Business Ukraine 04/2019 by Business Ukraine magazine

Issue 04/2019

AUSTRIA IN UKRAINE

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Ukrainian Banking Industry in Focus

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BUSINESS UKRAINE 04/2019: This month’s issue offers a focus on ties with Austria, one of Ukraine’s top ten investment partners with ties dating back to the two countries’ shared Habsburg heritage. Cover image courtesy of Fronius, one of the leading Austrian companies active in Ukraine’s renewable energy sector

Zelensky, Zelenskiy, Zelenskyy: spelling confusion adds to Ukraine’s veil of obscurity It would be unfair to expect Ukraine’s novice president Volodymyr Zelenskyy to take over the reins of Europe’s largest country seamlessly. However, knowing how to spell his own name in English would seem a more realistic expectation. This did not appear to be the case during the first days of his administration, or at least that was the impression created by the range of different spellings used in various government communiques and official social media accounts. This sparked a lively debate among English-language journalists and commentators covering Ukraine, with some favoring the succinct “Zelensky”, while others argued the case for the more puritan “Zelenskyi” (For the record, this author championed “Zelenskiy”). Clarity came suddenly in late May, when the Presidential Administration confounded everyone by adopting the previously unfancied “Zelenskyy” as the official English-language spelling of the new president’s name. It is, of course, unreasonable to single out Volodymyr Zelenskyy for particular criticism on this issue. As anyone who has ever covered Ukrainian affairs in any detail will confirm, spelling confusion surrounding the English-language versions of Ukrainian names is the rule rather than the exception. While some names such as Shevchenko lend themselves well to flawless transliteration, many are ambiguous enough to open the floodgates for all manner of competing variations. This results in English-language coverage of Ukraine in both the media and academia that often employs a dizzying array of contradictory spellings while referring to exactly the same people. For a country that is still struggling to shake off decades of international obscurity, this is particularly unhelpful. The past five years of hybrid warfare with Russia have exposed the extent of the problem surrounding Ukraine’s low international profile, with the Kremlin skillfully exploiting outside ignorance about the country in order to weave all manner of false narratives. Many of Moscow’s most absurd accusations have

relied heavily on Ukraine’s status as an unknown quantity, with this regrettable reality providing a conveniently blank canvas for Kremlin propagandists to deface as they wish. Spelling the English-language versions of Ukrainian names in a more consistent manner will not prove decisive in the information war, but it would at least mark a minor step away from perceptions of the country as a perplexing and often incomprehensible place where even people’s names are open to interpretation. None of this should be confused with the far more politically loaded issue of the correct spellings for Ukraine’s towns and cities. The drive to promote transliterations of Ukrainian-language place names in the Englishlanguage media is part of a much broader effort to shed the lingering vestiges of historic Russian domination. In this context, the recent decision by the UK’s Guardian newspaper to switch from “Kiev” to “Kyiv” qualifies as a small but significant success in Ukraine’s struggle to assert its national identity on the global stage. Likewise, when contemporary coverage of Ukraine features outmoded Russian-language transliterations of Ukrainian place names such as “Kharkov”, it inevitably now invites assumptions of a pro-Moscow bias. This kind of logic rarely applies to the inconsistencies surrounding the spelling of Ukrainian names. On the contrary, the seeming randomness of these spellings can be due to anything from the whims of passport office clerks to the personal preferences of individual journalists. President Zelenskyy’s recent clarification is a welcome step in the right direction that should encourage more Ukrainian public figures to end the ambiguity over their own English-language identities. This would certainly be long overdue. Ukraine’s nation-building journey is an unfinished epic that will continue for many years to come, but after almost three decades of independence, it would be nice if we could at least agree on how to spell people’s names.

About the author: Peter Dickinson is the publisher of Business Ukraine magazine and a nonresident fellow at the Atlantic Council

austria in ukraine

AUSTRIA IN UKRAINE As Austrian Ambassador to Ukraine Hermine Poppeller prepares to leave Kyiv, she says the Ukraine of 2019 is a far more optimistic and inspiring place than the traumatized country she first encountered upon her arrival four years ago Summer 2019 marks something of a changing of the guard for Ukraine’s diplomatic community. Among the many ambassadors preparing to complete their diplomatic missions to Kyiv, few have made more of a mark than Austrian Ambassador Hermine Poppeller. Since arriving in the Ukrainian capital in spring 2015, she has been a prominent presence in the political, diplomatic and cultural life of the city, helping Austria to maintain its position as a top ten international investor in Ukraine while launching numerous ambitious bilateral initiatives like the current Austria-Ukraine Cultural Year. Ambassador Poppeller’s time in Kyiv has coincided with one of the most turbulent periods in modern Ukrainian history. Looking back, she concedes that things looked bleak when she first took up her posting four years ago, and speaks of the ‘remarkable changes’ she has since witnessed. “When I arrived in Ukraine, the mood was a very depressing one. The war in the east, the loss of Crimea, and the enormous economic crisis facing the country created an environment where many people did not seem to see a way out,” the diplomat recalls. She says the first signs of recovery were already evident in early 2016, with the emergence of a new generation of businesses founded by young Ukrainians and the rise of the whole “Made in Ukraine” phenomenon. “It felt as if the country has rediscovered the courage to overcome the crisis,” she reflects. “They proved that change is possible. This is what sticks most in my mind.” The often rapidly changing environment in post-Maidan Ukraine has had a significant impact on the day-to-day operations of the Austrian Embassy during Ambassador Poppeller’s tenure. In the first few years of her ambassadorial posting to Kyiv, she says she was obliged to spend much of her time engaged in interventions on behalf of Austrian companies facing difficulties in Ukraine. This kind of firefighting has long been an :

About the interviewee: Hermine Poppeller is the Austrian Ambassador to Ukraine

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austria in ukraine

: all-too-common feature of diplomatic life in

Kyiv, but she notes that there is now significantly less need for such services, reflecting the gradual improvements in the country’s business climate brought about by the reforms of the past five years. Austrian companies have long had an outsized presence in the Ukrainian economy with Austria traditionally featuring among the country’s leading ten international investment partners. This remains the case today, with sectors such as Ukraine’s booming renewable energy industry offering additional opportunities for newcomers alongside the many Austrian companies that have operated in Ukraine since the early years of the country’s indepen-

dence. Ambassador Poppeller is also enthusiastic about the rise of the Ukrainian IT sector, which has emerged in recent years as a major driver of the country’s post-crisis economic recovery. “Awareness is growing in Austria of Ukraine’s IT strengths, and this is helping to change perceptions about the country,” she says. “Austrians are increasingly recognizing the intellectual potential of today’s Ukrainian economy and are slowly moving beyond old associations with commodities and heavy industry.” The Austrian Ambassador often returns to the theme of Ukraine’s international image, and has been active during her fouryear posting in trying to challenge stereo-

types and break down barriers. Perhaps the best example of these efforts is the current Austria-Ukraine Cultural Year, which involves hundreds of events taking place in both countries over the course of 2019 in a diverse array of fields from architecture and smart city innovation to choreography collaborations and more traditional classical music concerts. “The ultimate aim is to build networks of creative people so Austrians and Ukrainians can get to know each other better,” she says. “People who come to Ukraine from Austria are always surprised and impressed by what they encounter. This is encouraging, but it also tells us that we simply do not know enough about each other yet. In order to develop a :

Austrian Ambassador to Ukraine Hermine Poppeller pictured at the opening of the Tokmak solar energy plant in Ukraine, which features converters from Austrian company Fronius

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Greiner Packaging – designing and forming sustainable plastic solutions for a more livable future worldwide

Greiner Packaging gives the Ukrainian market a boost with packaging solutions to meet individual needs In the course of its over 150 years of family history, Greiner has grown from a small general store into a world-leading group of companies with more than 10,000 employees in 30 countries. Entrepreneurial spirit, creative potential, and the courage to pursue new opportunities were decisive factors in this successful transformation, which Carl Albert Greiner began with his wife Emilie in 1868. As part of the Greiner family business, Greiner Packaging International also has a long history. The company has been one of Europe’s leading producers of plastic packaging in the food and nonfood sectors for nearly 60 years. Starting in 1960, twist caps for bottle closures, spouts, pill packaging, and round tins were some of its first products and marked the beginning of a new standard in plastic packaging. The company has continuously expanded its range of technologies and services as the years have gone by, with automated processes increasing efficiency and hygiene. In 1989, Greiner Packaging took the first steps towards expanding into Eastern Europe, and additional locations followed throughout the continent. Today, the company has an international presence with 34 locations in 19 countries. In addition to Europe, Greiner Packaging is present in the United States, Mexico, Russia, Turkey, and India.

Creative end-to-end solutions tailored to customer needs Greiner Packaging International responds to the challenges of the market with two business units: Packaging and Assistec. The Packaging business unit’s range includes both cup packaging and packaging solutions such as cups, bottles, containers, cans, tubs, trays and buckets made of plastic and cardboard– plastic combinations. Meanwhile, the Assistec business unit is dedicated to manufacturing customized plastic parts and products as well as assembling them and finishing them in line with individual specifications. Individual Customer requests and needs are paramount at Greiner Packaging. Nor is the focus just on developing innovative products. The company also offers creative, end-to-end solutions perfectly tailored to suit customers. To achieve this, Greiner Packaging’s vast portfolio of products involves numerous different production technologies.

Focus on dairy packaging in Ukraine Packaging made by Greiner Packaging has already been very popular in Ukraine for 25 years. There has been a dedicated location in Kyiv since 2004 and in Chaiky since 2012. Margarine tubs and lids were the first packaging solutions produced specifically for the Ukrainian market. On this foundation, the company then gradually opened up the entire dairy market. Greiner Packaging has also been supplying international companies based in Ukraine since 2000, in addition to its customers in the dairy industry. The location primarily focuses on producing IML and thermoformed packaging for dairy products and desserts. Customers and partners appreciate the quality of Greiner packaging, the range of technologies available, and the values the company represents. Greiner Packaging’s recipe for success is simple: Identify trends early on, take customer wishes and needs into consideration, and realize practical, attractive solutions of the highest quality.

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Austrian Ambassador to Ukraine Hermine Poppeller receiving an award for diplomacy at the Person of the Year ceremony at Kyiv’s National Opera House in March 2019

: more mutually beneficial relationship, it is

vital to get past all the clichés associated with Ukraine about war and corruption. Culture is a good vehicle to achieve this goal, because it allows people to communicate directly from heart to heart.” Ambassador Poppeller is convinced this kind of cultural interaction can play a significant role in Ukraine’s broader European integration ambitions, and sees it as a parallel process to the more formal legislative aspects of integration laid out in the country’s European Union Association Agreement. “The Association Agreement provides a clear roadmap

for Ukraine and is extremely useful. One of the diplomatic community’s priorities is to make sure that reforms laid down on paper are implemented in practice. In tandem with this, we also need to support the social integration of Ukraine into the wider European community. This will involve a shift in perceptions that we cannot achieve overnight. It is a long-term process, and cultural dialogue has a big role to play.” As she prepares to move on to her new diplomatic posting as Austrian Ambassador to Greece, Ms. Poppeller says she looks back on her time in Kyiv as four “interesting, ex-

citing, and sometimes exhausting years.” Her key piece of advice to colleagues in the Ukrainian diplomatic community is to avoid becoming trapped in what many term as the “Kyiv bubble” of life in the Ukrainian capital. “It is important to engage with a wide a variety of people, not only the political classes in Kyiv. I would advise all diplomats to get out into the regions as much as possible in order to explore what is happening elsewhere in the country. Decentralization has been one of Ukraine’s most successful reforms and the developments it has made possible outside Kyiv are often amazing.” www.bunews.com.ua

business set-up in Ukraine Scan this QR-Code to learn more about it!

austria in ukraine

Austrian investors see growing opportunities in Ukraine Austria has long ranked among Ukraine’s top 10 international investors and interest is rising als, labels, cables, ironing boards, surfboards, furniture, and building materials. Austrian companies cultivate land in Ukraine using sustainable Austrian agricultural technologies. Austrian consumer goods are also prominent on the shelves of Ukrainian stores.

