The banking system of Ukraine is currently stable, a situation that was not the case at the onset of Russia's aggression in 2014. However, it remains quite small and lacks sufficient capital to support the country's large-scale recovery after the war, according to Alexander Pysaruk, the chairman of Raiffeisen Bank Ukraine (Kyiv).
"In Ukraine, the total assets of the banking system are approximately 60% of GDP, which is one of the lowest figures in the world... The working loan portfolio constitutes about 15% of GDP – such a low figure is certainly not found anywhere else," he stated in an interview with Interfax-Ukraine.
Pysaruk clarified that the 60% asset-to-GDP ratio is primarily sustained through significant international aid, liquidity inflows into the country, and the banking system itself; without these factors, this ratio would be even lower.
"The banking system is very small. In the medium term, it is unable to support substantial economic growth and recovery," noted the head of the fourth-largest and the largest private bank in Ukraine.
He suggested that if the war ends or a ceasefire is reached next year, we can expect that the country's recovery on a large scale might begin, if not in 2025, then in 2026-2027.
"The banking system will lack the capital necessary to support significant growth in lending and financing for recovery, especially if the retrospective taxation of banks’ profits at a rate of 50% continues," Pysaruk believes.
According to him, banks currently have an excess of capital, generated by high profitability and a ban on dividend payments. However, this excess capital will be depleted in support of lending within a year or two under a favorable recovery scenario.
He pointed out that the banking system of Ukraine is fundamentally too small to handle the lion's share of the country's recovery, given that the World Bank estimates Ukraine's needs at $486 billion, while the total assets of the banking system are approximately $85 billion.
"The only feasible way for Ukraine to find such large financial resources is to attract creditors, investors, and donors from many countries. Direct foreign investments combined with loans from various sources, including foreign commercial banks, export credit agencies from other countries, and development banks, are likely to form the foundation for financing Ukraine's recovery," expressed the chairman of Raiffeisen Bank, who previously held the position of first deputy head of the National Bank of Ukraine and has worked with the IMF and ING Group.
He noted that international financial institutions such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the International Finance Corporation (IFC), and the U.S. International Development Finance Corporation (DFC) – all of them should join forces within their mandates to raise funds for Ukraine's recovery.
Pysaruk added that maintaining the corporate profit tax for banks at 25% would also help retain capital for lending to the economy at significantly larger volumes.