The humanitarian and economic war between Russia and Ukraine has made waves around the world, with practitioners, financiers and governments urgently stepping in to try to help.
Boosting and restoring commercial exports will be essential for Ukraine, while ensuring a safe pathway for commercial imports.
The European Bank for Reconstruction and Development (EBRD) has been one such organization, actively stepping up its support for the country which has become one of its main investment destinations, second only to Turkey.
To get an overview of the current landscape of trade and structured finance in Ukraine, Deepesh Patel of Trade Finance Global (TFG) spoke with Andy Romanov, deputy director of trade finance at Ukrgasbank, and Vladislav Berezhny, director of trade and structured finance at Crédit Agricole.
Romanov and Berezhny will speak at the EBRD’s Trade Facilitation Program (TFP) flagship conference in Istanbul. TFG is a proud media partner of this EBRD forum.
The changing landscape of trade and trade finance in Ukraine
The trade and trade finance markets in Ukraine before 2015 grew and developed very slowly, but the years 2015-2019 saw rapid development in terms of imports and exports.
In 2017, Ukrainian exports reached around ₴143 billion (hryvnias) and imports amounted to ₴162 billion, figures that were surpassed both in 2018 (when they were ₴160 billion and ₴191 ₴ billion, respectively) and in 2019 (which saw ₴164 billion and ₴195 billion).
2020 has started well, but the COVID-19 pandemic has disrupted this growth pattern, as it has for so many other countries and industries at this time.
Nevertheless, exports remained at ₴164 billion and similarly imports remained at ₴168 billion at the end of 2020, increasing again to ₴221 billion and ₴222 billion respectively in 2021.
In Ukraine, however, trade finance and trade differ significantly, with the former lagging behind the latter.
This is partly because Ukraine often feels the impact of global crises quite strongly, with the international banking community closing or limiting lines with Ukrainian banks.
This often means that, despite the large volumes of imports and exports, the lines of finance are simply not always there to support them. There is also a need to boost Ukrainian trade finance through other regulatory and marketing instruments, promoted by the Ukrainian Alliance for Trade Finance and Factoring (UATFF), the interbank trade finance lobby.
By the end of 2021, the country reached around ₴100 billion in total trade finance, with Ukraine’s banking community working closely with the international banking and trade finance sectors to help bring more credit into the country.
But February brought with it a reversal of the tides.
Within a month of the start of the war, there was a 10% decline in trade finance portfolios and a substantial decrease in origination due to seaport blockades and other military activity.
Berezhny said, “We expect that by the new year the volume of trade finance portfolios will decrease by another 20-30%.
“Nevertheless, the majority of trade finance commitments from major banks continue to contribute to the overall stabilization of the business environment.”
High interest rates in Ukraine and market adjustment to current geopolitical conditions
Fortunately, confidence in the Ukrainian banking system remained high, meaning there was no run on deposits. Regulatory changes aimed at ensuring the maintenance of economic structures were adopted at the start of the war.
Unfortunately, rising interest rates are making it more difficult for businesses to obtain needed business loans.
On June 2, the interest rate in Ukraine was raised from 10% to 25% to ease pressure on the foreign exchange (FX) market and fight inflation.
On July 21, the hryvnia-dollar exchange rate was lowered to 36.5:1, a drop of 25% since the start of the war.
Such measures have been adopted by the National Bank of Ukraine (NBU) to stabilize the foreign exchange market, thereby helping to increase the supply of foreign currencies in the country.
Deposit rates are now 13-17% per annum, with lending rates at 20% or more.
For Ukrainian companies, these rates are very high and bankers expect this to lead to a significant decrease in bank loan portfolios throughout the country, as well as in the overall liquidity of the banking system.
To help ease some of the pressure on businesses, banks have instituted payment holidays, agreed by NBU in an anti-crisis package. At this point, it is still unclear what impact this is having on the overall economy, as the situation is continuously evolving.
The response of the international banking community
Banks must continue to provide customers in the Ukrainian region with the same level of support they received before February 24.
However, the whole situation, including the imposition of sanctions against Russia, has made the role of bankers more difficult than before, especially for trade finance transactions.
The international banking groups present in Ukraine have demonstrated a strong commitment to supporting their subsidiaries and their customers by continuing to lend. Thus, despite the constraints, international trade financing operations continued.
The reality for many local banks is that direct interbank trade finance transactions without cash cover are now closed. The cost of financing has also increased, although this is generally considered a global trend.
This adds further pressure on Ukrainian businesses to stay afloat.
According to Romanov, however, many multinational financial institutions, such as the EBRD, performed their duties in a timely and efficient manner.
Romanov said: “We are very grateful to the EBRD and everyone who is now supporting Ukrainian banks, customers and Ukraine in general during this difficult time for our country.”
It’s no surprise that times of economic stress and turmoil – like the one Ukraine is currently going through – aren’t conducive to acquiring new customers.
However, during difficult times like these, it is common to see companies that have had relationships with certain banks in the past – but perhaps not actively at present – come back to rekindle those relationships because they have now need all the support they need. can get.
This is particularly the case for banks that have a reputation for delivering on promises made to customers.
This type of pattern, seen today, is not new to experienced practitioners in Ukraine, who will have witnessed similar behavior throughout the country’s economic challenges inflicted either by global events like the 2008 financial crisis, COVID-19, i.e. the Russian crisis. interventions of 2014.
This has put many bankers in a position to consider the return of these old business relationships and how they could be restructured to meet current market needs without interrupting business and commercial relations.
This culture of resilience, which seems to be shared by the largest Ukrainian banks, is a key reason why confidence has remained high.
Looking ahead, Berezhny and Romanov call on the international banking community to keep lines to Ukraine open.
They may be small and they may be limited, but for Ukraine to continue under the pressure of conflict, it needs vital support from abroad.
TFG is proud to be the media partner of the EBRD TFP in Istanbul