From Energy Efficiency to Tourism

About the author: Gabriele Haselsberger is the Austrian Commercial Counsellor in Kyiv Ukrainians and Austrians are fond of talking about the common history between the two countries dating back to the days of the Habsburg Empire. Of course, the current generation has no personal memories of this era, but it remains associated with economic progress, innovation and reliable technologies, with plenty of reminders that are still with us today. Installations by Austrian heating company HERZ, for example, have been operating for more than 100 years. The company started doing business in Lviv in 1908, and has not left since. This shared history serves as a solid basis for today’s bilateral relations. Austria is currently among the top 10 foreign direct investors in Ukraine, and in recent years bilateral trade in services and goods has been increasing steadily. Nor is it only one-way traffic. While Austrians invest in Ukraine, Ukrainian businesses are increasingly interested in investing in Austria, which serves as a convenient gateway to the largest markets in Western Europe. Thanks to its geographical location, growing economy and strengthening domestic market, Ukraine is currently reappearing on the radar screens of more and more Austrian companies. The free trade component of the Ukraine-EU Association Agreement is helping to fuel this process and is emerging as of the upmost importance for both countries. Furthermore, Austrian companies tend to evaluate the global supply chain very thoroughly and see attractive opportunities in Ukraine. By relocating their production to Ukraine, they can achieve significant comparative advantages. As we look ahead, it seems clear that Austria and Ukraine will remain strong partners as both countries tackle challenges like digital transformation. Austria has a diversified high-tech industry, while Ukraine offers excellent expertise in the IT industry together with strong research and development capabilities. It is important to join forces in order to remain competitive as a strong and innovative Europe. The production of the future will continue moving towards full automation. Questions regarding how to implement the Industrial Internet of Things or effectively utilize Artificial Intelligence and Blockchain technologies are at the top of the agenda for many companies in both countries. With more than 250 Austrian subsidiaries in Ukraine, including 25 production sites, significant Austrian investments are evident across all sectors of the Ukrainian economy. This covers everything from financial and insurance services (Raiffeisen International, Vienna Insurance Group, Uniqa and GRAWE) to the production of skis, snowboards, fruit concentrates, packaging materi14

Ukraine’s economy has been changing shape over the past few years since the 2014 Revolution of Dignity. The energy sector is undergoing deep reforms, while all sectors of industry have had to increase their energy efficiency. Austrian companies are participating in these reform processes, consulting as well as delivering machinery in order to improve energy efficiency. Austrian expertise in energy auditing, sustainable building technologies and sustainable use of energy sources, especially renewable energy sources, has a major role to play in this transformation. In practical terms, Austrian technologies are helping to improve the environment in heavy industrialised regions of Ukraine. Meanwhile, Austria has provided consultancy services in the framework of several TWINNING projects in the fields of waste management, energy efficiency and renewable energy. Other promising sectors include infrastructure and the fastgrowing agriculture sector, including food processing. Austrian businesses have a long and successful record of operating in the Ukrainian agricultural industry, where they have been responsible for bringing expertise and high-tech machinery to Ukraine. Tourism is another growth sector with plenty of room for further expansion. Austria has long been a popular holiday destination for Ukrainian tourists. City breaks to Vienna and skiing in the Alps, especially in Tirol, are the main destinations. The number of overnight stays by Ukrainian visitors increased by 24% in 2018. In cooperation with the Austrian National Tourist Office, we organize a workshop every autumn for representatives of Austrian regions and Ukrainian tourism agencies in Kyiv. An increasing number of Austrian tourists are also now coming to Ukraine, with the key focuses being the capital city and the western regions of the country. Travelling between Austria and Ukraine has certainly never been easier. Austrian Airlines, Laudamotion and Wizz Air offer flights from Kyiv, Lviv, Odesa, Dnipro and Kharkiv to Vienna on a daily basis.

Advantage Austria

Advantage Austria Ukraine is the official representative of Austrian business in Ukraine with a mission to promote bilateral economic relations. We present Austrian technologies with Austrian Pavilions at international exhibitions such as the annual Agro Animal Show in Kyiv and the Wood Processing Lviv trade fair. Our Workshops on anti-corruption and compliance, taxation and other important topics in cooperation with Austrian and Ukrainian experts are highly appreciated by the Austrian-Ukrainian business community. Likewise, the Austrian Federal Economic Chamber hosts international events in Vienna with Ukrainian companies invited to participate. The recent Austrian-Ukrainian Business Forum, which took place in Vienna on 20 May, was one of this year’s top events. Information about upcoming events is available via the Advantage Austria Ukraine website (www.advantageaustria.org/ua) and on social media. www.bunews.com.ua

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Ukraine’s business climate benefits from currency, credit and bankruptcy reforms Changes to legislation introduce a range of potential improvements for the business community

About the author: Anna Pogrebna is a Partner at CMS Reich-Rohrwig Hainz Ukraine has introduced a number of legislative reforms in recent months that aim to facilitate a marked improvement in the country’s business climate. Currency control liberalisation has removed a range of obsolete restrictions related to the movement of capital, representing a landmark breakthrough for ease of doing business in Ukraine. In line with the country’s commitments to the International Monetary Fund, Ukraine has also strengthened legal protection of creditors’ rights by passing a statutory act that eliminates a number of legal loopholes in this area. In addition to these steps, Ukraine has adopted a Bankruptcy Code that aims to decrease the ratio of non-performing loans while introducing more efficient bankruptcy procedures.

Currency Control Liberalisation

In the first half of February 2019, Ukraine’s new currency control legislation came into force. Changes include simplified rules governing currency transactions, the movement of capital, and cross-border trade. Under the terms of the new regulations, Ukrainian residents are no longer required to obtain an individual license from the National Bank of Ukraine (NBU) in order to open accounts with foreign banks, or to transfer currency abroad under agreements with non-residents. Meanwhile, non-residents may now open accounts with Ukrainian banks and carry out currency transactions in Ukraine. Further improvements include the replacement of mandatory registration of cross-border loans with the NBU by a simplified notification procedure. The new regulations cancel maximum interest rate caps and end the prohibition on early repayment of cross-border loans. The changes extend the maximum period for settlement of export and import transactions to 365 days (instead of the previous 180-day period). In addition, the new maximum settlement period does not apply to export of works and services (except for transport and insurance services or works), intellectual property rights, and other non-pecuniary rights. The new regulatory framework also sets aside special sanctions for violation of legislation on foreign economic activity including fines, individual licensing regimes, and the suspension of foreign economic activity. The overall aim of Ukraine’s currency liberalisation agenda is the gradual cancellation of all restrictions on the national capital market. However, a 16

number of restrictions are still applicable. Individual residents may transfer up to EUR 50,000 abroad annually in line with obligations under life insurance contracts, for investment purposes, to place funds in foreign accounts or in the form of loans to non-residents. Resident legal entities or individual entrepreneurs may transfer funds abroad of up to EUR 2 million annually to carry out business activities. Foreign investors and non-residents may repatriate up to EUR 12 million in dividends per calendar month, if dividends were distributed prior to and including 2018. Residents and foreign investors may repatriate up to EUR 5 million per calendar month if the funds in question are received from the sale of securities, corporate rights, or reductions in the company’s charter capital. Meanwhile, 30% of foreign currency proceeds received by Ukrainian residents are still subject to mandatory sale.

Enhancing Creditor Rights

Insufficient protection of creditor rights was one of the reasons behind the increase in Ukraine’s non-performing loans ratio. To tackle this problem, the Ukrainian parliament adopted the Law of Ukraine “On Amendments to Certain Legal Acts of Ukraine on Resumption of Lending”, which came into force on 4 February 2019. This law aimed to eliminate legislative gaps used by bad faith borrowers to evade the fulfilment of their contractual obligations. The adoption of the new legislation received widespread support from key international financial institutions cooperating with Ukraine such as the International Monetary Fund, the European Bank for Reconstruction and Development, the World Bank, and the International Financial Corporation. The most significant amendments relate to suretyship, pledges, mortgages and loan agreements.

Suretyship Agreements

The new law stipulates that if an underlying obligation undergoes changes without the surety provider’s consent, the suretyship will nevertheless remain binding in scope to the extent it existed before such changes. Previously, a suretyship was deemed terminated upon increase of the amount of underlying secured obligations without prior consent from the surety provider. Sureties that granted suretyships in relation to the same debtor’s obligations, either under the same or different suretyship agreements, now qualify as joint sureties, and the creditor may seek recourse from any of them. If the due date of an underlying obligation is unspecified, the creditor may bring an action against the surety within three years of entering into the suretyship agreement, instead of one-year period allowed under the preceding rules. In addition, the borrower’s liquidation will not terminate the suretyship agreement, provided the creditor files a lawsuit against the surety before the liquidation is complete.

Pledges and Mortgage Agreements

In line with the new law, any reconstruction work or unauthorised construction carried out in relation to collateral, as well as reconstructed or newly built real estate objects on the same land plot, now qualify as collateral under the initial mortgage agreement. Until this legislative change, unscrupulous debtors widely exploited existing gaps in legislation to reconstruct real es-

New Bankruptcy Code

An overview of recent legal developments in Ukraine would be incomplete without considering the country’s new Bankruptcy Code, which is set to enter into force on 21 October 2019. The Code aims to establish more efficient corporate bankruptcy procedures. It introduces the concept of individual bankruptcy and repeals a temporary moratorium in force since 2014 on enforcement of residential real estate mortgaged as security for consumer loans in foreign currency provided by local banks. The new Bankruptcy Code introduces a number of important changes to regulation of bankruptcy procedures for legal entities. Creditors receive more powers. The Code creates simplified grounds for commencing a bankruptcy procedure, removing the prior link to the minimum amount of outstanding creditor claims. It improves the legal status of secured creditors, who now become parties to bankruptcy proceedings with the right to initiate bank-

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ruptcy proceedings, challenge court rulings adopted during the bankruptcy procedure, initiate the invalidation of debtor transactions, and other rights. The new Code will mean transparent sales procedures, with debtor’s assets sold through online auctions via a freely accessible web-portal, guaranteeing equal access for all potential investors. It seeks to limit the impact on affiliated persons via a new definition of those affiliated to the debtor and asset manager, limiting their rights in the decision-making process during bankruptcy proceedings. It will also mean more procedural expediency. The Bankruptcy Code limits the range of court rulings within bankruptcy proceedings that are subject to appeal, as well as providing specific deadlines for separate procedures undertaken as part of a bankruptcy case. Based on the new rules, bankruptcy proceedings are set to take up to one year. Furthermore, the Code features the introduction of a new personal bankruptcy procedure. This will allow insolvent individuals to initiate bankruptcy to write off their debts. However, this concept has no precedent in Ukrainian law, making it difficult to predict the effectiveness of its practical implementation.

austria in ukraine

tate, allowing them to apply for the termination or invalidity of mortgage agreements. Out-of-court enforcement of mortgages no longer results in the automatic discharge of secured obligations in full in relation to legal entities or individual entrepreneurs, if not otherwise agreed in the mortgage or loan agreement. In relation to individuals, however, the parties will have to agree expressly in the mortgage agreement that automatic discharge does not apply. Creditors will therefore now be able to seek satisfaction of their claims from other available assets if the value of the mortgaged asset does not fully cover the creditor’s claims. The liquidation of an obligor does not constitute grounds for termination of a mortgage agreement if the claim comes before completion of the liquidation.

