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

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

3. 1.1. General overview Top 20 economies by GDP 2010 and Ukraine, bln of current USD 3 http://data.worldbank.org/indicator/NY.GDP.MKTP.CD

4. Disproportional developments among the subjects of the worlds economy. 1.2. Disproportional developments among the subjects of the worlds economy. Top 20 economies by per capita GDP, Poland, Russia, Ukraine 4 http://data.worldbank.org/indicator/NY.GDP.PCAP.CD

5. 5 1.3 The essence of economic growth: cumulative economic growth In 1990-1999 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 2000-2007 GDP increased 7.1% per year. As a result GDP increased up to 72.5% of 1990’s level. In 1990-1999 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 2000-2007 GDP increased 7.1% per year. As a result GDP increased up to 72.5% of 1990’s level. In 2008-2012 the country’s GDP decreased up to 69.1% of 1990’s level. In 2008-2012 the country’s GDP decreased up to 69.1% of 1990’s level. http://data.worldbank.org/topic/economic-pol icy-and-external-debt; www.ukrstat.gov.ua icy-and-external-debtwww.ukrstat.gov.ua

6. 66 1.4 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 270.000 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 270.000 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

7. 2.1. The structure of the Ukrainian financial system (2011), assets, in % to GDP (http://www.bank.gov.ua/doccatalog/document?id=121942; http://www.dfp.gov.ua/734.html )http://www.bank.gov.ua/doccatalog/document?id=121942 http://www.dfp.gov.ua/734.html Financial organizationsUSAUkraine 123 Commercial banks Non state Pension funds Insurance companies Mutual and investment funds, credit unions and other financial companies 26,3 28 12,7 33 92,2 0,01 6,5 1,3

8. 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

9. 9 2.3. Assets and liabilities of Ukrainian banks, bln UAH, www.bank.gov.ua; http://www.ukrstat.gov.ua/ www.bank.gov.uahttp://www.ukrstat.gov.ua/ AssetsLiabilities Total% of GDPTotal% of GDP 01.01.2009 01.01.2010 01.01.2011 01.01.2012 889 917 1090 1212 94 100 101 92 771 784 942 1054 81 86 87 80

10. 2.4. Inflation and Spread between deposits and loans, http://www.bank.gov.ua/doccatalog/document?id=260214; «Бюлетень Національного Банку України» http://www.bank.gov.ua/doccatalog/document?id=260214 FiguresYears 20082009201020112012 123456 CPI122,3112,3109,1108,0100,6 Average % on deposits, UAH, households 10,715,312,713,819,6 Average % on loans, UAH, households 252626,622,829

11. 11 2.5. Reserve to cover possible losses on credit operations,% of all reserves under active operations of banks 01.01. 2007 01.01. 2008 01.01. 2009 01.01. 2010 01.01. 2011 01.10. 2011 3.6%3.08%4.81%11.27%11.99%12.06%

12. 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 45848 … 9382 … 10055 … 11518 35617 … 3080 … 2299 … 2850 78568 … 5550 … 5511 … 3651 The average for Ukraine 19551844815835

13. 2.7. Distribution of deposits and loans between households and NFC’s in 2005-2011, UAH million, http://www.bank.gov.ua/Publication/econom/Buleten/2010/bull_12-10.pdf. http://www.bank.gov.ua/Publication/econom/Buleten/2010/bull_12-10.pdf YearsResident’s depositsResident’s loans TotalDeposits, NFC Deposits, Househol ds TotalLoans, NFC Loans, Househol ds 1234567 2005 134754509767477814342310607835659 2006 1859176561410886024523016050382010 2007 28387595583167239426867260476160386 2008 359740118188217860734022443665280490 2009 33495394796214098723295462215241311 2010 404214115175264488733181494146217361 2011 466042131716301128773692543500208444

14. Country Past due (Overdue) / total loans Provisions (reserves) for risks / total overdue loans Capital adequacy 200620082006200820062008 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 87,667,411,411,2 2.8. Figures of financial stability of European banking systems, %

15. 2.9. Dynamics of credit risks of Ukrainian banks in 2002-2010, bad loans in the portfolios of banks in Ukraine

16. 16 2.10. 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

17. 17 3.1. Insurance market development, http://www.iii.org/; http://www.dfp.gov.ua http://www.iii.org/ http://www.dfp.gov.ua CountryAssets of IC, bln USD IC’s assets to GDP, % Insurance premiums, bln USD Specific weight to the world’s data, % USA531045.21097.833.84 Japan353366.9492.415.18 UK188596.5246.79.09 France141363.0194.66.00 Germany137245.5190.85.88 Ukraine7.26.52.8<0.1

18. 18 3.2. The insurance penetration level of the GDP of Ukraine. Isurance premiums to GDP, %, 2009

19. 19 3.3 Consolidated structure of investment portfolio world’s top 5 pensions funds, 2006, http://www.watsonwyatt.com/europe/research/pdf/PI_300_Analysis_2007.pdf http://www.watsonwyatt.com/europe/research/pdf/PI_300_Analysis_2007.pdf

20. 20 3.4. Consolidated structure of investment portfolio of Ukrainian pension funds, end of 2010, %, http://www.kmu.gov.ua/control/en/publish/article?art_id=22835607&cat_id=73035 http://www.kmu.gov.ua/control/en/publish/article?art_id=22835607&cat_id=73035

21. 21 3.5. The structure of the investments of pension funds in the world and Ukraine: reverse influence making long money to short

22. 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