in particular in the Middle East, North Africa, and in those areas where Italian companies are most active, such as the United States, Brazil, Russia, India and China.

Roman Rebranding

PRAVEX BANK went public with its comprehensive rebranding as part of what the bank dubbed as a “preparation year” ahead of this year’s comprehensive upgrades. The new-look branding adopted

by PRAVEX mirrors the Intesa Sanpaolo logo itself, reflecting the growing integration of the Ukrainian bank into the Italian banking group. In a nod to classical Rome, the new PRAVEX BANK logo features the Trajan font found at the base of Trajan’s Column, while also containing a stylized depiction of a Roman aqueduct, which bank officials identify as a universal symbol of permanence and development as well as life and prosperity.

The visual changes taking place at the bank extend far beyond this classically-influenced new logo. Individual branches have also undergone major makeovers that have sought to reinvent interiors while incorporating the sense of style that Italy is renowned for. In-

“The current upgrade process is not restricted to the aesthetics of PRAVEX BANK’s branches themselves. When the new look of the bank was first showcased in autumn 2017, the talk was of a redesign of the bank’s business model with the retail banking segment set to be the focus for the biggest improvements.”

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www.bunews.com.ua

banking industry

“In a nod to classical Rome, the new PRAVEX BANK logo features the Trajan font found at the base of Trajan’s Column, while also containing a stylized depiction of a Roman aqueduct, which bank officials identify as a universal symbol of permanence and development as well as life and prosperity.” deed, the layout of PRAVEX BANK branches now reflects the vision of Italian designers who have embraced the creation of what bank officials refer to as “comfort zones”. There is a decidedly Italian flavor to décor featuring iconic images of Italian landmarks, while the use of soft pastel colors and deployment of open spaces offers echoes of Mediterranean vibrancy.

Emphasis on Retail Lending

The current upgrade process is not restricted to the aesthetics of PRAVEX BANK’s branches themselves. When the new look of the bank was first showcased in autumn 2017, the talk was of a redesign of the bank’s business model with the retail banking segment set to be the focus for the biggest improvements. Retail lending is now positioned to play an ever more prominent role in the bank’s business development strategy, with priority areas including credit cards and personal loans already identified. Given the broad trends currently evident in the Ukrainian economy, this looks like a smart bet. PRAVEX BANK’s strategy expects to see additional lending products added to the bank’s catalogue of services in the near future as the expansion into the retail banking segment gains momentum.

With the emphasis on enhancing service levels and broadening engagement with customers, PRAVEX BANK is also looking to develop its FAMIGLIA product. This includes a range of services and additional benefits for customers and their families including more traditional banking sector offers like cards and current accounts www.bunews.com.ua

along with innovations such as insurance, concierge services and discounted access to safety deposit boxes.

Meanwhile, the PRAVEX BANK corporate business strategy is set to benefit from greater synergy with Intesa Sanpaolo via a growing emphasis on providing services for the banking group’s considerable existing international clientele in the corporate and investment banking spheres. Multinational corporations are to be a core target group for the bank’s corporate business development, where they will be joined by selected domestic blue chip companies and financial institutions.

Cultural Engagement

PRAVEX BANK’s strategy also aims to build on its reputation for cultural sector engagement. PRAVEX has regularly hosted friends and partners of the bank in recent years at a range of sponsored corporate events at Ukraine’s National Opera House in downtown Kyiv. This trend will receive added impetus going forward as the Ukrainian bank embraces the associations with cultural heritage that play such a big part in the corporate philosophy of PRAVEX’s Italian parent banking group.

This support for the cultural life of Ukraine is seen by bank officials as a way to engage with a growing clientele while at the same time helping to safeguard Ukraine’s cultural heritage. Given the strong public associations between Italy and culture, it also offers opportunities to underline PRAVEX BANK’s status as part of the Intesa Sanpaolo banking group.

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Ukraine’s SME loans leader prioritizes private customers

ProCredit Bank turns spotlight to private customers as loan portfolio growth fuels demand for deposits

About the interviewee: Viktor Ponomarenko is the General Manager of ProCredit Bank in Ukraine In recent years, ProCredit Bank has bucked the market stagnation trend among Ukrainian lenders and led the way in terms of loan portfolio expansion. The Ukrainian branch of the Germany-based international banking group posted robust annual loan portfolio growth of 35% in 2017, following on from an even more striking 40% increase during the previous year. With this upward trend continuing into 2018, ProCredit Bank General Manager in Ukraine Viktor Ponomarenko says the bank is now seeking to help facilitate further growth by bolstering deposits. “We harbor big ambitions to increase deposits as we also want to continue expanding our SME loan portfolio,” he explains. This means reemphasizing the existing private customer banking services they offer.

The prioritization of banking services for private customers is not only about boosting coffers and attracting new capital to the bank in the form of fresh deposits. ProCredit Bank has always had a strong private customer banking arm, but this has been somewhat overshadowed in recent years by the eyecatching progress the bank has made in its efforts to provide financing tools for Ukraine’s SME sector. Mr. Ponomarenko believes the time is now right to highlight the options available for private customers. “The SME sector remains our core focus and is central to our identity as a financial institution, but we have also built up very strong services for private customers. However, this is not always immediately apparent to customers because attention understandably tends to focus on the far more high profile SME direction of our work.”

Mr. Ponomarenko says he is relying on a combination of convenience, transparency, profitability and security to help his bank stand out from the crowd and attract new private customers. All four factors benefit from the bank’s strategic focus on digitalization of services. In recent years, ProCredit Bank 24

has embraced a concept of expanding services via digital platforms rather than physical branches, with virtually all day-to-day banking transactions already possible online and work progressing on a new service that will allow clients to open an account online without setting foot in a branch at all. “The objective is to offer a simple, convenient and transparent business model to customers,” says Mr. Ponomarenko. He argues that while digitalization remains the talk of the Ukrainian banking industry, in practice there is still a strong dependence on traditional branch networks and cash. “We believe that using digital instruments is the right choice instead of the more traditional way of processing transactions, where customers are obliged to visit branches and fill out all manner of paperwork. The goal is to minimize this paper chase and replace it with online transactions wherever possible.

We want to be more innovative and at the same time secure.”

Private clients at ProCredit Bank will have a clear idea of what they are signing up for thanks to standard monthly banking fees that remove the uncertainties of service-related charges. “This provides customers with the financial freedom and transparency to plan ahead,” Mr. Ponomarenko explains. “It can often be challenging to compare the services of different private banking packages on offer in Ukraine due to the complex fee structures involved.

In this regard, we are as transparent as can be.” This flat fee model makes ProCredit an obvious choice for financially active customers who carry out all their transactions via internet and require a variety of personal banking services that could easily lead to high fees if charged individually. In practice, this means members of the growing Ukrainian middle class, or as Mr. Ponomarenko puts it, “people who have sufficient income to save and to spend.”

Along with other international banks on the Ukrainian market, the ProCredit Bank brand enjoys the kind of associations with security that few Ukrainian banks can match. The upheavals in the Ukrainian banking sector since 2014 have seen close to one hundred banks closed down, rocking public confidence in the industry. This has led many private banking customers to look towards local branches of international banks as safe havens. This sense of security also extends to the digital platforms used by ProCredit Bank in Ukraine, which Mr. Ponomarenko explains are developed by a company within the ProCredit Bank Group to comply with both Ukrainian and EU regulations. “As part of an international banking group based in Germany, we are able to apply EU security standards to all our transactions. Clients can be confident that the services we offer are very solid in terms of safety and security.”

Ultimately, the biggest pull for many private banking customers remains the return they can expect to make on their deposit. Mr. Ponomarenko claims that ProCredit Bank’s business model and online emphasis allow the bank to offer more attractive interest rates than many other international banks operating in Ukraine. “Since we are placing more and more emphasis on digital banking, we are able to offer the largest possible access network online while avoiding dependency on physical locations. This absence of expensive physical infrastructure allows us to pass savings on to our customers in the form of more competitive conditions. In other words, our lower costs create the basis for higher interest rates.” www.bunews.com.ua

banking industry

Difficult debts and escrow agents Demand rising in Ukraine for legal service providers to act as mediators in debt negotiations

About the author: Olena Volyanska is an attorney-at-law and Counsel at LCF Law Group Experience shows that debt recovery in Ukraine can be difficult and expensive. When it comes to debt collection from large financial-industrial groups with complex corporate structures, disputes can be particularly challenging and can last for several years. Part of this challenge lies in the fact that the loan obligations of such debtors are often distributed among the various enterprises of the business group. They may also often have a complex system of guarantees and pledges in Ukraine and abroad. To recover debts or to foreclose on mortgaged property, it is often necessary to wage a real litigation war in all jurisdictions and courts. Such actions can easily exhaust the debtors financially, but they also have a habit of becoming a heavy burden for banks.

The experience of numerous specific cases tells us that the most successful outcome for protracted legal battles of this nature can often be agreeing to an amicable settlement of the dispute between the parties. At the same time, it is worth noting that debtors generally only agree to such terms once they have lost a number of key litigation trials and the threat of property loss becomes more of a realistic proposition. Nevertheless, there are indications that attitudes towards troubled debts are improving within the Ukrainian business community, with non-payment being regarded as increasingly unacceptable and undesirable. Many debtors 26

want to settle troubled debts on reasonable terms in order to improve their credit history and safeguard their reputation in the market. This is now recognized as crucial in order to maintain access to further credit resources and to develop any business beyond the short-term.

This is a welcome trend, but it is also necessary to appreciate that banks enter into any negotiations with problem debtors with caution before making any decision on settling. In some cases, banks require excessive guarantees from yesterday’s debtor and today’s partner. The mutual distrust that exists between the parties is often difficult to overcome. In this situation, the negotiation process needs a kind of mediator who can provide guarantees regarding the fulfilment of mutual agreements and obligations. This role is typically filled in Ukraine by a legal advisor who acts as an escrow agent and enjoys credibility with both parties to the negotiation process.

Borrowers who own real estate, equipment, corporate rights or other assets that are pledged to banks are usually either striving to hold title on real estate property or “to completely close the debt” by transferring part of the property to the bank. In most cases, negotiations focus on the debtor’s own debt-buyback, using factoring transactions or assignment of right of demand with a simultaneous cession of rights in respect of pledged assets. However, in some cases, the debtor is interested in transferring to the bank a portion of non-core assets that are not critically important for the continued functioning of the business, but which still have considerable value.

