Photo by Daria Volkova on Unsplash

A roadmap for the privatization of the state-owned Oschadbank is underway. If the privatization is successful, it will be the first of several banks. But not all are convinced that the privatization efforts will be successful. 

The Ukrainian government owns several banks, which account for more than half of all banking assets in Ukraine. By 2025, the Ukrainian government wants to bring that number down to 25 percent through privatization. The government is currently working on privatizing of the state-owned Oschadbank, which could be the first of many. 

Recently, The European Bank for Reconstruction and Development (EBRD) met with representatives of the bank to develop a strategy to reduce the state’s ownership from the current 60 percent to 25 percent by 2025. Among other things, EBRD and Oschadbank will work on improving corporate governance and attracting investors. 

“The mandate letter paves the way for further cooperation with the EBRD within the implementation of Oschad’s strategy recently approved by the Cabinet of Ministers. We express our deep gratitude to our strategic partner, which once more proved its intention to support Oschadbank on its way to greater efficiency and privatization,” said Serhii Naumov, CEO of Oschadbank, according to a press release from EBRD. 

Matteo Patrone, EBRD Managing Director for Eastern Europe and the Caucasus, agreed. 

“It (the deal) is also consistent with the EBRD’s broader partnership with the Ukrainian authorities in their reform agenda,” said Patrone, and added that EBRD experts will join the Ukrainian Deposit Guarantee Fund to promote fair conditions in the banking sector further. 

The Ukrainian Ministry of Finance announced that EBRD has agreed to borrow Oschadbank another 100 million euros to implement the plans. 

Reforms of the banking sector are needed

In July, Mark Savchuk, who is head of the civil oversight committee at the National Anti-Corruption Bureau of Ukraine (NABU), wrote about the need for reforms of the Ukrainian banking sector in a piece in the Atlantic Council. However, he also questions whether the Ukrainian state will be able to achieve its plans. 

“The current government strategy sets a target of reducing the state-owned share of the Ukrainian banking sector to 25% by 2025. However, the government has already failed to meet similar goals on several prior occasions, leading to repeated revisions of the official privatization strategy. Understandably, many observers now question whether the current plan is achievable,” wrote Savchuk and pointed out that the Ukrainian state-owned banks are full of bad management and even corruption in some cases. 

He wrote that Ukraine had had similar plans before the new one running from 2021 to 2025, which had only minor success. Savchuk points out that Ukraine always seems to be running into problems that are delaying things such as the political turmoil during the 2019 Presidential Election and the current pandemic. 

“One key problem is Ukraine’s dysfunctional legal system. This is a huge red line for international investors. Without credible rule of law guarantees, it will be difficult to attract the kind of investment necessary to make a success of privatization. Since 2014, Ukraine’s various attempts at judicial reform have repeatedly stalled or otherwise failed to convince,” wrote Savchuk, ”… Meanwhile, some skeptics remain unconvinced that the current government possesses the political will to proceed with privatization. They argue that Ukraine’s state-owned banks won’t be sold off anytime soon as they serve as a highly convenient instrument for the financing of the country’s budget deficit.”