Looking Ahead

Even though the above developments indicate Ukraine’s willingness to improve its investment attractiveness, further efforts are required to tackle the current modest slowdown of the Ukrainian economy and attract greater volumes of much-needed international investment. The National Bank of Ukraine has recently confirmed its unchanged focus on further implementation of currency liberalization, subject to preservation of the country’s macroeconomic stability and maintenance of inflation targets. The business and legal communities will watch closely for additional measures in the coming months following the expected completion of the current election cycle by autumn 2019.

austria in ukraine

Ukraine insights for Austrian investors Timur Bondaryev explores key issues and investment focuses as historic bilateral ties strengthen

Despite the absence of a common border, Austria has long been among Ukraine’s closest friends. This relationship reflects the deep historical ties between the two countries, stretching back to the days when the western regions of Ukraine were part of the Habsburg Empire. This cultural legacy remains particularly evident in the Chernivtsi and Lviv regions of today’s Ukraine. Meanwhile, during the Soviet era, Austria served as an unofficial buffer between the Eastern Bloc and the Western world, with the Vienna International Commercial Arbitration Court one of the very few arbitration venues deemed acceptable by the Soviet government. Since 1991, these regional ties have helped earn Austria a reputation as an attractive investment hub for Central and Eastern Europe (CEE), setting the stage for the country’s involvement in post-independence Ukraine. Austrian companies were among the earliest to invest in Ukraine in the 1990s and were soon across a number of industries including financial services, insurance, real estate, manufacturing, retail, infrastructure, agriculture, telecoms, heavy machinery, automotive and many other major sectors of the Ukrainian economy. At the same time, a number of Ukrainian businesses have also taken advantage of Austria as a springboard for further European investment, and have used Austria as a destination for corporate and private investment for a number of years. One obvious and important reason for close cooperation is the sophisticated and well-developed network of bilateral double taxation and investment protection treaties that exist between Ukraine and Austria, which help create a climate of confidence among investors from both countries. Meanwhile, Austrian domestic taxation and holding legislation provides for additional unbeatable benefits, which have allowed Austria to gain a reputation as a unique holding jurisdiction. After some years of relative investment quiet following Ukraine’s 2014 Revolution of Dignity, we are currently seeing a new wave of Austrian interest in Ukraine. What are the focuses of this interest, and what legal issues should Austrian investors keep in mind as they consider entering the Ukrainian market?

Manufacturing

Manufacturing remains among the most interesting sectors of the Ukrainian economy, especially given Ukraine’s geographical proximity to the EU along with Austria’s status as a popular CEE hub for international investors. Austrian investors feel particularly at home in the former Habsburg Empire regions of western Ukraine, and are currently looking at a range of green- and brown-field investments. Despite recent rises in salary levels, Ukraine remains a competitive destination for manufacturing, with business-oriented local and state authorities along with a highly skilled workforce and convenient logistics. It is important to remember that Ukraine was one of the most industrially developed republics in the Soviet Union and inherited a huge manufacturing base. This now serves as a solid foundation for today’s ambitious manufacturing projects. Property is relatively easy to acquire, which is attractive to investors who do not wish to lease.

Agriculture Agriculture remains among the most attractive sectors of the Ukrainian economy and we have seen considerable recent activity in this direction. Agricultural land is still subject to a moratorium on sales, but agricultural land is available for long-term lease on secure terms. Beyond the specific issue of the land sale moratorium, real estate assets in the agricultural sector are easily acquirable and a number of Austrian private and public investors have recently invested in Ukrainian agricultural infrastructure assets.

Corporate governance

Ukraine’s corporate governance culture has dramatically improved recently. This includes implementation of a new level of squeeze-out legislation, which has given rise to more transactions involving public joint-stock companies. Meanwhile, the introduction of new legislation governing shareholder agreements is another important development for the country’s investment climate. This area was not previously subject to proper regulation. The majority of JVs and M&A transactions involving Ukrainian assets therefore tended to end up outside of Ukraine, taking place via Cypriot or Austrian holdings.

Dispute resolution

Ukraine’s domestic courts have long suffered from a poor reputation but thanks to recent judicial reforms, we are now seeing numerous positive trends. These include the enactment of new legislation and transparency rules, and the emergence of a new generation of judges who are helping to improve the reputation of the Ukrainian judicial system. Having said that, international commercial arbitration remains an efficient dispute resolution tool and Ukraine has proven itself an extremely international arbitration-friendly jurisdiction. Almost all disputes technically qualify for potential international arbitration, while recognition and enforcement of foreign arbitral awards takes place in a very smooth and transparent manner. Investment arbitration is also available for investors from both Austria and Ukraine, which creates an added sense of security while contemplating tricky investment decisions.

Merger control

Ukrainian merger control remains one of the most burdensome regulatory barriers for investments in Ukraine. Given the very low thresholds and broad definition of mergers (concentrations), almost every transaction with a Ukrainian angle, even if it is foreign-to-foreign in nature, should receive preliminary approval from the country’s antitrust agency (AMCU). It is important to note that the practice of the agency has improved significantly of late, with the implementation of global best practices leading to almost exclusively positive experiences with its handling of merger control matters. Nevertheless, it is important to address merger control issues at the very outset of every transaction in order to avoid trouble later on. The agency has been flexing its muscles recently and has already imposed significant multimillion fines.

About the author: Timur Bondaryev is Managing Partner at Arzinger

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Representing Austria in Lviv

Markian Malskyy explains his role as Honorary Consul in a city famous for its Habsburg heritage

People often ask me what it actually means to be an honorary consul in Ukraine. They generally want to know how I took on this role for Austria in Lviv. They ask what I do, and perhaps most importantly, they are eager to learn what powers I have. These are all reasonable questions. The first thing I would like to clarify is that being an honorary consul is not the same as being a traditional career diplomat. The most obvious difference is that being an honorary consul is usually a “side job” or secondary position in addition to the holder’s day-to-day professional activities. Many people seem to think the procedure of appointment for honorary consuls is very quick and easy. There is also a tendency to assume that the official activities of honorary consuls revolve around shallow photo opportunities and attending glamorous gala events. I can assure you that the reality is very different from this Hollywood-inspired image. It is important to underline that the procedure of appointment is quite long and can take a number of years. A candidate has to go through a rigorous background security check that involves both the country of representation and the country of residence. Then there are interviews, tons of paperwork, and various other bureaucratic moments. If everything goes smoothly, the candidate receives a consular patent issued by the country they are going to represent. This document usually carries the signatures of the minister of foreign affairs and the president. The Ukrainian Ministry of Foreign Affairs then issues an exequatur, which is a special document that recognizes the honorary consul. Once you have these documents, you are officially an honorary consul. For me it happened in October 2016, though the opening ceremony of the honorary consulate took place five months later in February of 2017. Honorary consulates are an important instrument for Austria to represent its interests internationally, especially in large countries

like Ukraine where the Embassy itself cannot always necessarily provide all services and resolve important local matters remotely from the capital. Austria currently has a number of honorary consulates in Ukraine. In addition to Lviv, the list includes Chernivtsi, Odesa, Dnipro, Zaporizhia and Kharkiv. Naturally, the activities of Austria’s honorary consulates are coordinated with and receive support from the Embassy. Austrian Ambassador Hermine Poppeller is particularly supportive regarding regional initiatives, often visiting Lviv and other cities in order to demonstrate this support. So what do I actually do? My main functions and activities lie in the strengthening of bilateral relations and the promotion of trade, economic, cultural, and scientific cooperation between Austria and Ukraine. We often face historical inquiries relating to the Habsburg heritage of western Ukraine, or receive queries from people who are looking for information about ancestors in both countries. There are also many graves of Austrian soldiers in the region dating from the World War I period. When addressing such matters, we cooperate with the Embassy and Austria’s Schwarzes Kreuz organization. We assist Austrian citizens in emergencies and extraordinary situations that happen within our designated consular district of six western Ukrainian oblasts. These situations can be very varied and different, ranging from car accidents and lost documents to false theft accusations. Sometimes things turn out positively and we can recall them later with smile, while others are more serious. In such cases, my professional background as a lawyer comes in very handy. The role of honorary consul also involves special assignments. For example, we assist the Embassy in arranging the visits of high-ranking officials to our region. In 2018, Lviv had the honor to host Austrian President Alexander Van der Bellen, who came with an official delegation of over 40 people representing culture, trade and business, science and education.

Austria currently has a number of honorary consulates located in cities throughout Ukraine. In addition to Lviv, the list includes Chernivtsi, Odesa, Dnipro, Zaporizhia and Kharkiv

austria in ukraine

About the author: Markian Malskyy is the Honorary Consul of Austria in Lviv. In this courtesy photo he is alongside his wife Andriana at the official reception to mark the opening of the Honorary Consulate of Austria in Lviv Lviv is also home to two other Austrian organizations subordinated to the Embassy and responsible for strengthening cooperation between our two countries. These are the Austrian Academic Exchange Service (OeAD), which is in charge of culture and education, and the Trade Office of the Embassy (Advantage Austria), which works to support Austrian investors operating in Ukraine while also seeking to strengthen existing trade and economic bonds between Ukraine and Austria. The current year is very special one for all Austrian organizations in Ukraine, as it is the bilateral Austria-Ukraine Cultural Year. More than 150 cultural events ranging from concerts and exhibitions to master classes and architectural projects are set to take place during the course of the year. The aim is to attract and involve as many people as possible to promote cultural exchange. We are now working as a united front with the OeAD and the Kulwww.bunews.com.ua

turforum in Kyiv to make sure this Cultural Year initiative is as successful as possible. In terms of bilateral business promotion, I closely cooperate with Advantage Austria, both as honorary consul and in my professional capacity. Due to the specifics of my work as lawyer, I often represent the interests of foreign investors, in particular Austrians who already work in Ukraine or are just interested in exploring potential business opportunities here. In such cases, we help to find partners and check their credentials, provide legal support, and assist them in establishing any necessary contact with the local authorities. The Honorary Consulate of Austria in Lviv is open for cooperation. If you have interesting ideas with regard to Austria, please feel free to contact us. We will be happy to serve as your bridge to Austria! 21

Housed in the former palace of the Bukovinian and Dalmatian Metropolitans, the University of Chernivtsi is one of Ukraineâ&#x20AC;&#x2122;s most celebrated Habsburg era architectural pearls and has been dubbed â&#x20AC;&#x153;The Ukrainian Hogwartsâ&#x20AC;?

Joint Austrian-Ukrainian Commission of Historians aims to shed new light on the shared past International perceptions of Ukraine tend to focus almost exclusively on the country’s Soviet and imperial Russian past, but this ignores the considerable Habsburg influence on the development of the modern Ukrainian state. From the late seventeen hundreds until the early twentieth century, much of today’s western Ukraine fell within the boundaries of the Vienna-based Habsburg Empire. Ideas of Ukrainian national identity flourished in the relatively liberal Habsburg domains and served as a source of considerable inspiration for those living across the border in the Ukrainian lands controlled by the Russian tsars. At a time when Russia was placing draconian restrictions on the use of the Ukrainian language, Habsburg Ukrainians had their own schools, printed press and burgeoning literary traditions. The role of Habsburg history in Ukraine’s journey towards statehood was strictly taboo during the Soviet era, but it has become the subject of renewed interest since the dawn of Ukrainian independence in 1991. Founded in 2017, the Austrian-Ukrainian Commission of Historians is one of the leading academic bodies looking to explore issues related to Ukraine’s Habsburg heritage. Business Ukraine magazine spoke to Commission Co-Chair Dr. Wolfgang Mueller about the Habsburg factor in Ukrainian history and its importance in shaping today’s Ukraine. Professor Mueller, what is the reason for your interest in Ukraine? Ukraine is the largest country located entirely in Europe and it is the key to many of the issues that are at stake in European politics today. Some observers said in 2014 that events in Ukraine would decide the fate of Europe. Moreover, Russian relations with Ukraine tell us a lot about Russia. This is not to say that Ukraine is not a fascinating research subject in itself. Andreas Kappeler, one of the best German-language experts on Ukraine, has pointed to the fact that the Orange Revolution of 2004 and the Euromaidan Revolution of 2013-14 were Europe’s largest civic movements since the East European revolutions of 1989-90. The emergence of Ukrainian society as a political actor and its ability to stand up in defense of a European future is definitely an impressive phenomenon.

Twenty-eight years since the collapse of the USSR, many outside observers still routinely refer to Ukraine as a post-Soviet country. To what extent can we also talk about Ukraine as a post-Habsburg country? In terms of the available political and social science data, it is clearly visible that western Ukraine, and in particular the regions that were once part of the Habsburg Monarchy, differ on a number of issues from the rest of the country. When we look at the latest presidential elections, this becomes particularly visible. However, that is only one part of a bigger story. The other part is that within the Habsburg Monarchy, the idea of a Ukrainian nation was able to develop far more freely than it was within the Russian Empire. Therefore, we can say that the policies of the Habsburg Monarchy helped shape the later development of today’s Ukrainian state in its entirety.