Often, as a condition for restructuring or refinancing debts, banks request a beneficiary of the debtor’s company to provide personal guarantees. This is a fairly reliable type of collateral which allows the bank to foreclose on valuable assets in default of the secured obligation. At the same time, the process of search and foreclosure on the assets of the beneficiary in different jurisdictions can often be an expensive and lengthy process for any bank.

In the process of negotiations, banks can invite the beneficiary, as confirmation of his goodwill, to disclose information about his assets. It should be understood that for the beneficiary, this process represents a potentially very significant risk, both during the period of credit relations with the bank and into the future. A legal advisor who acts as an escrow agent in such transactions will be ensuring a balance of interests between the debtor and the bank. The debtor transfers the full amount of information about his assets in all jurisdictions, including key asset identification data, to the escrow agent. All information sent to the escrow agent remains strictly confidential and is not disclosed to the bank.

If the loan agreement between the bank and the borrower is observed and the debt is paid off, the information is returned to the debtor without disclosure. If the debtor fails to perform the obligations undertaken before the bank, the escrow agent gives the bank full access to the information pertaining to the guarantor’s property. When enforcing a court judgment on recovery of a debt from a guarantor, the bank is therefore able to save both time and money tracing assets. Experience shows that agreements reached in Ukraine by debtors and banks with the participation of reputable escrow agents tend to be strictly observed.

promotion

CREDITWEST BANK presents CLUB WEST Private Banking The Ukrainian Private Banking market was formed not so long ago. Due to this young age, it does not yet have the kind of uniform standards that are more commonly encountered elsewhere in Europe. Different banks have adopted their own approaches to defining Private Banking clients and establishing thresholds for entering the VIP category. In any case, these are wealthy people, usually top managers or owners of businesses who prefer to use exclusive products and VIP services due to a wide range of reasons.

Today, wealthy clients in many banks receive not only traditional banking services but also a range of additional services. For instance, this can include concierge company services. This often means a personal non-financial service package that can cover areas such as home, leisure, health, travelling, events, security and business. Services are varied and can include assistance in choosing an acceptable school for the client’s children, staff recruitment services, assistance in purchasing of cars, or support arranging an unforgettable trip.

The Private Banking segment is one of the priority directions for PJSC “CREDITWEST BANK”. Combining classic banking solutions and the experience of its powerful parent Altınbaş Group, the bank offers clients integrated approaches for the efficient planning, organization and control of financial flows.

Private Banking by PJSC “CREDITWEST BANK” is the ideal combination of European and Turkish expertise in banking services adapted to the requirements of Ukrainian consumers, including an individual approach and full privacy of servicing.

As private capital requires a special approach, individual decisions, and an extraordinary level of expertise, the bank has established a Private Banking Department, which allows for the development of an individual relationship between the client and the bank. Private Banking clients have their own personal manager who is available 24/7.

In addition to standard banking products, the bank offers the following specialized financial services for VIP clients: • Wide range of deposit programs in different currencies; • Individual deposit boxes; • Registration services for electronic licenses from the NBU; • Premium Platinum Card package which includes concierge service, fast track service, free of charge MasterCard business lounge access, health and travel insurance, credit limits, discount programs, etc.

• Individual deposit options with special interest rates: up to 15% p.a. in UAH, up to 5% p.a. in USD and EUR. The Platinum Package is the premium services package for the bank’s Private Banking clients. This includes MasterCard Platinum premium cards and provides a high level of servicing and privileges.

MasterCard Platinum CLUB WEST is the premium international card of the MasterCard payment system. This card guarantees exceptional freedom of payments all over the world while confirming the customer’s high status and financial solvency.

Adnan Anacali is the Chairman of the Supervisory Board at PJSC “CREDITWEST BANK” Ukraine Platinum Card services satisfy even the most demanding customers: • The card offers high levels of security because of an in-built chip module and contactless facility, which creates the possibility to make fast and secure payments. To make instant payments, the client just needs to carry the card to a terminal device which is configured to contactless technology; • Personal banker helps with all issues concerning banking products and services 24/7; • Concierge service: exclusive, free of charge package of services including a range of different arrangement, assistance, advisory and information services for cardholders available 24/7; • Free access to comfortable MasterCard business lounges at Boryspil International Airport and Kyiv Airport (Zhulyany), offering an atmosphere of excellent services and comfort where VIP travelers can prepare for a pleasant trip and use their time productively prior to departure; • Fast Track service providing access to a separate VIP corridor for air security and passport control upon both departure and arrival together with priority luggage handling at Boryspil International Airport; • Handling of insurance issues for international travel; • Discounts for comfortable shopping, unique privileges for unforgettable travel, other benefits; • A spectrum of privileges from MasterCard partners in Ukraine and from MasterCard’s world partners in the field of travel (including areas such as car rental and hotel reservation); • Expanded financial opportunities for payment card credit limits; • Enhanced possibilities to open card credit limits.

CREDITWEST BANK, through its VIP servicing package “CLUB WEST Private Banking”, can become a long-term reliable partner for you, your family and your businesses

Citi Marks Two Decades of Enabling Growth in Ukraine The only US bank in the country, Citi established its representative office in Ukraine in 1997, which was incorporated as a wholly-owned subsidiary in 1998, making it the one hundredth country in Citi’s global network. The bank’s focus continues to be on global corporations and large Ukrainian companies representing virtually all sectors of the Ukrainian economy. Through its network covering over 160 countries across the globe, the bank facilitates unprecedented access to international markets as well offering a wide range of cash management products, foreign exchange services, and financing instruments to its customers.

As Ukraine has undergone fundamental economic, societal and political changes, Citi has remained an active participant of the corporate agenda in the country, dedicated to supporting the growth of the local economy. Citi was among the first banks in Ukraine to execute complex financial transactions with FMO, Kievstar, Galnaftogas, Astarta and Kernel in the 2000s. Citi played a leading role in the benchmark USD 1 billion framework agree30

ment for GE Ukraine – this transaction marked a major milestone in the country’s efforts to modernize its transportation infrastructure and strengthen its position as a key European rail hub and trade corridor. In 2017, Citi held a first of its kind forum on shared service centers in Ukraine and brought together international businesses, consulting agencies, and regulators to discuss the opportunities presented by Ukraine as a market for shared service centers.

Committed to its clients in Ukraine, Citi has spearheaded a number of transformative projects supporting the development of the local financial market and bringing best global practices to the country. In 2005, the bank facilitated a reform to change FX market rules and empower its clients with hedging instruments. A couple of years later, Citi partnered with a group of other Ukrainian banks to launch the Kiev Prime index (interbank rate benchmark).

Innovations are core to Citi’s value proposition. Most of the bank’s products and services are accessible to clients via its award-winning

online banking platform CitiDirect that connects the bank and its clients throughout Ukraine and around the globe. In addition to the desktop CitiDirect online banking version, Citi pioneered the tablet and mobile banking experience for local corporates by introducing CitiDirect for Mobile and Tablet. In 2016, the bank launched commercial cards in Ukraine – a solution based on Citi’s globally-integrated and technologically advanced proprietary platform.

People are the most valuable asset of the bank.

Citi started with five employees back in 1997, and the staff has grown to a team of over 150 highly qualified professionals dedicated to serving their clients. The bank also continuously builds and develops relationships with the leading universities based in Kyiv as it welcomes the best students at its Ukrainian headquarters at Dilova Street. Citi also launched Citi Career Center which is a charge-free educational project aimed at helping students and graduates to understand the banking sector. www.bunews.com.ua

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www.bunews.com.ua

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Updating Ukraine’s currency laws Revisions to Ukrainian currency control legislation offer potential to significantly improve business climate

While many people in Ukraine have recently been somewhat preoccupied by conjecture about which national logo would best sum up the country’s new identity, it is worth pausing for a moment to talk about more concrete developments that directly affect Ukraine’s future progress. Producing the right visual component for Ukraine’s national branding is certainly an important issue worthy of debate. However, current practicalities dictate that we give priority focus to the many complex tasks facing Ukraine as the country seeks to harmonise its legislation.

What can we see today? Large-scale reforms may not be terribly consistent or constructive, but they are being implemented nonetheless. For an indication of how the broader process is developing, it is instructive to look specifically at the changes occurring in Ukraine’s rapidly evolving banking sector. These changes are particularly noteworthy as they directly affect both domestic and international businesses.

Many of the most recent changes that have occurred and are still in process within the Ukrainian banking industry relate to currency legislation. As of last 32

year, it has become possible to buy up to UAH 150,000 in foreign currency, when previously this limit was set at just UAH 12,000! In addition, all restrictions on the withdrawal of deposited funds have been lifted. We are now approaching the next major milestone. The Ukrainian parliament has adopted the draft law “On Currency”, developed by the National Bank of Ukraine (NBU), in its first reading. This law looks at changes in the procedure for issuing currency licenses, and, should the document go into effect, individuals may then transfer funds abroad without any restrictions.

This law is very much in demand by business and is intended to replace an archaic decree by the Cabinet of Ministers that dates all the way back to 1993 and the early years of Ukrainian independence. This initial decree stated that permission needed to be obtained from the NBU when buying or selling currencies if the hryvnia was not involved in the exchange. It should be noted briefly that there was no guarantee such permission would be obtained. The degree to which the Ukrainian business climate will benefit and be simplified by the abolition of this process needs little further explanation: instead of going

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through the numerous channels previously necessary to obtain permission, the law suggests the NBU simply be notified post-factum of the operation.

The Law “On Currency” also envisages the abolition of individual NBU licenses for investments made abroad within set limits. Again, this will significantly reduce the bureaucratic burden of collecting an extensive package of documents that would have had to have been submitted to obtain the license in the first place within the framework of the previous legislation. In addition, it will no longer be necessary to register loans from other countries with the NBU. Important changes also concern the work of exporters and importers. According to the document, the maximum period for settlements on export and import operations may be set at more than 180 days, and sanctions for violations regarding foreign exchange regulations for players in the export-foreign exchange sector will be lessened. This does not mean a complete abolition of control – the NBU and other regulators will still have the right to inspect.

However, this will take place in a much more loyal format. Various details and clarification of the new rules will be made public at the level of other legislative acts.

