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Booming, but Risky: The Ukrainian Banking Sector – Hot Spot for Foreign Strategic Investors



This paper gives an overview and assessment of the evolution of the Ukrainian banking sector since the outset of transition, focusing on the most recent developments. While the 1990s saw turbulent changes against the backdrop of continuous economic contraction, the Ukrainian banking sector has been on a strong expansion path ever since the turn of the millennium, a path which appears to have been only briefly interrupted by the minor crisis of late 2004 and early 2005. Although the National Bank of Ukraine has certainly improved banking regulations and supervision, the country’s credit boom (sevenfold real increase of credit volume between 2000 and 2005, albeit from a modest base) has raised serious concerns about credit risks. Financial fragility continues to loom large in an environment where the practice of "pocket banking" (credit institutions acting as extended financial departments of owner firms) is still widespread. Over the past months, foreign strategic investors have started to move in: Led by Raiffeisen, which purchased the second-largest Ukrainian bank in October 2005, takeovers and business expansions have raised foreigners’ share in total banking assets from 13% to 26% within a year. Austrians account for somewhat less than half of all foreign-owned banking assets in Ukraine.

Suggested Citation

  • Stephan Barisitz, 2006. "Booming, but Risky: The Ukrainian Banking Sector – Hot Spot for Foreign Strategic Investors," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 12, pages 64-78.
  • Handle: RePEc:onb:oenbfs:y:2006:i:12:b:1

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    Cited by:

    1. Jana Grittersová, 2014. "Transfer of reputation: Multinational banks and perceived creditworthiness of transition countries," Review of International Political Economy, Taylor & Francis Journals, vol. 21(4), pages 878-912, August.

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    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance


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