What role does knowledge of Ukraine’s Habsburg past play in shaping modern Austrian attitudes towards Ukraine? Ukraine’s Habsburg past is rarely addressed in the contemporary Austrian media discourse outside of academia or political statements. Most Austrians would not regard Ukraine as an indirect successor state of the Habsburg Monarchy.

austria in ukraine

Exploring Ukraine’s Habsburg Heritage

For the past five years, Ukraine’s undeclared war with Russia has thrust the country into the international headlines. What impact has this had on Austrian interest in Ukrainian history? I would speak of Russia’s undeclared war rather than the other way round. In response to the Euromaidan Revolution and the Russian-Ukrainian crisis of 2014, Austrian levels of interest in Ukraine rose significantly. This interest then dropped throughout 2015. It has since been pushed aside entirely by the migration crisis.

In many European countries, traditional Russian historical narratives about Ukraine have heavily influenced perceptions of the current conflict. Has this Russocentric approach to Ukrainian history been a major issue in Austria? Yes, this certainly holds true for Austria. While Austrians have some ideas about Russian history and culture, most know precious little about Ukraine and have virtually no points of reference. This is clearly a problem. Moreover, among those Austrians and Germans who do not express solidarity with Ukraine in the current conflict, there is widespread opinion that “the West just needs to make peace with Russia” and then all will be fine. This is essentially a neo-Bismarckian worldview. It ignores the fact that in 1918 and again in 1991, numerous sovereign states have emerged between Germany and Russia, and these states have the right to choose their own way.

Modern Ukraine has a large number of striking landmarks dating back to the Habsburg era. Which is your personal favorite? I would chose the University of Chernivtsi, which hosted the latest session of the Ukrainian-Austrian Commission of Historians. This university traces its roots back to 1875 when it was founded as the Franz-JosephsUniversitat of Czernowitz, as the city was then known. At the time, Chernivtsi was the capital of the Duchy of Bukovina within the Habsburg Empire. Instruction at the university took place in German, Romanian and Ukrainian. Prominent alumni include Ukrainian poet and activist Ivan Franko, and Joseph Schumpeter, who went on to become a professor at Harvard University and one of the most influential economists of the twentieth century. The university is the former palace of the Bukovinian and Dalmatian Metropolitans. Built under Habsburg rule, it is now a UNESCO world heritage site.

About the interviewee: Dr. Wolfgang Mueller is a Professor of East European History at the University of Vienna and a Corresponding Member of the Austrian Academy of Sciences. He is currently the Co-Chair of the Austrian-Ukrainian Commission of Historians together with his Ukrainian counterpart Dr. Ihor Zhaloba www.bunews.com.ua

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Joint Cultural Year brings Ukraine and Austria closer together Cultural initiative aims to help creative Austrians and Ukrainians get to know each other better

Austrian Ambassador to Ukraine Hermine Poppeller and Director General of the Ukrainian Institute Volodymyr Sheiko launch the website of the bilateral Austria-Ukraine Cultural Year in January 2019 When Ulf Hausbrandt arrived in Ukraine in January 2019 to serve as Director of the Austrian Cultural Forum, he immediately found himself at the helm of possibly the most ambitious cultural initiative ever attempted by the two countries. The bilateral Austria-Ukraine Cultural Year, which runs throughout 2019, is an eclectic undertaking involving hundreds of events in both countries. The program includes everything from exhibitions of Viennese architectural design in Lviv and smart city master classes in Odesa to contemporary choreography workshops and classical music performances bringing together Austrian and Ukrainian talent. The overall objective is to build person-to-person bridges between the two countries and initiate a new era of informal exchange. “We feel that as neighbors and fellow Europeans, we should know each other well instead of relying on clichés and headlines. People in Austria have probably heard about corruption issues and the war in the Donbas, but there is almost no knowledge of the new, young Ukraine,” says Mr. Haus24

brandt. He hopes that by bringing together members of the creative communities in both countries, it will sow the seeds of future relationships and create the kind of understanding that only personal contact can achieve. Mr. Hausbrandt says there are already indications of growing interest in Ukraine among young Austrians. After almost half a year in Kyiv, he is convinced there is much worth discovering. “The energy and vibrancy of Ukraine has really impressed me,” he says. “There is so much going on creatively here, and a real eagerness to engage with the wider world. The country feels like it is on a journey of self-discovery. It is a very, very exciting place to be right now.” The spirit of bilateral cooperation underpinning the Austria-Ukraine Cultural Year also extends to the organizers themselves. Mr. Hausbrandt and his Austrian colleagues are working closely with the newly established Ukrainian Institute to coordinate the packed calendar of events, with a shared website (austriaukraine2019.com) serving to symbolize this partnership. “We have

become real friends,” says Mr. Hausbrandt with a smile. If all goes to plan, this year’s events will open an entirely new chapter in bilateral ties. “The effects of this Cultural Year will be felt for long after 2019,” says Mr. Hausbrandt. “We are currently building momentum, and this will be maintained by the high levels of interest we are seeing on both sides of the relationship.”

About the interviewee: Ulf Hausbrandt is the Director of the Austrian Cultural Forum in Kyiv

www.bunews.com.ua

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Hub Roots (IT)

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Dao Park (UA)

Austriaâ&#x20AC;&#x2122;s most famous Ukrainian import

Ukraineâ&#x20AC;&#x2122;s Oksana Lyniv is Austrian classical music royalty as the first female chief conductor of Graz Opera and Graz Philharmonic Orchestra

In 2017, Ukrainian classical music superstar Oksana Lyniv made history by becoming the first female chief conductor of the Graz Opera and the Graz Philharmonic Orchestra. Understandably, the Lviv region native has since emerged as something of a celebrity in classical music-loving Austria, where she also serves as an informal ambassador for her homeland. Business Ukraine magazine asked Ms. Lyniv how she feels about flying the flag for Ukraine, and asked what her plans are once she bows out of her current Graz residency in 2020.

You are the first female and the first Ukrainian to serve as chief conductor of the Graz Opera and Graz Philharmonic Orchestra. Which of these two considerable professional distinctions means more to you personally? Being the first Ukrainian to hold this position is extremely important to me and probably takes precedence. Classical music occupies a particularly prominent position in todayâ&#x20AC;&#x2122;s Austrian society and has done so historically. This is the homeland of legendary composers such as Mozart, Haydn, Mahler, Bruckner and :

austria in ukraine

www.bunews.com.ua

austria in ukraine

: many others. You could say that the classical music tradition itself

was born in Austria. With this in mind, my current position is a great responsibility and a great honor for me personally. There can be little doubt that you are Ukraine’s most prominent cultural export to Austria. Based on your experiences of the past three years, how would you describe Austrian knowledge of Ukrainian culture? I think most Austrians know very little about Ukraine, but unfortunately, in my experience this is typical of Europeans in general. The lack of outside knowledge about Ukraine makes it all the more important for every Ukrainian to share information about our country and its place in wider European history, as well as underlining how much we all have in common.

How conscious are you of your role as a cultural ambassador for Ukraine? This responsibility is something I take extremely seriously. It is also very emotionally engaging. In some ways, I would even say that I have invested as much time and effort into my role as a cultural ambassador as I have into the development of my international classical music career. It is always a pleasure for me when I encounter interest in Ukrainian culture among my Austrian colleagues. Interestingly, during the past few years of living in Austria, I have learned that many prominent figures in the country’s classical music community have family ties or ancestral roots in Ukraine. You grew up in western Ukraine before studying music and gaining your first experience as a conductor in Lviv. Now you find yourself in Graz. How do the musical cultures in these two former Habsburg regional capitals compare? The very first thing that occurs to me is that both cities have incredibly beautiful and historically important opera houses. Life revolves around the cultural scene in both places, with classical music serving as the pulse of the city. In Graz and Lviv alike, there are all sorts of festivals and musical events taking place throughout the year.

Your big break came when you took third place in the Gustav Mahler conducting competition of the Bamberg Symphony Orchestra in 2004 at the relatively tender age of 26. How challenging was it for you at that time to make the transition from Lviv to the international stage, especially in a country like Germany, which is widely seen as one of the traditional heartlands of classical music? That was indeed a very challenging and important milestone in my life. The early post-Soviet years were a time of great financial difficulties for most Ukrainian families. Given the limited options open to me, the competition was in many ways the only chance I had to go further in my career. I was the sole Ukrainian taking part in 2004, but I was able to use the opportunity as a springboard for my future international career. What impressed me most in Bamberg was the professionalism of the orchestra. At the time, no Ukrainian philharmonic orchestras performed the complex pieces I would encounter in Bamberg, so I had no opportunity to experience them live and had to prepare for the competition virtually by myself. You have been living and working outside Ukraine since the early 2010s but you have maintained close ties to your homeland. What do you miss most when you are away? I first moved to Bavaria in 2013 but I have never lost my passionate con28

nection to Ukraine. It remains my primary source of inspiration. Two of my biggest musical projects are Ukraine-based, which also helps to keep me connected. The first is the annual LvivMozArt international festival of classical music, which takes its inspiration from the personality of Franz Xaver Mozart, the son of the legendary Wolfgang Amadeus Mozart and a talented composer in his own right. Franz Xaver Mozart spent over 30 years of his life in Lviv and we have celebrated his legacy with an annual festival every year since 2016. The second initiative is the Youth symphony Orchestra of Ukraine (YsOU), which serves as a platform for developing talented young Ukrainian musicians from all over the country aged from 12 to 22 years old. I invest a lot of my free time into these two projects and am always happy to visit Ukraine in order to support their continued development. When I think about my time away from Ukraine, the things I miss the most are my parents and my hometown of Brody in Lviv Oblast. One of my big regrets is that I am unable to visit more often due to my busy schedule. You have confirmed plans to step down from your position as Graz Opera and Philharmonic Orchestra Chief Conductor at the end of the 2019-2020 season. What’s next? I am having a wonderful time with the Graz Opera right now. It is an honor and a joy for me to be here, but nothing lasts forever. Looking ahead, my calendar is already completely full for the next three seasons. Over the last year especially, I have received lots of proposals and invitations from some of the world’s most prominent orchestras, and I am very excited about the many new experiences that await me. Your achievements serve as a source considerable inspiration for a whole new generation of Ukrainian musical talent, but it is probably fair to say that you are currently more famous in Austria and within international classical music circles than in your native Ukraine. Does today’s Ukraine pay enough attention to Ukrainians who go on to achieve success abroad? Over the past three years since my appointment in Graz, I have begun to receive noticeably more recognition in Ukraine. However, I agree that it would be good to see the Ukrainian authorities affording internationally successful Ukrainians greater opportunities to speak up and share their positive experiences. We have a lot to contribute but are not always in the public eye. Ukraine has enormous musical talent but the cultural sector is chronically underfunded. What is required in order for young Ukrainian musicians to reach their potential at home? It is my greatest dream that the Ukrainian government will one day adopt the Austrian approach and invest significantly in culture. Greater state support could be decisive, as there are already a large number of smaller scale private initiatives in place. Culture forms the roots and identity of any country. Nations that fail to appreciate this simple fact are doomed to remain trapped in spiritual and moral poverty.

You have already led a number of classical music initiatives in Ukraine. Do you envisage a future role for yourself in the broader development of classical music in Ukraine? Yes, absolutely. I view my international career very much as an instrument for the development of classical music in Ukraine. I hope to be able to help inspire and influence positive changes in the years to come. www.bunews.com.ua

Ukraine’s Ambassador in Vienna welcomes opportunities to lighten bilateral mood with Cultural Year hold names among local Austrian book lovers.

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Introducing Austria to the real Ukraine

You have been Ukrainian Ambassador to Austria for four years. What has this experience taught you about Austrian perceptions of Ukraine? Well, Austrians are curious by nature, but they are mostly curious about positive things. War is not something that would captivate them or hold their attention for long. This is not hard to understand. People want to be amazed, not saddened and depressed. Of course, this complicates my job a bit. I represent a country that still faces ongoing aggression, so I cannot always be upbeat and positive. This is one more reason why the current Cultural Year is so important. It helps me to change the tone.