Even if confirmed, these currency legislation changes are unlikely to be the last. Although many currency restrictions having been lifted since 2015, further liberalisation of the Ukrainian currency regime is one of the conditions of Ukraine’s landmark Association Agreement with the EU. It was earlier promwww.bunews.com.ua

ised that Ukraine would ensure the free flow of capital, and it would be a good thing to fulfill those obligations. You might call it a signal to our foreign partners that Ukraine is ready to build reliable and transparent relations based on European standards.

About the author: Andriy Dovbenko is the Managing Partner at EVRIS law firm

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Credit Agricole celebrates quarter century in Ukraine Interview : Credit Agricole Ukraine CEO and Chairman of the Management Board Jean-Paul Piotrowski

Credit Agricole has been present in Ukraine for 25 years. How has the bank’s footprint in Ukraine evolved over this period?

We have gone from a bank of one hundred people specializing in international companies to a full-service universal bank operating throughout the Ukrainian market. This evolution took place step by step and was the result of a gradual consolidation of our activities in this country. The first step was the opening in 1993 of a Ukrainian subsidiary of Credit Lyonnais specializing in large international companies. This subsidiary was integrated into Credit Agricole Group after the acquisition of Credit Lyonnais in 2001. Further growth came with the 2006 purchase of Index Bank retail bank, with a name change to Credit Agricole Bank in 2011. One year later, all of the group’s banks in Ukraine were merged into a single receptacle operating under the Credit Agricole brand.

Today we are the oldest foreign bank operating in the country. For the record, it should also be noted that Credit Lyonnais actually opened its first branch in Odesa in 1892, so our corporate footprint in Ukraine goes back a lot further than 25 years! We currently have 155 outlets throughout the country and a total balance of over UAH 33 billion. We employ more than 2,300 people and have around half a million customers on our books. Credit Agricole has the highest rating from Fitch among banks operating in Ukraine and we are ranked among the country’s top five most profitable banks.

What do you regard as the most significant achievements of Credit Agricole in Ukraine over the past 25 years?

Without any doubt, I would point to the merger of our activities into a unique bank. This complex merger took place very efficiently and 34

allowed us to profit from the complementarity that existed between a retail bank and a corporate and investment bank focusing primarily on big corporate clients. This made it possible for the Credit Agricole Group to become an important player in the Ukrainian banking market, covering all customer segments and offering a range of complex banking services. The numbers speak for themselves: thanks to this merger, we are now the number ten bank in Ukraine in terms of assets, with an 8% share of agro loans and a leadership position of 45% in the car financing sector. The bank has around 1,100 international corporate clients, 1,500 mid-corporate in Ukraine and 18,000 SMEs as well as over 300,000 private active customers. We are also among the top three banks in Ukraine in terms of FX markets.

As you look towards the next 25 years, what excites you most about the Ukrainian banking market?

Looking ahead, the Ukrainian banking system must be ready to evolve dynamically in order to meet the challenges of the fast-changing economic and social environment around us. One of the key ongoing themes of this evolution will be digitalization, which will remain at the center of the industry. Ukraine’s banking sector will need to develop a more sophisticated range of services to meet the growing needs of the country, including areas like insurance, asset management and structured products.

Responsiveness will also be vital, with customers expecting ever more rapid responses and unhindered decision-making. This will be particularly important as banks face growing competition from new operators providing online services. Tariffs and their composition will have to be reviewed as pricing becomes an increasingly important factor. As the www.bunews.com.ua

expectations of clients grow, the quality of services will also improve.

The relationship between banks and their customers will undergo dramatic change, with banks rethinking the balance between branches and online contact centers. I remain convinced that there will be a con-

tinuing role for branches, but this role will evolve to focus more on face to face expert interaction rather than routine banking functionality. In short, the challenges facing the industry are colossal and exciting. They will demand dynamic engagement.

You have personally been working in your current post since 2014.

What do you regard as the key milestones in the Ukrainian banking industry since you arrived in the country?

I can confirm from my own experience that the Ukrainian banking sector has undergone major changes during the last three years as a result of the courageous and decisive actions of the National Bank of Ukraine (NBU). This reform process has not been easy but it has been well handled. The NBU has succeeded in implementing a policy of proactive restructuring of the banking system. This has included obliging banks to pass stress tests and to recapitalize in order to have solvency ratios more in line with international standards. In parallel, new rules have been put in place to help the fight against money laundering and in support of better banking ethics in general.

In addition to these reforms, the NBU decision to nationalize the country’s largest private sector bank PrivatBank in 2016 was a welcome move. Due to the size of the bank, it posed a systemic risk to the entire Ukrainian banking system. The nationalization of PrivatBank sent a clear message to all Ukrainian banks that the rules of the game had changed and everybody would have to respect these new rules.

As a result of these measures, the Ukrainian banking sector is definitely much stronger today than it was three years ago. It has become profitable, it is better managed, and it is better able to support the development of the Ukrainian economy. We now see banks in Ukraine operating more in line with international standards. The entire process has sent a very positive signal to the international business community.

How does the evolution of the Ukrainian banking sector compare with developments in other former post-Soviet and Eastern Bloc countries?

Generally speaking, the evolution of the Ukrainian banking sector is moving in the right direction. As I spent five years in Poland I can see

banking industry

“The Ukrainian banking sector is definitely much stronger today than it was three years ago. It has become profitable, it is better managed, and it is better able to support the development of the Ukrainian economy� some areas where the Ukrainian and Polish markets could be considered suitable for useful comparison, but there are also many major differences. One example would be the number of banks. Even after the closure in recent years of approximately one hundred banks in

Ukraine, there are still around 80 banks active in the country, whereas the figure for Poland is closer to 30.

There is also a very high concentration of state-owned banks in the Ukrainian banking sector, with the state owning around 55% of all banking assets at present. This should evolve to ensure a more competitive balance. The overall condition of the Ukrainian banking sector remains fragile compared to that of neighboring countries, with low profitability and very high levels of nonperforming loans. The products available to retail customers are also less complex than the selection you will encounter elsewhere in the region.

The Ukrainian banking sector has witnessed some of the most radical reform measures in the country since 2014. What are the remaining reform priorities for the sector for the coming years?

It is crucial for the NBU to maintain the current dynamic of reforms and not to allow the process to stop. This also means preserving the independence of the NBU itself. It is necessary to continue to strengthen the solidity of the market by obliging banks to pass stress tests on a regular basis. Measures must continue to ensure good governance, viable business models and effective risk management. Implementation of the new Supervisory Review and Evaluation Process (SREP) based on European standards will aid this process.

Another key point is greater support for the lending market. The protection of creditor rights should be a top priority but this is not yet always the case. Even when banks secure a court decision in their favor, it can sometimes be quite difficult in practice to recover debts. This acts as a constraint on the development of the Ukrainian banking sector and it serves to inhibit lending.

About the interviewee: Jean-Paul Piotrowski is the CEO and Chairman of the Management Board of Credit Agricole Bank in Ukraine www.bunews.com.ua

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National Bank of Ukraine Governor Yakiv Smolii is a veteran with a reputation for independence

About the author: Oksana Bedratenko is an independent analyst based in Washington DC. She formerly served as the Senior Local Economist at the US Embassy in Kyiv.

As Ukraine’s economy begins to grow modestly, the country’s Central Bank (known as the National Bank of Ukraine or NBU) is striving to become an anchor of stability under new leadership. The challenges facing the NBU are formidable. Ukraine currently needs to preserve the fragile macroeconomic stability it has achieved over the past two years while using the upswing in the global economy to conduct vital reforms and stimulate further economic growth. This task, however, still meets considerable obstacles. A number of important initiatives including gas sector reform and privatization are being delayed or otherwise held back by what many see as attempts by the country’s oligarchs to find their way back into the system.

In spring 2018, President Petro Poroshenko picked Yakiv Smolii, a banking veteran with over three decades of experience in the sector, to lead Ukraine’s Central Bank. Smolii filled a post that had remained vacant for approaching one year after his predecessor Valeria Gontareva resigned in May 2017. Prior to his appointment, Smolii had served as the acting NBU governor for nine months.

Smolii’s formal endorsement by the Ukrainian president and parliament signaled that the Central Bank will remain committed to reforms. “The appointment of the Central Bank head is a signal to international partners and Ukrainian institutions that the regulator’s policy will not change and an indication that our future course will stay the same despite the expected political turbulence,” Smolii said upon his confirmation.

Throughout a long banking career Smolii has earned widespread respect within Ukraine’s financial sector, mostly for his bank-building experience.

Smolii helped transform one of the country’s inherited Soviet banks, Aval, so that it attracted the interest of Austria’s Raiffeisen, which bought the bank in 1994 in a transaction that reportedly made Smolii a millionaire.

Smolii then developed the smaller bank PrestigeBank and sold a minority package to Austria’s Erste. He has a low-profile demeanor and does not rush, a former Ukrainian banker told me. He is widely expected to be less hawkish when it comes to monetary tightening and banking sector cleanwww.bunews.com.ua

ups than his predecessor, who oversaw the largest shakeup of Ukraine’s banking industry since 1991.

Smolii is rich, independent, and tough, notes Vladyslav Rashkovan, who served with the new National Bank head as deputy NBU governor right after Ukraine’s 2013-14 Revolution of Dignity. “Smolii is in the position not to be corrupted, not to be influenced, and not to waste time,” Rashkovan tells me when we meet in his IMF office after the Ukraine delegation wrapped up its visit to the April IMF/WB spring meetings. Smolii led a large delegation to those meetings, a move that was interpreted by many as a successful effort to reinforce the message of unity among Ukraine’s reformers. The delegation included then-Finance Minister Oleksandr Danylyuk and Naftogaz CEO Andriy Kobolyev, both seen by many as key figures within Ukraine’s reformist camp. “One thing that is important is that he is quite independent,” Rashkovan says of Smolii. “It is very difficult to influence his decisions from the outside. But at the same time, he trusts his people, he can delegate decision-making, and he relies on his team to make sure that decisions are not politically motivated.”

During his tenure as acting NBU governor, Smolii carried out a conservative monetary policy. Notably, he achieved progress in financial sector deregulation while keeping the NBU out of politics. He also tried to reassure the banking sector and paved the way for a resumption in lending. “We want to create favorable conditions for all market participants now that the banking system is healthy, transparent, and clean from the problems of the past,” Smolii commented on his policies.

