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31 January 2011

More mergers expected as banking industry recovers


Author: Armen Khachaturyan
Source: International Law Office. - 31 January 2011. - http://www.internationallawoffice.com/newsletters/Detail.aspx?r=22301

Recent months have seen encouraging signs that the Ukrainian economy is recovering from the global financial crisis, although the banking sector is not yet fully back on track.

From the perspective of international financing in general, 2010 was much more active than the previous two years, when the sector suffered a significant downturn and was largely concerned with debt restructuring. Despite the sense of revival, Ukrainian banks have unfortunately persisted in their conservative attitude to lending to the domestic market - a hangover from the crisis years of 2008 and 2009. Most banks have high liquidity, but are sitting on their money.

However, improvements are gathering pace, mainly because of the expectation of profitability in the sector. A few years ago there was a boom in acquisitions of Ukrainian banks by foreign banking groups, which expected quick returns; at present, many banks are falling well short of their expected profit levels and total losses in the banking system have reached UAH50 billion ($6.28 billion).

Consolidation is a logical step for banks that are controlled by the same group. However, the process raises numerous legal issues, requiring the merging entities to communicate closely with the relevant regulators and prepare substantial documentation. Mergers were recently announced between UniCredit Bank and Ukrsotsbank and between Dongorbank and FUIB; it is hoped that more will follow, as banks must take significant steps in order to survive in the post-crisis market.

Banking sector mergers could be greatly simplified by procedural changes from the National Bank of Ukraine and the State Commission for Securities and the Stock Market. The two main regulators must examine investors' needs more carefully and examine the aspects of Ukrainian financial legislation that are inconsistent with the international standards applied by potential foreign investors in their everyday activities. The first step should be to improve the registration process, particularly for foreign bank subsidiaries and branches. The authorities should also consider introducing a regulatory framework for implementing complex projects, such as bank asset securitisation, in order to allow Ukrainian issuers to list their securities abroad.



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