About the interviewee: Olexander Scherba is Ukraine’s Ambassador to Austria 2019 is the bilateral Austria-Ukraine Cultural Year. What are the highlights of the event calendar in Austria? There have been so many already! For me personally, the most unforgettable night so far was our launch event, the Willhelm von Habsburg Night held on January 31 with the participation of American superstar historian Timothy Snyder. Willhelm von Habsburg was a member of the Austrian royal family who became Ukrainian by choice and even sacrificed his life for Ukraine. I think this was the first time ever when Ukrainians and Austrians came together to focus on this truly remarkable historical figure. The debut Vienna concert of famous Ukrainian band Dakha Brakha was also incredible. It felt good to see the largely Austrian audience blown away by their performance. There have been many, many other highlights, like the Ukrainian Night at the world famous Mozarteum and Ukraine’s participation at the Vienna Short Film Festival. What comes next? The schedule includes nights of Ukrainian cuisine and jazz at the historic Bristol Hotel in downtown Vienna, and a concert of Ukrainian spiritual music at Vienna’s Saint Stephan Cathedral. Ukrainian talent will also be participating at Vienna Fashion Week and Vienna Book Festival. There are literally too many events to mention them all.

How can events like this cultural year help to introduce contemporary Ukraine to Austrian audiences? We have two key objectives. Firstly, we must demonstrate that Ukraine has its own unique cultural identity. Secondly, we need to intrigue the audience and show how much we have to offer. The emphasis is on what Austrians love. This means music, both classic and modern, but not only. For instance, Ukrainian authors are also rather popular here. Writers like Andrei Kurkov, Yurii Andrukhovych and Marjana Gaponenko are housewww.bunews.com.ua

Austria has been a major investor in Ukraine for over two decades. Where do you see opportunities to increase the Ukrainian business presence in Austria? Everywhere. Austria is probably the most natural investment partner for Ukraine. They are close, they know us historically, and they have plenty of investment potential. What really counts, and what will make the difference, is changing Ukraine’s reputation abroad. The coming of the new president Volodymyr Zelenskyy is a chance to start things anew. Not from an entirely clean slate, perhaps, but with new drive, new rhetoric and new ambition.

From Vladimir Putin’s appearance as a guest at the summer 2018 wedding of the Austrian Foreign Minister to the recent Ibiza video scandal, Austria’s relationship with Russia has frequently made headlines over the past year. What challenges does this relationship create for Ukrainian diplomacy in Vienna? Austria’s “special attitude” towards Russia is a reality we have to come to terms with. It is crucial to understand one thing about Austria: this country sees itself as deeply neutral. This is not only a factor in the political sphere. It reflects how people see themselves and what they really believe in, which is probably one of the most important factors in geopolitics. Does it bother me? No. I have learned to deal with it. There have been some politically tense days (you might guess which ones), but other than that, I do not see Austria’s neutrality as a problem for Ukraine. This year will see a forum of Austrian and Ukrainian historians addressing the issue of WWII and historical remembrance. What can the two countries learn from their respective experiences with the politics of memory? Ukraine can learn from Austria about how to be honest towards its historical heritage. We can learn respectfulness towards our former enemies. We can learn forgiveness and humility. Austria is a former empire, but you will not encounter any kind of revanchist moods here. Meanwhile, Austria can learn from Ukraine that even the most complicated historic experiences can sometimes be a source of affection and admiration, like Ukraine’s affection and admiration towards Austria despite the traumas of the two world wars.

banking industry

Ukrainian Banking

Sector Focus

Return to Profit The Ukrainian banking sector recorded a profit in 2018, marking the first overall positive annual result since the onset of crisis conditions in 2014. While this result provided Ukrainian bankers and reformers alike with reason to cheer, it remains far too early to talk about the successful transformation of the Ukrainian banking system. Industry regulators continue to stress the need for banks to adapt to the new realities of the market and develop business models that are capable of withstanding fresh outbreaks of economic and political instability as well as meeting the demands of the growing Ukrainian economy.

Reforms Bear Fruit

Over the past five years, few sectors of the

Ukrainian economy have been subject to as rigorous a reform agenda as the banking industry. Dozens of banks ceased operations amid the application of tough new regulatory controls during what was the biggest shake-up in Ukrainian banking history. This process remains incomplete, but 2018 may well come to be seen as a turning point in the reinvention of the Ukrainian banking system. After four years of unprecedented annual losses, last year the banking industry finally stemmed the flow. It did so in relatively spectacular fashion, reporting record profits of UAH 21.7 billion. This return to profit was evident throughout the sector, with 64 out of 77 banks operating as of 1 January 2019 finishing the year in the black. Banks with foreign capital saw the largest earnings, with total profits accounting for UAH 15 billion. Meanwhile, the biggest losers were banks with Russian capital, which experienced a shortfall of UAH 11 billion. :

About the author: Viktoria Rudenko is the director of the Top 50 Banks in Ukraine project

www.bunews.com.ua

banking industry

: The profitability of the Ukrainian banking sector helped boost

levels of retail lending by approximately one-third during 2018, indicating that further improvements will have a significant knock-on effect for the Ukrainian economy as a whole. The good news is that this overall positive trend towards banking industry profits appears to be sustainable. Figures for the first four months of 2019 showed a 69.2% year-on-year increase in profits to reach a new total for January-April of UAH 18.1 billion, leaving the industry firmly on track to eclipse 2018’s record profit levels. Rising profitability is not the only indicator that Ukraine’s banking sector has decisively turned the corner. There has also been significant success in the retail business, with banks achieving a return to pre-crisis indicators. Meanwhile, the volume of hryvnia deposits from private individuals increased by 14.5% yearon-year in 2018 to reach UAH 268.9 billion, which is higher than the 2013 figure. The National Bank of Ukraine (NBU) expects this positive outlook to continue during 2019, and anticipates a further increase in lending, with key drivers set to be consumer and mortgage lending. However, NBU officials are keen to stress that they remain as vigilant as ever and will continue to subject the banking sector to rigorous scrutiny in order to safeguard against any backsliding on the progress of recent years. “We will keep our finger on the pulse and will pay special attention to consumer lending in order to assess how this growing portfolio will be able

to withstand potential crisis conditions,” says NBU Deputy Governor Katerina Rozhkova.

Sector Still Under Scrutiny

Industry regulators are taking nothing for granted. They believe the key threats to the future stability of the Ukrainian banking sector include short-term funding issues, high dollarization, the heavy concentration of state capital within the sector, and the ongoing long-term problem of non-performing loans. Overall, 24 banks underwent comprehensive stress testing in 2018, with a further 29 to face stress test assessment during the course of the current year. One of the regulatory novelties introduced last year by the NBU was the SREP (Supervisory Review and Evaluation Process) system, which seeks to analyze the viability and sustainability of an individual bank’s business model, while also assessing the quality of corporate governance, capital risks and liquidity risks. “Unfortunately, among the 40 medium and small banks subject to SREP evaluation, more than 20 proved unsatisfactory,” comments the NBU’s Ms. Rozhkova. “At present, the main problem for small banks is the lack of a feasible development strategy, leading to the non-viability of their business models.” Ultimately, she says, banks that fail to demonstrate the sustainability of their business models will have to leave the market, either voluntarily or with the help of the regulator. :

The Overall Number of Bank Branches in Ukraine: Oblast by Oblast Nationwide Guide

banking industry

“After four years of unprecedented annual losses, in 2018 the Ukrainian banking industry reported record profits of UAH 21.7 billion” : During 2018, the NBU stepped up sanctions against banks that fell

short of its increasingly stringent financial monitoring requirements. Over the course of the year, 20 banks suffered a variety of sanctions ranging from written warnings to fines, and in some cases even the dismissal of senior employees responsible for financial monitoring. Ukrsotsbank received the highest fine of the year and had to pay UAH 30.45 million. This trend is continuing in 2019, with OTP Bank hit by a UAH 7.1 million fine in March of the current year. Unofficially, many banking sector executives complain that these fines are somewhat arbitrary, arguing that the NBU has failed to provide an exhaustive list of prohibited and authorized operations, leading to decisions that are highly subjective. National Bank officials counter by pointing to detailed evidence of systemic violations.

Privatization Plans

One of the major issues facing the Ukrainian banking industry in 2019 is the oversized portion of the sector occupied by stateowned banks. The late 2016 decision to nationalize PrivatBank, which is back in headlines following a number of recent Ukrai-

nian court rulings and due to new Ukrainian President Volodymyr Zelenskyy’s perceived closeness to the bank’s former owner Ihor Kolomoiskiy, pushed the share of state-owned banks within the overall banking sector to significantly higher than 50%. Ever since PrivatBank’s nationalization three years ago, there has been a broad consensus among the banking, regulatory and political communities over the need to reduce this stake. Indeed, plans to privatize some of Ukraine’s state-owned banks predate the furor over PrivatBank. The process was originally set to begin in 2018 but has experienced delays. There are now hopes that progress will take place in the second half of the current year. Oschadbank is working towards partial privatization in partnership with the European Bank for Reconstruction and Development (EBRD). The two parties signed off on a memorandum of cooperation in 2016, laying out a roadmap for the potential future EBRD acquisition of a stake in the bank. Meanwhile, Ukrgasbank has had a memorandum in place with the International Finance Corporation (IFC) since 2017. Due diligence is currently underway, with the expectation that progress towards future privatization will follow later this year.

Banking Sector Commentary: Rustam Kolesnik Head of the Supervisory Board of Financial Club and General Director of Yuridicheskaya Practika publishing house While the world’s largest financial institutions peer into the future and continue to explore the seemingly endless possibilities created by the fintech revolution and other financial sector innovations, the Ukrainian banking system continues to digest the effects of the post-2014 crisis, with its mass closures throughout the industry. Meanwhile, recent court decisions raise the very real prospect that the banking sector will now have to address the question of how to return some banks to the market and reverse their earlier unfair elimination. At present, neither the National Bank of Ukraine nor the country’s Supreme Court appears to have the answers. Even if a suitable license recovery formula proves possible, this will still open the way for an entire wave of lawsuits related to all manner of connected issues including reimbursement for the losses caused to the owners of such banks. With this in mind, we can look forward to interesting times in Ukraine’s banking sector, with results that will be generally favorable for banks and their legal advisers alike. 34

UKRSIBBANK

UKRGAZBANK

CREDIT AGRICOLE BANK

UKREXIMBANK

KREDOBANK

PRIVATBANK

PUMB

OTP BANK

TASCOMBANK

PIVDENNY

VOSTOK BANK

MTB BANK

UNIVERSAL BANK

A-BANK

17 19

23 24

CREDIT DNEPR BANK

IDEA BANK

PRAVEX BANK

LVIV PIRAEUS BANK

INDUSTRIALBANK

PROCREDIT BANK

GLOBUS

Profit (million UAH)

ALFA-BANK

Statutory Capital (million UAH)

RAIFFEISEN BANK AVAL

Volume of deposits from customers (million UAH)

Volume of issued loans (million UAH)

OSCHADBANK

Number of ATMs

Financial and operations indicators (as of 1 January 2019)

Number of branches

Bank

Chairperson of the Board

Position in 2018

2019 edition of annual Ukrainian banking sector ranking produced by Financial Club

Position in 2019

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Top 50 Banks in Ukraine

Andriy Pyshnyy

2630

3176

67 542.44

151 447.72

49 472.84

131.77

Viktoria Mykhaile

252

909

32 400.03

52 288.56

12 179.76

Volodymyr Lavrenchuk

503

2407

Petr Krumphanzl

2021

7281

Serhiy Chernenko

180

701

Philippe Dumel

Kirill Shevchenko

Tamash Khak-Kovach

300

246 86

1147 695

138

58 159.94

6 153.41

5 087.93

1 258.33

52 019.98

224 951.85

206 059.74

11 668.23

27 296.27

40 328.42

3 294.49

2 037.52

26 137.96

45 207.72

21 880.19

5 069.26

65 247.56

13 318.56

26 524.11

1 222.93

26 355.27

2 657.94 766.11

6 186.02

1 974.31

1 153.00

429.26

150

Oleksandr Hrytsenko

633

72 478.93

79 947.27

38 730.04

958.50

274

9 624.87

11 722.95

2 248.97

520.34

4 247.09

8 764.74

2 720.00

-228.88

3 232.92

298.74

336.27

979.09

-137.39

438.41

-41.58

Alla Vanetsyants

Grzegorz Shatkovski

111 94

111

270

12 971.51

15 665.44

17 368.76

Yuriy Kralov

150

1 907.70

4 062.11

Irina Starominska

4 977.50

6 939.18

3 102.67

Mikhail Vlasenko Taras Kirichenko

151

183

225

Serhiy Naumov

Mikhail Bukreyev Serhiy Mamedov

Viktor Ponomarenko

Yuriy Kandourov

Ashot Abraamyan

117

3 305.70 1 219.30

6 934.60

1 339.05

36 37

6 754.73

13 796.37

Vadym Morozhovskiy Elena Makinska

21 686.10

40 600.90

Jean-Paul Piotrowski Andriy Komarist

309

47 602.79

2 357.54

523.11

635.00

3 633.63

3 672.97

323.19

1 350.25

1 703.57

2 531.35

1 393.76

2 228.47

1 576,20

16 526.45

1 699.60 3 702.5

2 179.56

12 112.86

856.57

300.00

1 093.27

1 462.65

282.28

120.02 20.80

90.68

620.46 51.44 20.63

19.18

662.46

Ranking Methodology: The “Top 50 Banks of Ukraine” ranking is an annual nationwide banking industry survey produced by the independent information agency “Financial Club”. The ranking is currently in its eighth year and is based on a range of information including quarterly and annual financial reports together with detailed operational information provided by individual banks. This information is assessed and the overall ranking is calculated in cooperation with an expert council featuring a number of leading executives from the Ukrainian banking sector. 36