The NBU has been consistent in gradually lifting restrictions on foreign currencies and deregulating the banking sector, including the recent decision to lift daily limits on foreign currency trading by banks, allow early repayment of foreign currency loans, and enable online document processing related to bank guarantees. The NBU is also gradually embracing a longer-term outlook. Looking beyond the immediate future, the NBU supports the adoption of a new law which would solidify the deregulation of the foreign currency market and make the market more transparent, potentially bringing it closer to international standards and the requirements of Ukraine’s Association Agreement with the EU. In March 2018, the NBU adopted its midterm strategy, outlining major priorities for the bank’s operations. “Economic growth” is a term which one hears more often from Smolii than from many of his predecessors. But what really makes the job of Ukraine’s Central Bank head different this time is the institution. “The NBU is not a one-man show,” Smolii himself readily admits. The NBU’s institutional capacity is the ultimate safeguard of its independence from politicians and oligarchs, and this capacity has grown undeniably since 2014. “This is what makes the current central bank different from what it was four years ago, and this is what makes it different from other institutions in Ukraine,” Rashkovan notes. The post-2014 NBU includes decentralized decision-making processes with strong roles performed by NBU committees and the board. “Smolii as governor is backed by a strong institution,” Rashkovan says. “Even if he comes under external pressure, and I think that might happen, I believe he will withstand it, not only because he is a strong individual with a very independent mindset, but also because he is supported by a strong institution.”

banking industry

Ukraine’s new NBU chief

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Developing a new strategy for Ukraine’s state-owned banks Over 50% of the Ukrainian banking sector is currently state-owned but major changes are underway

The December 2016 nationalization of Ukraine’s largest commercial bank PrivatBank brought the state-owned share of the country’s banking sector to more than 50%. As a result of this development, the Ukrainian authorities set about updating strategic plans for the management and ultimate full or partial selloff of these state-owned banking assets. A new strategy was approved in February 2018, creating a roadmap for the future of Ukraine’s four state-owned banks (PrivatBank, Oschadbank, Ukreximbank and Ukrgazbank) while offering indications for the broader evolution of the banking sector in general.

There is nothing inherently bad about state ownership of banks, but there are numerous global trends worth taking into account when assessing the current situation in the Ukrainian banking industry and the plans for the future development of the country’s stateowned banks. In many cases, governments specifically identify why state ownership of particular banks is necessary. This could refer to some kind of unique public benefit that private banks cannot provide. A good example would be development banks which invest in long-term infrastructure development projects.

There are also a number of risks traditionally associated with state ownership of banks. Although individual circumstances differ, it is widely held that the state remains a less competent owner than the private sector. Governments can finance national budgets and stateowned enterprises through state-owned banks. They can also mis38

use state-owned banks to finance the businesses of individual politicians in instances of “state capture”.

There are indications that these risks are relevant to the Ukrainian banking sector. Ukrainian state banks do have a higher proportion of bad loans compared to private banks, while the country’s stateowned banks are indeed active lenders to state-owned enterprises such as Naftogaz, Energoatom, and Energorynok. They do purchase government bonds used to finance the budget deficit, and sometimes finance businesspersons close to politicians. In terms of numbers, we can also point to USD 10 billion spent to finance the recapitalization of Ukraine’s state-owned banks over the last 25 years using taxpayer money. These issues have helped to convince many observers that the risks of state ownership outweigh the potential benefits in today’s Ukraine, especially given the notably high market share of banks that are currently state-owned. It is therefore not surprising to see that some form of privatization is widely viewed as the best long-term solution. This the central goal of the strategy adopted by Ukraine in early 2018 for the country’s state-owned banks.

Ukraine’s strategy for banks under state ownership does not envisage full privatization for all four banks. The government plans for the 100% privatization of PrivatBank and Ukrgazbank, while at the same time planning to retain partial ownership of Oschadbank and Ukreximbank. According to the roadmap laid out in February 2018, Ukrgazbank will be sold by 2020 while PrivatBank will be privatized

banking industry

by 2022. A 20% stake in Oschadbank is set to be sold by 2020 to an international financial organization, with a further 25% due to be sold via IPO. In line with the updated plans, a 20% stake in Ukreximbank is expected to be sold by 2021.

The government has also formulated the goals for Ukraine’s stateowned banks. Key priorities include fuelling the country’s continued economic growth and increasing access to loans in strategically important sectors of the economy. Additional goals include boosting levels of financial inclusion and increasing the share of cashless transactions in the Ukrainian economy.

The government has formulated specific priorities for separate banks. For PrivatBank, the priority segments are retail as well as small and medium-sized enterprises. The goal for Oschadbank is to retain its position as the country’s top universal bank. For Ukreximbank, two alternative strategies have been developed, either retaining its current business model or focusing more specifically on export-import operations. Meanwhile, Ukrgasbank will develop services in the ecobanking sector.

The current reform strategy for Ukraine’s state-owned banks also includes plans to improve corporate governance within the banks themselves. A number of specific measures to help achieve this goal were included in a draft law which the Ukrainian parliament failed to support in March 2018. This failure was due to the fact that many parliamentary deputies from within the ruling coalition itself did not vote for the draft law. Despite this setback, the government is currently preparing for another attempt to get the law adopted. Introduction of independent supervisory boards at Oschadbank and Ukreximbank will be one of the key steps in the envisioned corporate governance reform of Ukraine’s state-owned banks. If fully implemented, this reform aims to minimize the impact of political forces on the daily operations of the country’s state banks.

To summarize, I can say that the updated national strategy adopted in early 2018 is positive step towards the reform of Ukraine’s statewww.bunews.com.ua

owned banks. However, it is important that the intentions outlined in this document translate into real actions. As we saw in March, initial efforts to pass a law on the corporate governance of state-owned banks ended in failure due a lack of the requisite parliamentary support. This highlights the importance of political will. However, there is reason to hope that the government’s ambitious reform plans will get back on track and allow Ukraine to realize the privatization plans it has for the country’s state-owned banks.

About the author: Dmytro Yablonovskyy is Deputy Director at the Center for Economic Strategy and an economic development expert at Reanimation Package of Reforms, Ukraine’s largest civil society coalition uniting 83 NGOs and over 300 experts.

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WEST UKRAINE’S LIFESTYLE GUIDE

The best of Lviv since 2008

Expert view

INVESTMENT CLIMATE OVERVIEW IN THE ENERGY SECTOR Ukraine aims to reduce its dependence on imported energy resources to 33% by 2035. It goes without saying that this objective is not attainable without building up the domestic production of energy resources, and, in particular, hydrocarbons. Investors should be encouraged to invest more funds into exploration and production of this type of energy resources. In this line the government should provide a stable legal framework, simple and transparent licensing system, efficient investment protection, attractive fiscal policy, and equal access to the mineral resources.

It is worth noting that the period between 2017 and the second quarter of 2018 has been revolutionary in terms of improvements in the investment climate in energy sector. Subsoil users have observed a number of dramatic positive changes such as: 1. Revocation of preferences for state-owned companies in obtaining special permits outside an auction procedure; 2. Starting from 2018, royalties were decentralized, and 5% of the sums are now paid to local communities; 3. New Rules for the Development of Oil and Gas Deposits were approved; 4. An obligation of subsoil users to reevaluate the reserves every five years has been canceled.

5. Deregulation Law no. 2314-VIII (previously, bill no. 3096d) which allowed to speed up drilling and commercial and research and commercial development by more than 18 months (previously, the entire process took more than 40 months).

Royalty rates for hydrocarbon production have been significantly reduced as well as economic efficiency of production sharing agreements (PSA) have been renovated. The above reforms are the result of the thorough and consistent joint efforts of members of the Ukrainian Parliament, government, and business community.

The concept of development of the Ukrainian gas production industry provides for the twice increase of domestic natural gas production by 2020.

It is very clear that new oil and gas fields have to be explored and developed to support the growing trend. At the same time, in 2017, the State Service of Geology and Mineral Resources hold no auction for granting of special permits to operate oil and gas reserves due to a variety of reasons.

In Ukraine, the majority of special permits to operate oil and gas reserves is unfortunately granted outside an auction procedure,

Yuliya Borzhemska Co-Chair of the Chamber Energy Committee Manager of Regulatory Policy DTEK Oil&Gas LLC which deters the growth of healthy competition, introduction of modern approaches to the development of mineral resource reserves, and the development of the oil and gas industry in general.

The government plans to change this situation in 2018 by holding two auctions for special permits to explore and extract hydrocarbons at more than 50 new fields and one international tendering procedure for production sharing agreements in respect of at least five oil and gas deposits on the continental shelf and in the exclusive economic zone. The State Service of Geology and Mineral Resources announced its readiness to auction more than 40 oil and gas fields in 2018.

The government strives to engage foreign investors into development of the mineral resources, as this will allow engaging new technologies and capabilities of foreign companies, improve the quality of work and speed up the production.

To attain this objective it is required: 1. To determine potential gas and oil reserves; 2. To prepare information about an auction/tendering procedure in English; 3. To prepare a data room for each site where geological data will be disclosed; 4. To prepare a description of applicable regulatory requirements in English; 5. To introduce Prozorro electronic platform or a similar platform for holding both auctions for special permits to develop mineral resources and tendering procedures for PSA; 6. To arrange a “road show�: to announce auctions and tendering procedures, present Ukraine during international industry-specific events as a state with favorable environments for investments in the mineral resources development; 7. To hold the first round of oil and gas auctions and tendering procedures.

If governmental agencies, members of the Ukrainian Parliament, and business community continue their cooperation aimed at the reform the oil and gas industry, implementation of the III Energy Package, integration with the European energy market, the energy security and investment attractiveness of Ukraine will increase.

Ukraine has a real opportunity not only to attain energy independence but also become a steady exporter of energy resources to EU states.

Expert view

NO AUCTIONS, NO GAS

Vladyslava Levakina Chamber Junior Policy Officer (Energy issues) vlevakina@chamber.ua

Ukraine’s Ministry of Energy and Coal Industry recently presented a consolidated Report on the Ukrainian Fuel and Energy Complex Development Status for Q1 2018.

