Ukraine is accelerating reforms to align its banking and insurance sectors with EU standards by 2028 despite wartime challenges, to buttress investor confidence and deepen economic integration with Europe, its central bank governor said.
The European Union launched formal talks with Ukraine on Monday by opening the first of six topics in accession negotiations, covering the judiciary, the rule of law, public procurement, and financial control.
Ukraine hopes to open other negotiating areas later in the summer.
“We have a large-scale program of European integration,” Governor Andriy Pyshnyi told Reuters. “We believe that the war and the transformation we’re undergoing do not mean that we should slow down. Instead, it means that we should use it to accelerate progress.”
Despite the shock of Russia’s invasion in February 2022, the banking system has successfully weathered many challenges during the war, from a shifting economic environment to blackouts and cyber threats.
It is now profitable, stable and liquid, with non-performing loans near historic lows. Banks are well capitalized, and the central bank is actively seeking to implement reforms required for EU integration, Pyshnyi said.
He said Ukrainian banking regulations were now about 78% compliant with EU regulations and requirements, up from around 50% before the invasion.
The insurance sector has a lower level of alignment, at about 55%. Pyshnyi said the central bank is implementing an overhaul of Ukraine’s insurance sector to make it more transparent, stable, and attractive to investors.
Seeking Foreign Investment
For Ukrainian bankers and insurers, compliance with EU regulation is vital as the country seeks to attract billions in foreign investment to be able to recover wartime losses.
The EU is Ukraine’s key ally, providing the bulk of its financial and military support, and is also Kyiv’s main trading partner. The EU granted Ukraine candidate status in June 2022, four months after Russia’s full-scale invasion.
President Volodymyr Zelenskiy is pushing hard for Ukraine to join the EU fast, seeing it as a part of broader security guarantees required to end the war.
Pyshnyi said the central bank was working on an ambitious legislative plan, with more than 50 new laws and legal acts that will strengthen Ukraine’s financial framework to meet EU standards, while officials were also developing policies to bolster capital adequacy and operational resilience.
He said Ukraine’s economy contracted nearly 30% in the first year of the invasion, but recovered about 10% in subsequent years. Private capital will be key to help the country rebuild, he added.
Reconstruction Will Cost Nearly $588 Billion
The government and the World Bank have estimated that Ukraine’s recovery and reconstruction will cost nearly $588 billion over the next decade.
Pyshnyi said international financial aid would amount to $53 billion this year, $42 billion next year, and $22 billion in 2028.
“In other words, the amount of international financial aid will decrease if security risks reduce,” Pyshnyi said.
“We need private capital. And private capital requires infrastructure,” he said, adding that officials were also working on new legislation to kickstart the stock market in Ukraine.
The International Monetary Fund, one of Ukraine’s key international lenders, completed its first review of the country’s $8.1 billion lending program last week, paving the way for the second $690 million tranche. The IMF’s board is expected to finalize the deal next month.
The central bank also continued to lift wartime foreign exchange restrictions to support the economy, businesses, and new investments, moving from rigid emergency controls to a more nuanced, risk-based approach, Pyshnyi said.
“These are like the pieces of a jigsaw that will enable the free movement of capital to be restored as quickly as possible,” Pyshnyi said. “The free movement of capital is part of our commitments under our accession to the European Union.”
(Reporting by Olena Harmash; Editing by Jan Harvey)