ALLIANCE BANK

PROMINVESTBANK

26 -

FORWARD BANK

RADABANK COMMERCIAL INDUSTRIAL BANK CLEARING HOUSE POLTAVA-BANK ACCORDBANK

UKRSOTSBANK

CONCORD

INTERNATIONAL INVESTMENT BANK Konstantin Ludvik

UKRSTROYINVESTBANK UNEX BANK AP BANK ALTBANK IBOX BANK AVANGARD BANK

EUROPEAN INDUSTRIAL BANK

863.99

200.00

11.31

200.00

18.42

727.71

1 520.87

231.31

41.15

7 154.72

22 050.40

627.19

971.48

9 815.78

549.34

1 848.79

2 996.41

16 545.99

661.70

200.00

3 126.77

1 095.50

3 518.44

8 702.97

328.59

634.32

Ihor Volokh

Halina Heylo

Zoya Filenkova

409.68

348.96

141.30

447.97

157.36

393.88

303.25

2 124.49

1 855.02

676.96

1 540.95

Anna Dovgalska

963.93

Vadym Chykhun

Svitlana Korchinska

-3 388.92

188.91

Serhiy Shepanskiy

50 918.09

510.39

Vadym Kachurovskiy

6 003.62

1 423.08

Irina Kolesnik

Vitaliy Zinnikov

-165.16

632.63

Bernd Wurth

530.74

1 152.94

36.33

Yuriy Zadoya

INVESTMENT AND SAVINGS BANK

1 199.89

8 808.52

620.00

MOTOR-BANK

Ivan Svitek

DEUTSCHE BANK DBU

819.36

FIRST INVESTMENT BANK

Vitaliy Pereverzev

1 419.48

111.20

1 039.68

Alexander Mcwhorter

260.00

Tatiana Putyntseva

CITIBANK

1 665.24

7 400.61

166

7 030.26

Zinaida Kot

-7 614.19

1 398.87

Andriy Kiselev

Viktoria Andriyevska

20 765.46

130

Serhiy Stoyanov

8 492.46

228

166

Andriy Rozhok

19 452.24

111

Oleksandr Shipilov

Yulia Frolova

Profit (million UAH)

Statutory Capital (million UAH)

MEGABANK

Volume of deposits from customers (million UAH)

Irina Knyazeva

Volume of issued loans (million UAH)

SBERBANK

Number of ATMs

Financial and operations indicators (as of 1 January 2019)

Number of branches

Bank

Chairperson of the Board

Position in 2018

2019 edition of annual Ukrainian banking sector ranking produced by Financial Club

Position in 2019

banking industry

Top 50 Banks in Ukraine

690.21

469.75

432.82

501.87

586.83

318.53

93.55

-885.99

200.00

1 414.63

230.00

59.80

301.84

200.00

500.00

10.25

43.02

34.99

10.28

274.07

64.03

292.00

-11.19

205.00

18.97

300.12

10.47

200.01

310.00

200.00

7.88

22.42 0.41

3.29

Prioritizing Partnership Interview: PRAVEX BANK Management Board member and Corporate Division Head Francesco Lupo What key trends have you observed in the corporate customer service segment of the Ukrainian banking sector over the past year? The main trend that I have observed has been general growth, both in retail and corporate lending. This is a good signal for lending activities. Banks are focusing on enlarging their customer bases and expanding their engagement with domestic corporate and multinational clients along with the SME segment. During 2018, the overall portfolio of loans to individuals in the Ukrainian banking system grew by 27.2%, while lending to legal entities rose by 11%. Banks remain quite conservative in their approach to corporate lending due to a number of factors. Firstly, this reflects the relatively low number of international companies active in the Ukrainian market. It is also due to systematic problems related to legislation protecting the rights of creditors. In response to these factors, banks are trying to broaden their focus. In addition to large national and international corporations, they are also looking to SMEs and private entrepreneurs. Is it true to say that international companies operating in Ukraine tend to prefer banks with foreign capital? Yes, international groups really do prefer to work with international banks present in Ukraine. It is easier for them to build relationships with institutions where there is already prior experience of cooperation. It can be quite challenging to begin a relationship with a new bank due to Anti-Money Laundering (AML) and Compliance issues, due diligence, preparation of documentation, and other technical requirements. At the same time, it remains easier for stateowned companies to gain access to state banks. As a bank, we do not give preference to any particular companies. In the second half of 2018, PRAVEX BANK adopted a new business strategy that includes a clear segmentation of customers. The first group is multinational companies and those with ties to Italy; the second group features 40

large Ukrainian companies (including state-owned and insurance companies); and the third segment is the SME sector, where we decided to reengage with a series of specific business propositions and dedicated financial products.

How does PRAVEX BANKâ&#x20AC;&#x2122;s status as part of a major international banking group shape your client portfolio strategy? We implement the best practices of the Italian Banking Group Intesa Sanpaolo in the Ukrainian market. Intesa Sanpaolo has been one of the leading financial groups in Europe for more than 10 years and is currently among the top five Eurozone banks in terms of market capitalization. Our strategy in Ukraine is the parallel development of retail and the corporate segments. We want to serve not only large corporate customers, but to cover their suppliers and clients, working jointly with the Retail Division to assist their employees by means of cross selling and providing them with dedicated products. We focus on providing a wide range of services to successful companies in the IT sector, food processing, energy, manufacturing, agriculture, logistics, FMCG (fast-moving consumer goods), packaging and more. One of the key points of our sustainable development strategy is the quality of our customers. We want to provide them with naturally hedged financing structures in order to protect them against any possible adverse market scenarios that may arise in Ukraine. Our target is to become a factor accelerating the business development of our clients. This means being able to rely on people who can work in difficult situations. It means providing clients with services that match their needs. Banks urgently require innovations and the improvement of customer service, but we must also not forget about the importance of a physical presence: it is crucial for us to grant a high quality of service through an adequate number of branches located in the most important industrial and agricultural centers of the country.

What services do you see the most demand for in the corporate sector of the Ukrainian banking industry? We are willing to couple traditional lending activity with a wide range of financial products promoting new services. We are developing trade finance, because Ukraine is a trading country. Trade flows are growing both towards Western Europe, including Italy, and to eastern markets such as China. Many Ukrainian companies in sectors like food processing and construction are choosing to use Italian technologies to develop their business. We try to facilitate these commercial flows. Ukraineâ&#x20AC;&#x2122;s new currency law has softened currency controls, making it easier for banks to conduct foreign trade operations between Ukrainian and international companies. This leads to a strengthening of trust and helps to attract international investors back to the country. In addition to this, the new generation of consumers expects advanced digital services and online access to banking services.

Is the corporate sector in Ukraine ready to make the switch to remote maintenance completely, or is it still important to maintain a branch service? The Ukrainian economy remains very tied to cash transactions. This is very expensive, as is the paper trail created by the many institutions requiring original documents with accompanying authentications. There is a need to simplify such formalities because they make companies less competitive. Nevertheless, the transition towards digital technologies is unstoppable. Corporate customers already require digital solutions, while individuals and private entrepreneurs become active users of digital services as soon as they become aware of them. In December 2018, PRAVEX BANK expanded its range of online banking services for corporate clients. We updated the list of services provided and additionally developed an English-language interface, because many companies have foreign employees or employees who speak English.

What are your goals in the corporate sector for 2019? Our strategy provides for the growth of the bank’s asset portfolio in the corporate business. We had previously slowed down our coverage in the SME segment, but we have now decided to relaunch SME operations. We want to work on financing the supply chain of large domestic and international companies, creating synergies and leveraging the advantages of the Ukrainian economy. Initially, we plan to focus on clients in Kyiv, Dnipro, Lviv, Kharkiv, and Odesa. During the current year, we expect to see the contribution of the SME sector to our total assets and liabilities begin to grow together with that of large companies. We aim to attract the best large corporate enterprises and the main multinational companies. In the SME sector, we want to boost existing cooperation with clients while at the same time significantly enlarging our client base. We plan to develop new solutions for deposits and trade finance to meet growing demand. We are currently updating our product line to become broader and more flexible, supplemented with customized products that are difficult to find on the Ukrainian market. Plans are in place to www.bunews.com.ua

banking industry

What are the key criteria for corporate clients when choosing a partner bank in Ukraine? I often tell my team: there is no such thing as good or bad weather, only bad clothes. The bank should provide the necessary services to its customers not only in good weather, but also in bad. We have to get used to the fact that instability has become the new normal. When a client chooses a bank, they need to consider the potential it offers for future cooperation. We want to be not only a service provider, but also a partner for our clients. We need to understand their strategy in order to understand how best to support their business. For any client, a bank should be a partner. In terms of international markets, I would even say that a bank should serve as a “passport”. Corporate clients looking to select a bank should pay attention to reputation, to the business model, and to all the main financial indicators that demonstrate the solidity of the banking institution and the group to which it belongs. Let me also emphasize that PRAVEX BANK supports the real economy with particular attention to cultural heritage and educational programs.

About the interviewee: Francesco Lupo is a member of the Management Board and Head of Corporate Division at PRAVEX BANK increase engagement with core Ukrainian industries such as agriculture, not only with manufacturers but also with traders. Additional targets include telecoms and pharmaceuticals companies, the FMCG sector, IT, and logistics. We are studying the possibility of working with renewable energy producers, based on the belief that Ukraine will become more self-sustainable in this sector of the economy. We want to cooperate actively with supranational organizations in order to increase the support we can offer to local and international companies working in Ukraine. As a member of the Intesa Sanpaolo Group, PRAVEX BANK is explor-

ing how to import the best practices of the Group. We are committed to becoming an engine for the growth of the real economy in the medium- to long-term, for both households and corporate clients. In order to reach these goals, we will leverage the advantages of belonging to the Intesa Sanpaolo Group, adopting international best practice along with the Group’s corporate culture and values. We are committed to develop a circular economy model in contrast to traditional linear economy models. We will reach these targets through our people, our values, and our investments in the market. 41

banking

New Law vs Old Debts

Questions remain over the ability of recently adopted legislation to boost Ukraine’s credit market