The first thing to strike the eye on the gas extraction slide is the absence of overall production growth and 9.1.% year-on-year decline in production in the private sector, which obviously jeopardizes the Government’s ambitious goals to reach energy independence by 2020.

Such statistic is hard to justify as we currently witness a number of positive developments in the regulation of the Ukrainian gas production market. For instance, the Parliament has passed Draft Law #6676-d, dated December 7 (2245-VIII) reducing the natural gas royalty rate on all new wells drilled after January 1, 2018 from 29% to 12% guaranteeing that it will not change over the next five years. This fiscal initiative has been shortly followed by a significant improvement in the permitting process thanks to the adoption of Draft Law #3096-d. After years of patient expectations, the business community has finally received sufficient legal framework for land acquisition and considerable simplification of

the permitting process, which should ensure uninterrupted exploration and production cycles. Although such legislative tuning falls short of systemic and overwhelming reform, recent changes have been praised by experts and are viewed as positive signals for investors.

What remains unexplainable in this chain of positive changes is the absence of auctions for the award of the relevant subsoil usage rights. It has been almost two years since the Ukrainian State Service for Geology and Mineral Resources announced any oil and gas auctions, ignoring complains from market players and providing zero chances for newcomers to enter the Ukrainian market, and for existing producers to expand their activities.

Recently both the Ministry of Energy and Coal Industry of Ukraine and the State Service for Geology and Mineral Resources of Ukraine started sharing their respective plans for launching production sharing agreements’ tenders and auctions for granting of subsoil usage rights, and the whole extractive industry is expecting a busy summer. If that does not happen, the downward trend in gas production is the most likely to continue.

CHAMBER ENERGY COMMITTEE Chamber Energy Committee has been successfully operating for many years within the Chamber with the mission to represent and protect the interests of the leading energy companies as well as promote the further development and modernization of Ukraine’s energy sector in support of the vision of a more energy self-reliant Ukraine.

Over the last several years three editions of the White Paper on Oil & Gas Reforms in Ukraine were developed by the Chamber Energy Committee Co-Chairs, experts of the Chamber Member Companies and Energy Steering Committee Members. These publications are aimed to communicate the position of independent private companies and biggest investors in Ukraine to responsible state authorities and experts on how the business community sees the reform of the oil & gas sector. As a basis for the White Papers we took Chamber Position Papers and developments regarding crucial issues of energy sector which have been in the focus of Committee’s activities over the last years. In addition, the Chamber developed a list of practical recommendations for each section, implementation of which is seen as essential for achieving improvements in mentioned areas. According to the third edition

of the White Paper on Oil & Gas Reforms in Ukraine, the business community see the necessity to develop brand new Subsoil Code as one of the major need, which would provide for clear subsoil use regulation and accountability as well as set efficient measures of security of investment in production of natural resources.

The Chamber actively supports reforms for liberalization of Ukrainian energy sphere and establishment of competitive and non-discriminatory markets in all energy sectors: further deregulation of upstream sector, efficient functioning of natural gas market and free cross-border trade, transparent and fair market conditions in the sector of oil & gas products retail and further steps in financial policy to increase investments in energy sphere of Ukraine.

Among main priorities of the Chamber Energy Committee: improving regulatory and taxation system in oil and gas sphere, ensuring the liberalization of energy markets in Ukraine, and promoting the establishment of level playing field in Ukraine’s energy sector.

B2G Dialogue DIPLOMATIC INSIDERS CLUB MEETING “Customs and International Trade Facilitation: From Concept to Implementation” – hot topic that was discussed in the framework of the Chamber’s Diplomatic Insiders Club. Representatives of foreign diplomatic missions, international financial institutions and donor organizations gathered to get insights from experts of the Chamber Member Companies: EY Ukraine - Eduard Zlydennyy, Co-Head of the Chamber Working Group on International Trade; Robert Zeldi, Expert of the Chamber Customs Committee; Anton Melnyk, Head of the Chamber Working Group on Non-Tariff Regulations; and Kimberly-Clark Europe - Dmytro Fedechko, Co-Chair of the Chamber Customs Committee. International trade issues, achievements and challenges of trade facilitation in Ukraine, launch of “Single Window” system and non-tariff regulations issues as well as economic, political and social implications of grey import were discussed.

MEETING WITH OLEG PETRENKO, HEAD OF THE NATIONAL HEALTH SERVICE OF UKRAINE Meeting participants discussed the vision of development of the National Health Service of Ukraine, particularly in terms of monitoring and estimating the need in healthcare services and medicinal products, reimbursement of the medicinal products under the guaranteed package, peculiarities of including private clinics to the reform and of signing contracts on medical care for population.

ROUND TABLE “CURRENT STATE OF IPR PROTECTION IN UKRAINE” The event was aimed at discussing the most urgent issues related to the development of intellectual property rights protection, in particular status of implementation of the EU-Ukraine Association Agreement in regard to IPR sphere, status of creation of the National Office on Intellectual Property, and information regarding “Special 301” Report.

B2G Dialogue

ROUND TABLE “DEALING WITH DISTRESSED ASSETS (NON-PERFORMING LOANS) IN UKRAINE: EXPERIENCE OF KEY MARKET PLAYERS” Chamber Members had a great opportunity to discuss Non-Performing the National Bank of Ukraine; Mykhailo Dovbenko, First Deputy Head Loans (NPL) situation in Ukraine with representatives of the National of the Verkhovna Rada of Ukraine Committee on Financial Policy and Bank of Ukraine, Verkhovna Rada of Ukraine Committee on Financial Banking; Olena Nuzhnenko, Financial Director of Deposit Guarantee Policy and Banking, Deposit Guarantee Fund and state-owned banks. Fund. Dynamic experience sharing of approaches to dealing with NPL Among keynote speakers were: Kateryna Rozkova, Deputy Governor of and discussion of the ways of reducing the amount of NPL in the future.

BANKING & FINANCIAL SERVICES COMMITTEE MEETING WITH OLEKSANDR PANCHENKO, COMMISSIONER OF THE NATIONAL SECURITIES AND STOCK MARKET COMMISSION The meeting was devoted to the discussion of the concept of building the second pillar of the Ukrainian pension system and in the course of discussion, Oleksandr Panchenko, Commissioner of the National Securities and Stock Market Commission (NSSMC), presented NSSMC Concept.

MEETING WITH YANA BUGRIMOVA, HEAD OF DEPARTMENT OF TAX POLICY OF THE MINISTRY OF FINANCE OF UKRAINE The meeting was devoted to the discussion of recent changes in tax legislation, plans of the Ministry of Finance of Ukraine for this year, and other important for business community issues within the tax sphere.

Round Table “Ukraine on the Path of Privatization” On May 16, the American Chamber of Commerce in Ukraine jointly with Chamber Member Company INTEGRITES held the Round Table “Ukraine on the Path of Privatization”.

The event was aimed at discussing the current state of privatization reform as well as identify further steps that are important for improving the investment climate and simplifying the privatization process. Welcoming remarks of the president of the American Chamber of Commerce in Ukraine Andy Hunder were followed by the presentation on “Privatization of Public Property: What do we have under the new Law” delivered by Dr. Oleksiy Feliv, Managing Partner of INTEGRITES, Chamber Infrastructure Committee Co-Chair who also moderated the event.

The participants discussed the following issues: the state of the development of bylaws for the full implementation of the Law of Ukraine “On Privatization of State and Communal Property”; expectations of investors on the implementation of privatization reform; privatization in the eyes of International Financial Institutions and private investors; interest of foreign investors in some of state-owned enterprises from Privatization List; approval of the list of strategic enterprises that cannot be privatized.

Among keynote speakers of the panel discussion were: Sevki Acuner, Country Director for Ukraine, European Bank for Reconstruction and Development, Vice Chairman of the Board of Directors of the American Chamber of Commerce in Ukraine; Volodymyr Omelyan, Minister of Infrastructure of Ukraine; Vitaliy Trubarov, Acting Head of the State Property Fund of Ukraine; Maxym Nefyodov, First Deputy Minister of Economic Development and Trade of Ukraine; Yuliia Kovaliv, Head of the Office of the National Investment Council under the President of Ukraine.

SPONSOR OF THE EVENT:

Chamber Football Tournament Football is in the air! The Football Tournament by the American Chamber of Commerce in Ukraine has already become a traditional event for Member Companies. While everyone in Kyiv was thrilled by 2018 UEFA Champions League Final, 16 teams competed with persistence and passion to prove that their company is not only a business leader but also sports professional and a close-knit team. Congratulations to the winner, team lifecell, and many thanks to everyone who participated.

Best player – Andrii Okhrymenko (Procter & Gamble) Best goalkeeper – Yevgen Denisov (lifeсell) Best full-back – Viktor Radchich (Nestlé) Best forward – Maksym Zaporozhan (Lactalis) SPONSOR:

MEDICAL SUPPORT

SOFT DRINKS PARTNER

SOFT DRINKS AND GIFTS PARTNER

LOGISTIC PARTNER

TECHNICAL PARTNER

Compliance Club Meeting On May 24, Chamber Compliance Club held the first meeting in the new format. During the panel discussions, featuring representatives of business community, Business Ombudsman and representatives of state authorities discussed several elements of effective compliance program: tone at the top, practical challenges and solutions in implementing compliance policies and procedures, independence, resources and qualifications of compliance officers. Meeting participants had a chance to get insights on combining these elements. This event was the first one in the series of events devoted to the eleven elements of effective compliance program, which the Chamber plans to hold this year.

SPONSOR OF THE EVENT

7.07 KANIV

ОРГАНІЗАТОР:

ІНФОРМАЦІЙНА ПІДТРИМКА:

ГОТЕЛЬ-ПАРТНЕР:

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society

2018 Champions League Final in Kyiv showcases best and worst of Ukraine Maidan magic saves Ukraine’s blushes after price hikes create accommodation chaos Kyiv’s preparations to host the 2018 Champions League Final in late spring were something of a rollercoaster ride that highlighted the very best and worst of Ukraine. The international media buildup to the big match began with a flurry of negative stories in early May criticizing Ukrainian hoteliers and apartment rental services for inflating prices to astronomical levels. Absurd increases of 1000 percent and higher risked pricing fans out entirely and turning the prestige event into a complete farce. However, by 10 May the UK’s Daily Mail newspaper was positively jubilant as it reported, “Liverpool fans rescued by Kyiv locals after Champions League hotel price hike.” Elsewhere, Reuters added to the optimistic mood with the memorable headline, “Ukrainians offer Champions League fans free bed and borscht.”

