The present and the future of the Ukrainian financial system Hrant Bagratyan Budapest 2013

Contents 1.General overview 2.Structure of the Ukrainian financial system 3.Ukrainian commercial banks 4.Insurance market and non state pension funds

1.1. General overview Top 20 economies by GDP 2010 and Ukraine, bln of current USD 3

Disproportional developments among the subjects of the worlds economy Disproportional developments among the subjects of the worlds economy. Top 20 economies by per capita GDP, Poland, Russia, Ukraine 4

5 1.3 The essence of economic growth: cumulative economic growth In Ukraine’s GDP decreased 8.8% a year. As a result by 1999 the country’s GDP was only 40.8% of 1990’s level. In GDP increased 7.1% per year. As a result GDP increased up to 72.5% of 1990’s level. In Ukraine’s GDP decreased 8.8% a year. As a result by 1999 the country’s GDP was only 40.8% of 1990’s level. In GDP increased 7.1% per year. As a result GDP increased up to 72.5% of 1990’s level. In the country’s GDP decreased up to 69.1% of 1990’s level. In the country’s GDP decreased up to 69.1% of 1990’s level. icy-and-external-debt; icy-and-external-debtwww.ukrstat.gov.ua

But … The country shows very good performance in high- tech (by example, one of the best figures on cellular phones; Ukraine’s cultivated arable land in 2009 was he, while Russia only 3000) The country shows very good performance in high- tech (by example, one of the best figures on cellular phones; Ukraine’s cultivated arable land in 2009 was he, while Russia only 3000) It’s educated better than world average It’s educated better than world average High number of internet users High number of internet users The best figure in the world in mobile subscribers The best figure in the world in mobile subscribers

2.1. The structure of the Ukrainian financial system (2011), assets, in % to GDP ( ) Financial organizationsUSAUkraine 123 Commercial banks Non state Pension funds Insurance companies Mutual and investment funds, credit unions and other financial companies 26, , ,2 0,01 6,5 1,3

2.2. Synopsis The banking system practically absorbing all savings Labor productivity in banking sector less than in Europe but equal to Russia NPF aren’t developed and state pension fund (193 bln UAH = 50% of the consolidated budget expenses) is a permanent threat for the country’s public finances There is a shortage of instruments to create long- term investment money, mutual funds and other investment institutions – unable to provide them

Assets and liabilities of Ukrainian banks, bln UAH, AssetsLiabilities Total% of GDPTotal% of GDP

2.4. Inflation and Spread between deposits and loans, «Бюлетень Національного Банку України» FiguresYears CPI122,3112,3109,1108,0100,6 Average % on deposits, UAH, households 10,715,312,713,819,6 Average % on loans, UAH, households ,622,829

Reserve to cover possible losses on credit operations,% of all reserves under active operations of banks %3.08%4.81%11.27%11.99%12.06%

2.6. Geographical controversies of liabilities and assets of banking system, 2010 RegionsPer capita GRP, UAH thousand Per capita deposits, UAH thousand Per capita loans, UAH thousand 1234 Kiev obl and city … Chernovetz … Zakarpatya … Jitomir … 9382 … … … 3080 … 2299 … … 5550 … 5511 … 3651 The average for Ukraine

2.7. Distribution of deposits and loans between households and NFC’s in , UAH million, YearsResident’s depositsResident’s loans TotalDeposits, NFC Deposits, Househol ds TotalLoans, NFC Loans, Househol ds

Country Past due (Overdue) / total loans Provisions (reserves) for risks / total overdue loans Capital adequacy Austria2,11,775,376,411,811,7 Belgium1,71,550,864,011,912,9 France3,02,762,961,410,910,1 Germany3,42,771,477,312,512,9 Greece5,44,760,9-12,210,4 Italy4,94,646,049,510,710,4 Norway0,60,874,250,811,211,4 Portugal1,21,383,975,711,010,2 Spain0,73,2272,271,311,911,3 Sweden0,60,578,579,910,010,2 Average2,4 87,667,411,411, Figures of financial stability of European banking systems, %

2.9. Dynamics of credit risks of Ukrainian banks in , bad loans in the portfolios of banks in Ukraine

Synopsis Ukraine's loan portfolio of banks only 60.3% is formed from its own resources (deposits, interbank loans within the country). The external debt of the banks and NFC in 2012 was 56,3% of GDP. The inflation decreases but the Interest paid to the deposits increases and the interest paid for loans getting up to 29%. The spread between deposits and loans in 2012 reduced showing certain positive dynamics Further increase on reserves and capital requirements essentially decrease the capacity of the economy to finance the growth Poor regions are financing relatively rich (central) regions, the concentration grade of the economy permanently increases Big companies permanently increase their specific weight in the Ukrainian financial market

Insurance market development, CountryAssets of IC, bln USD IC’s assets to GDP, % Insurance premiums, bln USD Specific weight to the world’s data, % USA Japan UK France Germany Ukraine <0.1

The insurance penetration level of the GDP of Ukraine. Isurance premiums to GDP, %, 2009

Consolidated structure of investment portfolio world’s top 5 pensions funds, 2006,

Consolidated structure of investment portfolio of Ukrainian pension funds, end of 2010, %,

The structure of the investments of pension funds in the world and Ukraine: reverse influence making long money to short

3.6. Insurance – synopsis Very low level of development Unreasonably high specific weight of deposits in assets Limited capacity to accumulate means Dominations of state pension system Limits on cash generation