About the author: Olena Volyanska is a Partner, Attorney at Law and insolvency practitioner at LCF Law Group The adoption of a new lending law in Ukraine has provoked equally strong emotions from both banks and their borrowers. Questions remain over a number of key issues including the status of unpaid loans from previous years, creating uncertainty in the market. The Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Concerning the Resumption of Crediting” (often referred to as “the Law on Resuming Lending”) was first adopted by the Ukrainian parliament in July 2018 and came into effect on 4 February 2019, three months after it was signed by the president and officially published. Both the transitional and final provisions of the law have attracted heated debate, including discussion over the constitutional validity of the new legislation. Attention has focused on the way the law deals with legal relations, both in its adopted form and in the earlier drafts. Despite the fact that the law has only been in force for a few months, a number of clear legal trends are already emerging in court practice relating to credit relationships dating back to previous years. So far, the court decisions that are establishing legal precedents for the new law relate mainly to civil disputes regarding the credit and security obligations of individuals. In all of these cases, the courts reached the conclusion that the norms of the new law do not apply to the legal relations of parties, instead resolving disputes in favor of debtors. For example, the Uzhgorod city district court of the Transcarpathian region (case no. 308/4987/15-c) recently established the termination of a guarantee and refused to apply the principles of the new law governing legal relations. In doing so, the court based its ruling on the provisions of Article 5 of the Civil Code, which states that acts of civil law are not subject to retroactive application. The court did not analyze the norms established in the transitional and final provisions of the new loan law. The position expressed by the Supreme Court in case no. 216/2813/15ts 42

is potentially even more alarming for banks. In this case, the court found that the provisions of Article 559 of the current Civil Code are not applicable when resolving a dispute on termination of a surety, since on the date of entry into force of the law, the deadline for the fulfillment of the loan obligation had already arrived. Therefore, legal relations between the parties had ceased. The courts of appeal used similar arguments, refusing to apply the most recently updated rules of the civil code of Ukraine. For example, the Mykolaiv Court of Appeal also recently ruled against applying the new edition of Article 559 of the Civil Code, finding that legal relations between the parties expired in 2012 in line with the timeframe of the loan itself (case No. 480/2189/14-c). It now looks likely that this legal position will become decisive for courts in rulings regarding the application of the new loan legislation when considering disputes over the recovery of outstanding debts dating back to previous years from debtors and guarantors. It is worth noting in particular that the courts have chosen to interpret the term of termination of legal relations between the parties to a loan agreement in accordance with controversial Supreme Court practice. Despite negative assessments throughout the Ukrainian banking sector, the Supreme Court has ruled against banks charging contractual interest on loans following the end of the designated loan period or termination of the loan, including in cases of early loan collection. This legal position is leading to inevitable conclusions regarding the termination of all legal obligations following the expiration of an established loan period, and therefore to the inapplicability of the new law on loans in such cases. For the Ukrainian banking sector, the legal issues surrounding lending do not only relate to the struggle against outstanding unpaid debts, although the sheer scale of the problem may sometimes create this impression. From an economic point of view, the bank’s lack of rights to charge interest on funds that a borrower uses illegally is far from straightforward. According to the Supreme Court, the rate charged on a loan for an unscrupulous borrower who does not meet their debt repayment obligations to the bank for longer than the period established by the contract depends on article 625 of the Commercial Code of Ukraine and is set at 3% per annum. However, if the borrower applies to the bank to borrow again, the lending rate is set at the current market rate. This creates a somewhat paradoxical situation, where the absence of negative legal consequences for malicious debtors makes it is more profitable not to return a loan than to get a new one. Analysis of recent judicial practice indicates that the market should not expect a resumption of larger scale lending in the short term. This will likely remain the case until the banking sector is sure that its economic interests receive suitable protection, not only in the form of progressive legislation, but also via law enforcement practices that do not encourage unfair behavior on the part of bad faith borrowers. Nevertheless, it is too early to draw any definitive conclusions regarding the application of Ukraine’s new law on lending. Much will depend on the decisions of the Grand Chamber of the Supreme Court. www.bunews.com.ua

French bank is the leader of Ukraine’s auto financing market Credit Agricole’s leadership is recognized for the fourth consecutive year in the “Top 50 Banks in Ukraine” rating by Financial Club information agency

About the interviewee: Galyna Zhukova is Deputy Chairman of the Board of Credit Agricole Bank in Ukraine with responsibility for retail business and network Credit Agricole Bank celebrated the arrival of summer 2019 with the unveiling of a new model branch at 6/7-а Vaclava Havela Boulevard in Kyiv specializing in auto financing. This new branch is the tenth in a series of global network modernization and innovations implementation across Ukraine. Credit Agricole’s new model branch concept is based on the bank’s “100% digital and 100% human” approach, which combines digital technologies and high expertise of employees. While the bank offers auto financing services in all of its branches, this new dedicated flagship for the segment is located close to a number of car dealerships and has been designed especially with car loan support in mind. The opening is part of Credit Agricole’s efforts to maintain its entrenched status as the Ukrainian market leader in auto financing, a status the bank has held for many years thanks to an innovative approach, which has helped to secure a 40% market share among banks as of today. “It is becoming harder and harder to stay number one,” says Galyna Zhu44

kova, who, as Deputy Chairman of the Board of Credit Agricole Bank in Ukraine with responsibility for retail business and network, oversees the bank’s auto financing division. “The success we currently enjoy is not a given, it has to be earned. The competition for auto financing customers is getting tougher every year.” Ms. Zhukova attributes the bank’s leadership position to a number of factors including a commitment to maximum service transparency, the convenience of a one-stop-shop approach to every aspect of auto financing, and the experience of over a decade on the market. This longevity has allowed Credit Agricole Bank to develop cooperation with most of the major auto importers operating in Ukraine, while also gaining the kind of invaluable market knowledge that comes with processing tens of thousands of individual credit applications from potential new car owners. “We have the best decision-making system on the market and we continue to invest a lot of time and resources into this,” Ms. Zhukova says.

The leasing market has yet to take off among private customers in Ukraine, which Ms. Zhukova believes is largely attributable to a prevailing cultural preference for ownership. “General speaking, private individuals are not yet keen on leasing. It is a matter of habit and mentality. Ukrainians prefer to own their car.” However, she anticipates that a growing leasing market will emerge in the coming years as the increasingly knowledgeable Ukrainian market become more familiar with this option and the banks themselves raise awareness about leasing services. Ms. Zhukova expects the auto sales market climate over the coming years will remain subject to the broader political and macro-economic situation in the country. She believes if a moderately stable environment emerges following the conclusion of the current round of elections, it is reasonable to expect new car sales growth in the region of 10% to 15% per year. In an improving economy, these figures could rise even further, buoyed by a reduction in the cost of financing. Nevertheless, there is little expectation of imminent boom times. Instead, the focus among auto financing providers is likely to fall on the fight for a limited pool of clients and the streamlining of services. “There is little sign of growth in the market at present so the priorities are optimization and simplification,” says Ms. Zhukova. “As banks compete for a limited number of clients, they will seek to increase the range of repayment options on offer, while at the same time reducing the number of papers to sign.” This service- and convenience-based contest for customers reflects the increasingly demanding nature of the rapidly maturing Ukrainian market for financial services. “People are now much more financially educated than they were just one decade ago,” reflects Ms. Zhukova, “and Ukraine’s car loan market clientele is among the most financially educated segments of society.”

banking

“Over the past 11 years, we have processed around 80,000 applications. This provides the system with vital experience. You get to learn who is a reliable client, and who may not be so suitable.” Ms. Zhukova characterizes the current market for new car sales as ‘disappointing’, with just 80,000 new cars sold via official dealers in 2018 and similar forecasts for the current year. This is well short of expectations widely held a few years ago, when many industry analysts and auto trade professionals anticipated a return to growth by 2019. Factors undermining the recovery of new car sales include the 2017 relaxation of restrictions on the importation of used vehicles, leading to a flood of cheap cars mostly from Central European markets and further issues over the imposition of customs duties. Now largely resolved, this period of somewhat chaotic import deregulation hampered the growth of new car sales and came with an additional environmental cost. “Most of the used cars entering the Ukrainian market over the past few years have been third-hand rather than second-hand. They are often completely outdated models, having already made the journey from Western European markets like Germany and Switzerland to Poland and the Baltic states,” points out Ms. Zhukova. “This is not only damaging to the economy in terms of new car sales and the banking industry, but also ecologically dangerous.” Of the 80,000 new car sales last year, 20% involved financing, whereas the proportion in more mature car markets would be closer to 40%50%. Ms. Zhukova says although Credit Agricole’s portfolio is diverse, the bank’s core car financing clientele tend to be middle class Ukrainians, with typical loans in the UAH 500,000 to UAH 800,000 range and an average repayment timeframe of three years. Loans are set in the Ukrainian hryvnia currency, removing the uncertainties of floating exchange rates that have traditionally made some Ukrainians wary of engaging in longterm financing commitments.

Credit Agricole’s new model branch specializing in car lending is another important step to confirm bank’s leadership in the auto financing market

www.bunews.com.ua

banking

Poland’s banking bridge to Ukraine Kredobank’s Jerzy Jacek Szugajew on banking reform and support for Polish-Ukrainian trade ties

What role does Kredobank’s membership of the PKO Bank Polski financial group play in terms of your attractiveness on the Ukrainian market? PKO Bank Polski is the largest Polish bank and one of the biggest financial institutions in the entire Central and Eastern Europe region. During the last round of stress tests conducted by the European Central Bank, PKO Bank Polski scored highest among selected European banks. With this in mind, being a member of PKO Bank Polski Group gives us strong parent support and access to both know-how (PKO Bank Polski has a vast corporate client base and offers a wide range of products including advisory, M&A, brokerage etc.) and to European markets. This European market reach is of particularly keen interest to our Ukrainian clients, especially to Ukrainian exporters.

Bilateral economic ties between Ukraine and Poland are currently experiencing a period of significant growth. What role does this segment play in your overall business portfolio and what tailored services do you offer specifically to companies with a PolishUkrainian focus? Within our overall corporate strategy, we are particularly interested in working with Ukrainian corporate clients who have significant exposure to international trade. This means companies engaged in export and import, especially companies that are looking to banks to provide trade finance products such as guarantees and treasury products supporting their foreign exchange needs. Of course, we naturally feel particularly strongly about our products and services when it comes to supporting our local clients when they develop trade relations with Polish companies. We currently have a dedicated team to support both our local clients and Polish companies when it comes to managing cross-border business between Poland and Ukraine. This team supports our clients, both when dealing with basic banking services such as opening accounts, and with more complex requirements. This extends to covering their investment needs when bank loans and other services become necessary. 46

About the interviewee: Jerzy Jacek Szugajew is the First Deputy Chairman of the Board at KredoBank How do you assess the progress of Ukraine’s post-2014 banking sector reforms? Although I have now worked in the Ukrainian banking system for a little more than a half a year, it is difficult for me to evaluate the overall nature of these reforms. At this stage, I think it would be more realistic to talk about my observations regarding the specific results of these reforms as I have encountered them. At present, I see several positive effects from the Ukrainian banking sector reform process. Firstly, thanks to these reforms, Ukraine’s banking sector has become healthier than ever. Due to the “cleanup” of the banking system, a lot of unstable, ineffective and “pocket” banks that served only to finance the businesses of their principle owners have now left the market. The banks that have continued to operate in Ukraine now clearly consider the provision of banking services as their main business. This has significantly reduced the risk of any potential future systemic collapse. If ineffective or uncompetitive banks now decide to leave the market for whatever reason, this will not have a major influence on the Ukrainian banking system as a whole. The stability and profitability of the Ukrainian banking sector has helped the National Bank of Ukraine to bring inflation under control and strengthen the credibility of the hryvnia currency, which now remains more or less stable

without any administrative support or the need for artificial institutional intervention. Another significant achievement I would like to highlight is the recent increase in freedom regarding foreign currency transactions. Since their introduction in early 2019, Ukraine’s foreign currency reforms have made life much simpler for the business community and retail banking customers alike. What do you regard as the top reform priorities for the Ukrainian banking sector for the coming few years? In my view, there are a number of key priorities on the Ukrainian banking sector reform agenda. These include increasing the transparency of the banking sector and implementing European standards of information exchange between banks. Ukraine would benefit from the further simplification of international payments and development of the regulatory base to help facilitate the continued digitalization of the banking sector. Ukrainian banks have well-developed online banking services but need to improve the legislative base in order to widen the number of operations which can be done digitally without visiting physical bank branches. This would make it easier for customers to open and close bank accounts online, while simultaneously increasing the security of such operations.

www.bunews.com.ua

Number one in Ukraine for four consecutive years

Post-2014 transformation of state-owned Oschadbank provides Ukraine with a blueprint for reform

For the fourth year in a row, state-owned Oschadbank has taken first place in the annual Top 50 Banks in Ukraine ranking. This recognition reflects the progress made by an institution that was once a symbol of the dysfunction and mismanagement associated with the vast state-owned enterprises inherited by Ukraine following the Soviet collapse. Business Ukraine magazine invited Oschadbank Management Board Chairman Andriy Pyshnyy to reflect on the changes he has overseen since taking up his current post in the tumultuous days of spring 2014: “As I look back at the historic events of the past year, I realize that we will never be the same again.” This was one of the key messages from a speech I gave five years ago to mark the unveiling of the 2015-17 Oschadbank Development Strategy, entailing the modernization of Ukraine’s oldest bank with the country’s largest branch network. It is now possible to view the events of 2014 from a distance and assess the path we have since travelled. The bank certainly performed well in 2018, but it makes no sense to analyze the results of the past year without also taking into account the fascinating journey we have been on for the entire post-Maidan period.