The sudden change was due to an online initiative launched by Kyiv residents who responded to evidence of price-gouging tactics by inviting football fans into their homes. Ordinary Ukrainians were soon signing up for this social media campaign in droves, offering to accommodate Liverpool and Real Madrid supporters free of charge. As more and more foreign fans made contact with their future Ukrainian hosts, the compliments flew thick and fast. “What a warm wonderful gesture from the people of Kyiv and Ukraine,” read one typical comment on the popular Liverpool Echo website. “What you are doing shows that humanity still has hope,” offered a Spanish journalist in a post to the initiative’s official “Kyiv FREE Couch” Facebook page. In the end, almost ten thousand people signed up to host visiting supporters, with the story attracting considerable attention in the Spanish and British media. What had looked like a looming PR disaster for Ukraine instead became a memorable demonstration of the country’s infinite ability to inspire renewed faith in human nature.

Maidan Magic

Many foreign observers reacted to the generosity of Kyiv residents with amazement, but perhaps they should not have been so surprised. It is hard to imagine any other city in Europe where ordinary folk would consider opening up their homes to complete strangers, but when it comes to the Ukrainian capital such behavior is actually nothing new. During Ukraine’s two post-Soviet revolutions, thousands of Kyiv residents happily gave protesters a place to sleep, with many even ferrying groups back and forth from Maidan Nezalezhnosti (Independence Square) to their apartments in order to provide them with a chance to shower and enjoy a hot meal. Those who offered accommodation and basic amenities to protesters played an essential part in the vast volunteer movement that made possible both the 2004 Orange Revolution and the 2014 Revolution of Dignity. Without the sustained support of so many Kyiv residents, neither movement could have maintained the necessary momentum over an extended period.

This spirit of volunteerism played a decisive role once again when Russia invaded Ukraine in spring 2014. With the threadbare Ukrainian army in a state of disarray and advancing Kremlin forces openly declaring their intention to partition the country, salvation would depend on a nationwide wave of community mobilization that succeeded in building a patchwww.bunews.com.ua

work volunteer fighting force virtually from scratch. Many of those who marched off to the frontlines of eastern Ukraine in April 2014 were veterans of the Maidan barricades, while those who had worked to provide support throughout the long winter months of the Maidan now turned their attention to crowd-funding everything from body armor to basic medical supplies. Meanwhile, many of the almost two million Ukrainians fleeing Russian occupation in the east of the country received offers of temporary shelter from residents in towns and cities across the country.

In what was to prove Ukraine’s finest hour, nobody waited for the state to intervene.

Providing free bed and board to visiting football fans does not warrant direct comparison with these momentous moments, of course. Nevertheless, there was something of the Maidan magic in the selfless and resourceful response of ordinary Ukrainians to unscrupulous Champions League price gouging. It is one more example of the Ukrainian population’s readiness to rally against arbitrary injustice. In typical Kyiv grassroots fashion, they chose to do so by relying on their own resources rather than expecting a dysfunctional establishment to provide solutions.

Standing in for the State

Ukrainians have acquired this talent for volunteerism through painful experience. In many ways, it reflects poorly on Ukraine’s post-Soviet statebuilding efforts, illustrating the lack of effective institutions capable of regulating anything from the basics of democratic governance to the pricing policies of the country’s hospitality industry. In this sense, it is a stark reminder of independent Ukraine’s well-publicized shortcomings. However, it also points to the resilience of Ukrainian society and the spirit of solidarity that has kept the nation afloat against what have often seemed like overwhelming odds.

This state of affairs cannot last indefinitely. At some point, the Ukrainian state must rise to the challenge and fill the many gaps currently being plugged by volunteer zeal and civil society muscle. The process is already underway in areas such as the military, which is now unrecognizable from the ragtag battalions of summer 2014. This progress urgently needs to spread to other areas of government if Ukraine wishes to move beyond the crisis management stage of nation building and begin consolidating its position as a European democracy.

Taste of the Real Ukraine

For the time being, the willingness of ordinary Kyivites to welcome visiting football fans into their homes succeeded in shedding light on a side of Ukrainian society that international audiences might otherwise rarely encounter. In an era of deliberate disinformation and fake news, the shameless price hikes and unprecedented hospitality of Kyiv’s Champions League preparations allowed the world to come face to face with the authentic Ukraine, warts and all. It is a country where far too many businesses still feel they can act with impunity, but is also a place where ordinary people are prepared to go to extraordinary lengths to help one another.

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How to buy Ukrainian property remotely Investors do not need to be resident in Ukraine – but the right local partners are vital

People invest in overseas properties for all kinds of reasons, ranging from diversification to rental income and capital returns to lifestyle considerations such as obtaining foreign residency in another country. More and more investors are choosing to do this without traveling overseas to make their purchase.

Some countries require your physical presence in order to buy property. What about Ukraine? Can you buy property in Ukraine remotely? The answer is yes.

Before you attempt to purchase Ukrainian real estate remotely, there are a number of steps you should consider taking. First, educate yourself about Ukraine’s real estate market. Next, select a capable broker whom you can trust and sign a power of attorney (“POA”) for your broker’s legal partner to obtain a Ukrainian tax ID on your behalf and get it notarized and apostilled in your home country (or get it notarized at a Ukrainian embassy or consulate). You must send the original authenticated POA to your broker by courier such as FedEx or DHL. After obtaining a Ukrainian tax ID, repeat the notarization, apostille/authentication and shipping process for a second POA for your broker to purchase property on your behalf, and if necessary, to open a bank account for your purchase. Once these steps are complete, you can proceed with the purchase of your investment property.

Doing Your Homework

Ukraine’s residential real estate market is still a long way from being a place for do-it-yourself investors. Finding quality price and market information is not a straightforward process or something you can easily do online. Ukraine’s real estate agents are not legally required to obtain licenses, nor does the industry follow a formal code of ethics, so their knowledge and level of professionalism can sometimes leave a lot to be desired. This means that potential remote purchasers are not just looking for a broker to effect a mechanical transaction. Instead, you will need to find someone whom you can trust to be your real estate investment advisor in Ukraine, who will help to educate you about Ukraine’s economy and the outlook for its real estate market.

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A good broker will take the time to understand your requirements and investment goals and will help you find opportunities and avoid the potential minefields of buying an investment property in Ukraine. Your broker should also have broad and deep knowledge of the local rental market. For example, Kyiv is Ukraine’s No.1 real estate market and Lviv has emerged as the country’s No.2 real estate market, but these markets offer different opportunities. In Kyiv, long-term rental apartments in the premium downtown segment rented to diplomats and corporate clients provide the best investment returns. However, if you are thinking of buying an investment property in Lviv, then short-term rental apartments in the Old Town usually offer the best returns. Smart investors will seek out local partners who can provide this kind of insight.

Legal Matters

In Ukraine, it is not possible to use an electronic notary and digital signatures when buying property. You will need to send original documents to your broker in Ukraine via courier such as DHL and FedEx. Once you have selected your broker, their legal partner can send you a draft power of attorney to authorize them to obtain a Ukrainian tax ID on your behalf (registration of ownership title in Ukraine requires an owner to have a tax code). You will need to get this POA notarized and apostilled in your home country. An apostille is used to authenticate your notarized document so that it may be accepted in other countries that are parties to the Hague Convention. Different countries have different procedures for obtaining apostille, so you will need to investigate the procedures in your home country. Alternatively, if you live near a Ukrainian consulate or embassy, you can take the POA there and have it authenticated by a Ukrainian notary and skip the apostille step. If your country is not a party to The Hague Convention and you do not live near a Ukrainian consulate or embassy, then you will first have to submit the document to your country’s department of foreign affairs. After that, you can submit this document to the consulate of your country, and only then to the ministry of foreign affairs of Ukraine.

Collecting Income

Since you will be investing remotely, you will need to find a real estate agent who can offer you a complete, turnkey solution that includes legal and tax support, due diligence, buying a property, renovating your property in a manner that will maximize its investment yield, finding tenants, and managing the property. Here it should be noted that investment-grade properties in Ukraine with attractive yields almost always require some form of renovation (partial or complete), so investors should bear this expense in mind when budgeting their property investments in Ukraine.

You should also keep in mind that Ukraine currently has currency controls and strict banking regulations in place, so you will want to find a broker who has

experience working within these rules to help foreign clients buy property by overseas bank wire transfer. You will need a partner who can advise you on the best way to structure your purchase to allow you to repatriate rental income, pay your Ukrainian taxes, and sell your property in the future. Very few brokers in Ukraine have this experience, since most apartments in Ukraine change hands in exchange for physical cash.

real estate

After obtaining your Ukrainian tax ID, you will need to repeat the notarization, apostille/authentication and shipping process for a second POA to authorize your broker to purchase property on your behalf, and if necessary, to open a bank account to complete your purchase.

When agreeing upon a power of attorney, you will want to avoid granting wide and ambiguous lists of powers to your broker. The more specifically the document is written, the more secure you will be. You will also need to consider whether you want to grant your representative the ability to transfer any of the rights under the power of attorney to any other person (this must be indicated directly in the POA). The validity term is another key provision of the power of attorney.

Challenging Environment

Buying property in Ukraine remotely is possible. It is not necessarily easy, but it is not too difficult either, once you get beyond the paper chase. As with many things, the biggest steps are the initial ones, including getting comfortable with the investment case for real estate in Ukraine and finding a broker who can act as your trusted advisor, someone who you feel will be capable of delivering you an investment asset and income stream on a turnkey basis, no matter where you are.

Special thanks to attorneys Vasyl Cherednichenko and Tetiana Yashchenko at the law firm ExpatPro for their contributions to this article. Please note that this is article not intended to replace qualified legal advice. You should also bear in mind that your specific circumstances may differ from the assumptions used here.

About the author: Tim Louzonis (tim@aimrealtykiev.com) is a co-founder of AIM Realty Kiev and AIM Realty Lviv, real estate agencies that specialize in real estate for foreign investors and expats. Tim is a long-time expat with Ukrainian roots. He first came to Ukraine as an exchange student in 1993 and returned in 2008.

