Banking on Ukraine

As the Post reported in a front page story, this week saw yet another major bet placed on Ukraine from abroad - the third, in fact, within less than a year. Ukrsotsbank was sold to Italy's Banca Intesa in a transaction valued at just over $1 billion.

Last year, a controlling stake in Aval was bought by Austria's Raiffeisen Banking Group for just over $1 billion, followed by the purchase of a 51 percent stake in Ukrsibbank by France's BNP Paribas. The three Ukrainian banks at hand rank among Ukraine's five largest in terms of net assets and branch network size.

Ever since the country gained independence, corruption and lack of investment have been cited as the main obstacles to economic prosperity. The sale of these top financial institutions to Western entities marks a big step in addressing such issues.

Ukraine's banking market is also, as a result, a quarter controlled by experienced Western giants with the muscle and know-how to inject fresh energy into a promising, though small, banking industry.

In the past, many Ukrainian business groups used their banks as so-called pocket banks, serving their businesses by moving money in and out of the country, financing investment projects, etc. These Western giants say they are dedicated to developing banking in Ukraine, a goal they are more than capable of achieving.

We hope they help lift Ukrainians out of the past and into the modern age where credit cards and bank accounts are a custom, not an exception. More sophisticated and transparent practices will help take the money out of the shadows, fueling economic growth.

Looking down the road, Ukraine currently has more than 150 banks. Most of these are small, and several are undergoing liquidation. With the influx of large foreign banking groups, there is a need for Ukrainian banks to consolidate to compete, sell out to bigger foreign players, or go under.

To survive, they will also be forced to adopt modern banking practices. The benefits of these new competitors from the West should bring a breath of fresh air to Ukraine's banking business.

Feb 15 2006