At the beginning of November, the EU Commission recommended the opening of accession negotiations with Ukraine. This brings the country's political system and economic situation into focus. And this is proving to be surprisingly stable, which is due not least to the work of the National Bank of Ukraine. Von: Viktoriia Savchuk und Julia Riedel
When the Russian attack on Ukraine began in February 2022, the National Bank of Ukraine (NBU) introduced restrictions on payment transactions, some of which have since been lifted. Since then, foreign currency transactions have been initially subject to a number of restrictions: although payment for only critical imported goods in foreign currency was still permitted, foreign loans due, for example, could no longer be serviced or repaid, and dividend payments abroad were also prohibited. However, the rapid implementation of capital controls ultimately helped to maintain market participants' confidence in the Ukrainian financial system and stabilize it despite the ongoing war. The success proves the NBU right: the inflation rate in Ukraine has fallen from 26.0 percent at the beginning of the year 2023 to 5.3 percent at the end of October - the lowest level since December 2020. Interest rates were reduced from 25 percent in June 2022 to 16 percent in October 2023. At the same time, banks are once again recording growth in deposits.
The banks have also made a significant contribution to supporting the payment system. Many of them, like ING, have relocated part of the operational facilities to the western parts of the country and invested heavily in backup infrastructure. This has enabled them to largely maintain their operations despite recurring power outages. In view of the emerging stabilization of the general data, the NBU began to lift some of the restrictions again in summer 2023, for example in the area of intercompany loan repayments, and even switched to “controlled” flexible FX rate hast been in place since October 2023.
Investments in digitalization are paying off
The NBU has also launched a project to adapt Ukraine's payment infrastructure system to the European one.
Since 1991, Ukraine has had an electronic payment system, SEP (System of Electronic Payments), which is now used to process 98 percent of nationwide interbank payments in the Ukrainian national currency, the hryvnia (UAH). SEP is a real-time gross settlement system; the beneficiaries usually receive the payment within an hour. The SEP 4 version (based on ISO20022 international standard) implemented in April 2023 also offers round-the-clock transaction processing - seven days a week, 24 hours a day.
In order to connect SEP to the EU's payment transaction system, the NBU hast defined in its roadmap, among other things, that technological developments such as instant payments should be standard in Ukraine by 2025. However, the initial focus is clearly on simplifying cross-border payments. In the course of the payment transaction restrictions at the beginning of the war, cross-border transactions declined; with the liberalizations that began in the summer, they are now picking up again.
This also reflects a change in the perception of Ukraine as a business location. GDP growth of four to five percent is expected this year, bringing local economy to pre-coronavirus levels. Business activity is picking up again, not least because people are longing for normality - and that includes consumption. International companies in particular, which are already active locally, are investing more again: One in two has concrete plans for the reconstruction period. Banks, such as ING are ready to support and onboard multinational corporates. High expectations are linked to the possibility of joining the European Union.
Authors:
Viktoriia Savchuk is Senior Transaction Services Sales Expert at ING in Ukraine.
Julia Riedel is Vice President Cash Management Consultant at ING Germany