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legal

Renewable energy auctions in Ukraine New stimuli can provide fresh incentives for investors eyeing Ukraine’s attractive renewables sector Investors who are focused on the Ukrainian market need to clearly understand that auctions will be optional for power production plants with smaller installed capacity, with small plants able to opt for either feed-in tariff or auctions. Interestingly, the guidelines focus on larger projects, which explains the reasoning for the apparent discrepancies in the concept as currently discussed in Ukraine.

Pricing

About an author: Yaroslav Petrov (yaroslav.petrov@asterslaw.com) is a partner at Asters focusing on energy law projects and dispute resolution.

This article was coauthored by Olena Sichkovska, Associate at Asters.

Ukraine’s Parliamentary Committee on the Fuel and Energy Complex, Nuclear Policy and Nuclear Safety is currently working with other stakeholders to develop new stimuli for the renewable energy sector in Ukraine. The new mechanism under development foresees an auction system that will be similar to those frequently used overseas. The proposed Ukrainian model of auctions will be a tailor-made mechanism based on best global practices. If adopted, this auction system would be a further step forward in the renewable energy sphere that could open up new opportunities for investors in Ukraine.

The most recent discussion on the concept was held on 19 April 2018. One month earlier, the European Bank for Reconstruction and Development (EBRD) and the Energy Community Secretariat in collaboration with the International Renewable Energy Agency (IRENA) prepared Policy Guidelines on Competitive Selection and Support for Renewable Energy. These guidelines set out best practice for the key design principles for such competitions, and should help Ukraine to elaborate the best RES support scheme. This raises the question of whether the current concept is in line with the guidelines.

The Committee proposes to enact the auction system as of 1 July 2019. The current concept anticipates auctioning of state and special (e.g. Chornobyl project) quotas for wind and solar power, as well as stipulating no retroactive changes to the law. The guidelines support implementation of a “pilot” project as it is important that auction schemes are structured to allow lessons to be learnt at the initial stages. Ukrainian developers should also take into account that the anticipated changes should be published beforehand to ensure clarity for potential investors.

Auction Terms

Annual quotas for power production will be defined by the government upon the submission of the Ministry of Energy and Coal Industry of Ukraine following consultations with the relevant electricity transmission system operator (TSO, Ukrenergo). The role of the TSO in the support mechanism will thus be enhanced in order to better manage the already discernible constraints related to RES integration into the power system. By comparison, the guidelines recommend nomination of a credible institution to administer the auction.

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The concept sets the ceiling price of 1 MW equivalent of the “green” tariff as stipulated by the Electricity Market Law. The winner will be determined based on this price. Auctions will be required for projects with a planned installed capacity of up to 10 MW for solar, and up to 20 MW for wind power plants. There will be no changes for renewable energy sources other than solar and wind. The “green” tariff will be decreased for solar power plants by 30%, and for wind power plants by 10% as of 1 January 2020. Not surprisingly, many market participants have met the mandatory nature of auctions for certain types of projects with caution. Guaranteed Buyer (a company that will substitute SE “Energorynok”) shall have obligations to buy electricity from RES on the terms of auctions.

Conclusion of PPA

Any Power Purchase Agreement (PPA) concluded on auction terms will be valid for a term of fifteen years from the date of commissioning. Pre-PPAs executed before 1 July 2019 shall secure the “green” tariff at the level effective at the moment of their execution, which is a secure mechanism for investors. PrePPAs should allow certain time periods for projects to be completed in order to be eligible for the “green” tariff. The guidelines place the emphasis on providing investors with as much security as possible, which at the same time will not distort competition and is of questionable utility. Any pre-PPA will serve as the key instrument driving investor confidence in future projects.

Qualification for Auctions

The guidelines foresee that successful auctions require a number of bidders that exceeds the available capacity, making it important to have qualification requirements that are not excessively onerous and that do not impose high transaction costs. To qualify for the auction in line with the concept, bidders must provide a bank guarantee. The guarantee amount shall depend on the auction starting price, as well as the capacity of the project.

The guidelines recommend including post-commissioning performance milestones and penalties to ensure performance. In the concept, responsibility for imbalances will be implemented following the introduction of a fully liquid intraday market. The intraday market will be deemed fully liquid one year following its launch (under the Electricity Market Law, the new electricity market design is scheduled to be launched from 1 July 2019).

The concept is a logical continuation of renewable energy development in Ukraine, which at this point matches the requirements of the specifically developed guidelines. This new stimuli can provide a push for renewable energy and provide fresh incentives to investors. Ukrainians and potential investors can now look forward to a draft law on auctions that will help them better understand the development trajectory of the Ukrainian renewable energy sector.

interview

Europe’s future “will be decided in Ukraine” Frenchman Olivier Vedrine seeks to remind European audiences why Ukraine’s fate matters to them

About the interviewee: Olivier Vedrine is a political scientist and TV host As the Western world struggles to come to terms with a hostile Russia, many in Ukraine fear that their country’s own Euro-Atlantic ambitions could yet be sacrificed to appease Moscow. Indeed, some believe a geopolitical perfect storm is currently heading straight towards Kyiv. Recent comments by European Commission President Jean-Claude Juncker calling for an end to “Russia-bashing”, coupled with German support for Moscow’s Nord Stream II pipeline project and French President Emmanuel Macron’s charm offensive in St. Petersburg, have led many Ukrainians to conclude that Europe is losing its appetite for confrontation with the Kremlin. Meanwhile, mounting frustration with Ukraine’s own meandering post-Maidan transformation is making it harder and harder for the country’s international backers to justify further costly support. Kyiv-based Frenchman Olivier Vedrine argues that in light of this increasingly unfavorable climate, it is now more important than ever to underline exactly what is at stake in the struggle between Putin’s Russia and the Western world. Vedrine remains convinced Ukraine will be the decisive battleground in this showdown. He is on a mission to bring this message to European audiences.

“Ukraine is the key,” says Vedrine as he sits down with Business Ukraine magazine for lunch in one of Kyiv’s many elegant French restaurants. “Europe simply cannot afford to let Ukraine fail, and Russia cannot be a truly global power without Ukraine. So all roads lead to Kyiv.” The Frenchman is a political scientist and TV host who has been based in Ukraine since 2012. He arrived in the Ukrainian capital following a career in academia and a long-standing role as a spokesperson for the European Commission. Vedrine is currently best known as the presenter of weekly English-language TV show “The Western Voice”, which airs in the original English and in Ukrainian translation on Obozrevatel media holding’s TV channel OBOZ.TV. Launched in December 2017, the show is Vedrine’s latest English-language venture as he strives to raise Ukraine’s international profile and provide foreign audiences with access to credible information about a country that he sees as still struggling to emerge from many decades of deliberate disinformation. “Even today, perceptions of Ukraine are still not very clearly defined in the 62

Western world. These perceptions have long been distorted by Russian propaganda campaigns and russocentric narratives stretching all the way back to Soviet and even Tsarist times,” he says.

To counter the many misconceptions surrounding Ukraine, Vedrine seeks to offer alternative insights via his weekly TV show and through frequent media appearances, both in the former Soviet region and in his native France. He is also preparing for a series of university conference appearances in autumn 2018 which will allow the Frenchman to engage academic audiences within the EU. He hopes these conferences will encourage EU undergraduates to view Ukraine and the current confrontation with Russia in the broadest of geopolitical contexts. “We Europeans presently find ourselves at the biggest historical crossroads since the 1930s. The entire democratic system that emerged from the wreckage of WWII is facing unprecedented challenges. Ukraine is central to this struggle.”

To emphasize his point, Vedrine paints a markedly pessimistic picture of the Europe we can expect to encounter if Ukraine’s post2014 transition fails and the country finds itself forced to return to the Kremlin orbit. “There would be a huge surge in support for Putin and his policies within the EU,” predicts Vedrine. “This would translate into greater electoral credibility for populist parties all over Europe and beyond. At the same time, the moral authority of the Western world would suffer a devastating blow. It would be a huge gift to Putin that would set the political tone internationally for many years to come.”

Even unapologetic advocates of greater Ukraine engagement like Vedrine recognize that in the current climate, any attempts to engage outside audiences on Ukrainian themes must contend with a mood of Ukraine fatigue that is becoming increasingly evident on both sides of the Atlantic. He says the best way to counter audience apathy and skepticism is by focusing on the localized success stories of individual Ukrainians who are changing their country at the grassroots level. “Whenever we speak about the new Ukraine, we need to make sure we are speaking about the people themselves. It is vital to move beyond abstract talk of democracy and introduce international audiences to the individual innovators, activists and volunteers who are building this new Ukraine. That is what international audiences currently lack. They have no chance to engage with this inspirational new generation of Ukrainians. Instead, all they see are endless reports about corruption and war.”

Introducing international audiences to the new Ukraine is only part of the challenge, Vedrine says. With populism and anti-establishment sentiment on the rise throughout the developed world, he believes it is also crucial to remind the West of its own comparative virtues. “We don’t need to indulge in Russian-style propaganda in order to win the argument because the fundamentals are all in our favor,” he reasons. “The West certainly has its problems, but it remains by far the most attractive system in the world today. Everyone knows that any Russian or Ukrainian who acquires even a modicum of wealth prefers to live in the Western world. They typically bring their money and their families with them. That speaks for itself.”

Ukrainians fail to celebrate Champions League success

Kyiv shone as Champions League host city but many Ukrainians focused on litter instead As the dust settled on the 2018 Champions League Final in Kyiv between Real Madrid and Liverpool, social media was flooded with comments from fans of both teams expressing delight and gratitude for their unforgettable experiences in Ukraine. “I only want to say that I’ve got nothing but love for the city and people of Kyiv!” wrote Real Madrid fan Felipe Cortez. Despite losing the final 1-3, Liverpool fans were no less effusive in their praise. Keith Edwards spoke for many when he wrote: “Whilst the result was so disappointing for my beloved Liverpool, the great times we have had in Kyiv experiencing your friendliness and hospitality was wonderful and we have arrived home with lifetime memories that have soothed our football pain.” This overwhelmingly positive grassroots verdict of Ukraine’s Champions League efforts tallied with the official assessment. UEFA president Aleksander Ceferin lauded Kyiv for “fantastic organization”, and said the Ukrainian capital “did not make a single mistake”.

Did Kyiv celebrate this unprecedented international recognition of a job well done? Not really. While English-language users gushed over the incredible time they had in the Ukrainian capital, Ukrainian social media was full of posts complaining about litter. Videos of Shevchenko Park in a state of disarray proved particularly popular. These posts were generally accompanied by withering commentaries over the failure of the Ukrainian authorities to prepare adequately, or suggestions that it was a stupid idea to hold the Champions League Final in Kyiv in the first place.

It would be comforting to imagine that this overwhelmingly negative social media reaction was manufactured entirely by Kremlin trolls whose job it is to demoralize and depress Ukrainians at every opportunity. Unfortunately, that is probably not the case. In reality, the underwhelming reaction to Kyiv’s Champions League Final success is merely the latest example of Ukraine’s debilitating national habit of casting everything in the worst possible light.

East European culture in general is famed for its fatalism, and Ukrainians are arguably the masters of the genre. Ask a Ukrainian for their opinion on virtually any subject connected with their country, and it is likely you will receive a negative response. If you ask two Ukrainians, there is a very strong change the second respondent will tell you the situation is actually far worse than his counterpart has led you to believe.

It is not hard to imagine how Ukrainians became the kings of negativity. After all, with a history as tragic and traumatic as Ukraine’s, only a fool or a criminal would dare to express public optimism. This is a country that was repeatedly partitioned by Poland, the traditional whipping boy of European partitions.

Crucially, Ukraine was also the epicenter of twentieth century totalitarianism and the scene of both Hitler and Stalin’s worst crimes against humanity.

Nor is it necessary to delve so far back into history in order to identify reasons

why negative perceptions continue to flourish in contemporary Ukraine.

Ever since the fall of the Soviet Union, Ukrainian society has been a laboratory for Kremlin fake news. Russian information warfare techniques took root in Ukraine long before the subject became fashionable internationally.

This has led to the artificial amplification of societal concerns and dissatisfaction, with reasonable public skepticism towards officialdom often taking on grotesque proportions.

In a country where things often have worked out badly, this embrace of the negative is no doubt comforting. However, it is also a self-fulfilling prophecy.

It allows Ukrainians to passively accept the status quo as inevitable while robbing any efforts to change the situation of the requisite momentum required in order to have any hope of success. If enough people are convinced that a particular reform or ambitious project will not work, there is a very good chance that it won’t.

All this also has very real consequences for how Ukraine is viewed by the international community. Journalists who visit Ukraine cannot be blamed for focusing on negative themes if that is what they most often encounter when talking to Ukrainians themselves. Likewise, investors on fact-finding missions to the country are hardly likely to be encouraged by the endless negative assessments they hear from members of the Ukrainian business community who are seeking to present themselves as knowledgeable realists. If Ukrainians have nothing good to say about their country, why should anyone else?

The embrace of negativity is closely tied to Ukraine’s other great national pastime – the hunt for betrayal. Ever since the 2014 Revolution of Dignity and the start of Russia’s hybrid military invasion, this obsession with betrayal has reached new heights. Everything taking place in the Ukrainian political arena is scrutinized for indications of treason, while virtually every single individual Ukrainian politician has been branded at one point or another as an agent of the Kremlin. In the context of Ukraine’s undeclared war with Russia, such suspicions are understandable. Nevertheless, Ukrainians desperately need to find a better balance between healthy skepticism and paranoid defeatism.

It is true that the troubled past has given Ukrainians good reason to be skeptical of optimistic appraisals. It is equally true that betrayal has been a major theme throughout Ukrainian history. Nevertheless, the biggest betrayal of all is the refusal to recognize Ukraine’s many positives. Foreigners visiting Ukraine for the Champions League Final were overwhelmed to discover such a friendly, beautiful and exciting country. It might help if Ukrainians also noticed. Constructive criticism is essential to any successful endeavor, but a consistent failure to acknowledge genuine success stories is holding Ukrainian society back.

“The underwhelming reaction to Kyiv’s Champions League Final success is the latest example of Ukraine’s national habit of casting everything in the worst possible light”

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Real Madrid captain Sergio Ramos celebrates his side’s 3-1 Champions League Final victory over Liverpool in Kyiv www.bunews.com.ua

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2018 Ukrainian Legal Industry Awards in Kyiv Representatives of Ukraine’s top law firms gathered at the InterContinental Hotel in the heart of Kyiv in mid-May for the industry’s annual Legal Awards ceremony. On a night of drama and bonhomie

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for over 250 guests in the hotel’s elegant ballroom, the Law Firm of the Year award went to Asters, while DLA Piper was recognized as International Law Firm of the Year in Ukraine.

networking events

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Kyiv Summer Terrace Season Gets Underway International networking group Fryday kicked off the summer terrace season with a well-attended event at F-cafe Marokana in downtown Kyiv in mid-May. Guests including both expat and Ukrainian professionals enjoyed an informal networking atmosphere in stunning late spring weather, with many staying on at the venue long after the official end of the event.

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Brain Drain Tops Agenda at Kyiv Forum

Members of Ukraine’s international business community converged on the Diplomatic Academy in central Kyiv in late May for a forum focusing on Foreign Direct Investment. The event was hosted by the Ukrainian-Austrian Association together with the International Council of Business Associations and Chambers in Ukraine (ICBAC). Key speakers at the well-attended business gathering included Ukraine’s Deputy Minister of Economic Development and Trade Mikhail Titarchuk, Former Minister of Economic Development and Trade Aivaras Abromavicius, and Yuliya Kovaliv from the National Investment Fund. One of the most prominent themes during discussions was the issue of brain drain and the challenges facing Ukraine as it seeks to keep the country’s economic recovery on track at a time when Ukrainians are increasingly seeking employment opportunities in the EU. “In the absence of clear-cut measures by the government to stem the flow of labor migration, it is clear that the labor market may develop into a bottleneck hampering foreign investment and further economic growth,” commented event organizer and Ukrainian-Austrian Association President Alfred F. Praus.

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Ukrainian Expat Birthday Bonanza This year’s birthday and event calendars aligned fortuitously with the birthday of three well-known Kyiv expats falling on the same Friday in mid-May. Together with a large crowd of Kyiv’s international community, What’s On magazine Editor-in-Chief Lana Niland, culinary master Robert Nuey and The Big Meet’s very own Sam Kearley celebrated their birthdays together in some style at popular downtown Kyiv venue “Ludi CasualFood” in Arena City.

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networking events

Ukrainian Amazons Celebrate International Vyshyvanka Day 2018 Ukrainian servicewomen along with female frontline volunteers and war correspondents took part in a novel fashion show in the historic heart of Kyiv in mid-May as Ukraine marked International Vyshyvanka Day by honoring the country’s “Amazons”. Ukraine is one of the possible locations of the Amazon nation of female warriors depicted in ancient Greek literature, leading many to liken the prominent role played by ladies in the current defense of Ukraine with the legends of the classical Amazons. “We wanted to illustrate that Ukrainian women are still beautiful even when they are forced to fight,” said “Ukrainian Amazons” project manager Maryna Sobotiuk.

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International Vyshyvanka Day is an annual holiday celebrated on the third Thursday of May each year. The holiday is meant to serve as a celebration of Ukrainian identity and culture, with people throughout the country and across the world donning traditional Ukrainian embroidered shirts to mark the occasion. The holiday is a relatively new invention, having begun in 2007 following an initiative by Chernivtsi National University student Lesya Voroniuk. It has quickly become one of the most popular holidays of the year, with its apolitical tone and festive vibe giving it maximum appeal to all Ukrainians.

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Asian Street Food Festival at Kyiv’s Ramada Encore Hotel As the Ukrainian capital prepared to host the 2018 UEFA Champions League Final in late May, Ramada Encore Kiev hotel welcomed hundreds of guests, friends and partners for a festive evening of open air gastronomic tourism featuring the many flavors of Asia. Guests were invited to embark on a culinary odyssey and enjoy an array of delightful dishes from a range of countries including Indonesia, Thailand, Vietnam, India and Sri Lanka.

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The special guest of the evening was DJ Miss Monique, who is currently being touted as one of the most exciting female Progressive House DJs in Eastern Europe. In recent years, Miss Monique has made her Ibiza debut as well as starring at hundreds of shows as far afield as India and the Czech Republic.

Her sizzling set was the perfect complement to the extensive Asian menu that provided the evening with its distinctive and delicious signature.

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kyiv guest

Kyiv Guest: French DJ Vianney Aime

Is this your first time in Kyiv?

Actually this is my third trip. I was here in July and November 2017.

What do you like best about Kyiv?

I really enjoy the sense of history that Kyiv exudes, but my abiding impression comes from the people themselves. In my experience, Ukrainians are real free thinkers. They are warm-hearted people with a great sense of humor. They are the reason why Kyiv is such an exceptional place with a very distinct personality. I visit lots of major European cities as a DJ and I can say with confidence that Kyiv is genuinely exceptional for having retained its own ethos and culture at a time when much of Europe is in danger of losing its individuality.

What kind of reputation does Kyiv have among your friends and colleagues in Paris?

To be honest, the reputation is mixed and opinion can be split over the changes taking place in the country. Those who share my optimistic view of Kyiv tend to believe that Ukraine as a whole is an exciting prospect that is on track to become a more intimate member of the European family.

What surprised you most about Ukraine?

Kyiv is a city full of surprises, especially if you arrive burdened by Soviet-style stereotypes.

I think the main thing to stress is that it is a quintessentially European city, which is not what many first-time visitors might expect to encounter. Kyiv is also blessed with the most beautiful ladies on earth. There is tangible

sense that Kyiv is a city moving in the right direction and gaining in self-confidence.

Where is your favorite pace in Kyiv?

Naturally, I must choose Caribbean Club. The club is a unique place that has obviously been purpose-built with clubbers in mind. I have been lucky enough to party in lots of Kyiv clubs and many have impressed me, but Caribbean stands out because of the thoughtful and original layout of the club. Another thing I find appealing is the diverse crowd the club attracts. The people at Caribbean Club are always as varied as the music, which can range from hip hop and reggae to tango and salsa. I have the opportunity to perform all over Europe, but I am always more than happy to return to Kyiv.

About the author: Cosmos Ojukwu is a Kyiv-based Nigerian journalist who has been covering Ukrainian affairs for more than a decade

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