Fateful Year of 2014

In the first few months of the year, Ukraine as a state, along with the entire population of the country, withstood a series of staggering blows. Reality was changing before our very eyes. In these circumstances, it became essential to act decisively and make pivotal decisions at a rapid pace. It was a question of “change or disappear”, both for the country as a whole and for Oschadbank in particular. I can still clearly remember the reaction of our team during our first strategic session in autumn 2014 when I set the goal of becoming the leading Ukrainian bank. In the conditions of the time, this objective sounded somewhat fanciful, to say the least. Based on their initial responses, it was obvious that my colleagues recognized this. Nevertheless, I refused to let the difficult circumstances we faced serve as a barrier to our ambitions. Looking back, I can now say that we managed to implement 90% of the modernization strategy first laid out 48

back then in early autumn 2014. This has allowed Oschadbank to assume its current position among Ukraine’s top banks. Immediate priorities included stopping the outflow of resources, which we achieved in the summer of 2014. By the end of that year, we had restored our resource base and begun accumulating again. The bank has since become market leader in terms of individual deposit growth. In 2016, this allowed Oschadbank to repay NBU refinancing loans that had featured on the balance sheet of the bank since 2008 and amounted to more than UAH 20 billion. In essence, we have built a new and modern bank inside the existing framework of an old bank. This includes the transformation of 600 branches to embrace an entirely new format. Twenty of these new branches are fully inclusive, making them the first of their kind both in Ukraine and throughout Central and Eastern Europe. The bank has also introduced mobile branches hosted in secure vehicles to ensure we can serve customers living in areas close to the conflict zone in eastern Ukraine. Over the past few years, we have entered the premium banking segment and built up our premium services from scratch, including the launch of a range of dedicated VIP facilities. The results speak for themselves. If Oschadbank’s premium banking division were treated a separate bank, it would be equivalent in size to one of the top three banks in the country in terms of deposit portfolio.

Joining the Digital Revolution

Today’s banking industry is about a lot more than upgraded branch networks. The transformation of Oschadbank has also involved the rapid expansion of digital technologies and online services. Five years ago, the bank’s “Oschad 24/7” app had just 13,000 users. I would actually be interested in meeting every one of them, because the functionality of this old app was something of a puzzle in itself. We have since developed and implemented a new, user-friendly app and built up our online banking services virtually from zero to become the number two bank nationally in the digital sector with 3.5 million users. Oschadbank now also occupies second place in the Ukrainian market in terms of number of active

payment cards and POS terminals in retail stores, despite lying in twentieth and thirtieth positions respectively not so long ago. Thanks to our growing reputation in these fields, major Ukrainian and international brand names like McDonald’s, Auchan, H&M, Turkish Airlines, KFC, DHL, TUI, PZU, Nova Poshta, Epicenter, ATB, Rozetka, SOCAR and many others have become customers. Among the many innovations of the past five years, we have established a new business line in support of Ukraine’s small and medium-sized enterprises (SMEs) entitled “Build Your Own”, which has enabled us to compete with the national market leaders in this strategically important and growing segment.

Addressing Loan Issues

One of the most challenging issues facing the bank since 2014 has been working with a significant existing non-performing loan portfolio, which rapidly increased following the annexation of Crimea and the war in Donbas, together with associated damage to the national economy. In order to meet this challenge, the bank’s organizational structure underwent changes with a new division established featuring many of the best lawyers in the market. We have since won numerous court cases and increased opportunities to recover damages incurred due to unscrupulous borrowers. In line with the Law of Ukraine “On Financial Restructuring”, we also launched the largest non-performing loan restructuring process among Ukraine’s stateowned banks. Internationally, we have prepared and filed a lawsuit against the Russian Federation for assets lost in Crimea, engaged in complex arbitration hearings, and won! Meanwhile, to improve the bank’s operational procedures moving forward, we introduced a new risk management system, having first carried out a detailed review with due consideration of the Basel Accords on credit risk management standards and global best practices. Within the bank, we have developed and implemented a modern employee development system, established a new corporate culture, and clearly defined the mission and values of our team. Perhaps even more importantly, Oschadbank has become a reliable and desirable employer.

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From the very beginning of our transformation efforts in 2014, our team recognized the key role of Oschadbank among the countryâ&#x20AC;&#x2122;s state-owned banks, and we have been directly involved in efforts to develop a reform strategy for the entire state banking sector. This strategy has identified roadmaps towards commercialization, specialization and the partial privatization of state-owned banks via the equity participation of reputable international financial institutions. The European Bank for Reconstruction and Development (EBRD) has emerged as a strategic partner and likely investor for Oschadbank. In summer 2014, I went on my first overseas business trip to the EBRD headquarters in London. This trip came immediately after visits to the cities of Sloviansk and Kramatorsk in Donetsk region, where Oschadbank branches were able to resume work just 48 hours after liberation by Ukrainian forces and the end of combat operations. Within two years of that first trip to London, the Ukrainian Ministry of Finance and the EBRD signed a memorandum of strategic partnership and a roadmap for the transformations that must take place for this international financial institution to become a shareholder of Oschadbank along with the Ukrainian state. We remain focused on this strategic goal on a daily basis.

New Targets in 2018

Thanks to the implementation of our 20152017 modernization strategy, the bank entered 2018 with many legacy issues resolved and a new range of skillsets in place. Inevitably, this led to the question of what our next strategic focuses should be. The process of modernization had evolved from future goal to everyday reality, with the Oschadbank team learning to adjust to rapid change while seizing on new challenges and learning how to monetize them. We chose to refocus our strategic thinking from modernization to development, leading to a step-by-step strategy covering 2018-2022. The overall goal of this strategy is to become the largest universal bank in the country. On the one hand, this means preserving and enhancing the unique leadership competencies required in order to work with large companies, including those from the public sector, power industry, infrastructure and agriculture. On the other hand, it envisages taking leading positions in the SME and retail banking segments while becoming an even more modern and tech-friendly bank. Ultimately, the goal is to cement Oschadbankâ&#x20AC;&#x2122;s position as the first-choice bank for ordinary Ukrainians and major corporate clients alike. : www.bunews.com.ua

About the author: Andriy Pyshnyy is the Chairman of the Management Board at Oschadbank

: This new strategy was set forth within the

framework of the strategic partnership memorandum with the EBRD. It represents a new chapter in the development of Oschadbank and of the entire Ukrainian banking system. Why is it so important? When we drew up the next stage of the Oschadbank development strategy in early 2018, the bank’s corporate governance was not yet reformed. The planned Independent Supervisory Board, which among other things would be responsible for approving this strategy, was had not yet been appointed. In order to move forward and maintain the momentum of the bank’s transformation, we had no choice but to submit this development document for the consideration of the shareholder, the Cabinet of Ministers of Ukraine. In an unprecedented move for the Ukrainian banking industry, the government reviewed and approved the plan, which set out a series of important markers, including the growth of assets to UAH 334 billion by 2022. In line with this overall roadmap, we established eight priorities for 2018.

Priority 1: Loan Portfolio Diversification

According to Oschadbank’s approved development strategy, by 2022 the bank’s loan portfolio should have the following composition: 64% corporate sector, 22% retail sector, 14% SME sector. Back in 2014, the breakdown of the bank’s loan portfolio was strikingly different, with 95% of loans to legal entities, 5% of loans to individuals (91% of which were in default), and zero loans to SMEs. It was already possible to identify clear shifts underway in the bank’s loan portfolio by the end of 2018, with 87% of loans to large corporate businesses, 8% of loans to individuals, and 5% of loans going to SMEs. Additionally, the share of public sector companies within the first category fell from 40% to 36%.

Priority 2: Fee and Commission Incomes

Five years ago, Oschadbank came seventh in the market in terms of fee and commission income, with this stream covering only 38% of the bank’s administrative costs (including network maintenance and staff remuneration). Currently, we rank second in the market. The bank’s fee and commission income now covers 63% of administrative costs, which is consistent with average market indicators.

Priority 3: Non-Performing Loans

By the start of 2019, Oschadbank had secured 7,200 court decisions in the bank’s favor to col50

Oschadbank innovations in recent years have included creating a cashless space at the Atlas Weekend music festival in Kyiv during summer 2018 lect a total of UAH 45 billion from borrowers, of which UAH 14.6 billion were claims against ultimate individual beneficiaries. Funds and property amounting to a total of UAH 5.9 billion have already been collected in favor of the bank. Oschadbank won a victory against the Russian Federation in the International Court of Arbitration regarding the loss of Oschadbank assets in Crimea. The arbitration process lasted from 2015 until the second half of 2018. The compensation awarded is huge and amounts to USD 1.3 billion. This ruling also included an additional sum of approximately USD 100,000 for each day’s delay in payment of the principal amount. We understand our responsibility to the shareholder, represented by the government, to increase Oschadbank’s authorized capital and cover sums allocated in previous years to meet losses incurred by the bank due to external aggression and the loss of investments and assets. We are therefore committed to fighting for every single Oschadbank hryvnia in the Ukrainian, foreign and international courts. Moreover, Oschadbank was the first Ukrainian bank to implement the Law of Ukraine “On Financial Restructuring” to manage non-performing loans and improve the quality of the bank’s loan portfolio. In 2018 alone, Oschadbank conducted seven separate financial restructuring procedures amounting to UAH 16 billion. In total, the bank has conducted 14 financial restructuring procedures amounting to about UAH 23 billion. With this in mind, it is not surprising that the Oschadbank team received recognition as number one in the Ukrai-

nian banking system according to the “Best Legal Departments 2018” rating.

Priority 4: Retail Sector Growth

In recent years, Oschadbank has become a market leader in terms of individual deposit growth, almost tripling its market share from 7.12% in 2014 to 21.92% by the end of 2018. In 2018 alone, this market share increased by 2.31%. The bank has gained a leadership position in the mortgage market and currently occupies 14% of the auto loan market, despite the fact that it did not issue any auto loans at all as recently as two years ago. We rank second in the card market, with 6.1 million active banking cards. Innovation has been central to the bank’s retail sector expansion. The development of the “Oschad 24/7” app continues, with new products and services regularly introduced. Oschadbank was among the first Ukrainian banks to introduce GooglePay and ApplePay functions. Our premium banking services gained recognition as the Ukrainian market leader from Euromoney magazine as well as British publications The Banker and PWM (“Professional Wealth Management”). I would like to pay particular tribute to the Oschadbank e-commerce team for pioneering the creation of cashless spaces at major national festivals such as Atlas Weekend and Ulichnaya Eda, as well as international showpieces including the 2018 UEFA Champions League Final at Kyiv’s Olympic Stadium. Together with Visa and Mastercard, Oschad-

Priority 5: Support for SMEs

We have cooperated with the EBRD and the Frankfurt School of Business to train credit managers and prepare a microcredit program. Due to these efforts, the bank’s loan portfolio for SMEs increased in 2018 by 67% and exceeded UAH 3.5 billion. Oschadbank’s deposit portfolio in this segment amounts to UAH 16.7 billion. Additionally, we have launched the CorpLight mobile app, giving entrepreneurs the opportunity to transfer their business to a smartphone and manage it 24/7.

Priority 6: Unified IT Platform

We are working hard to create a single IT platform throughout the bank. Oschadbank previously had a wide array of up to 300 different platforms and databases, but we have since moved towards a “one-stop shop” database scenario. The next step is to configure business processes for the new level of service we are striving to achieve. The bank’s new IT system provides in-depth analysis, identifies customer needs, and offers up-to-date services. It helps to modify existing approaches to customer service and create new dynamics. As a result, customers will be able to benefit from all existing products at any Oschadbank branch, regardless of where they opened their account. For other banks, this is a common enough function, but due to a range of historical factors, this has been a significant challenge in the past for Oschadbank.

Priority 7: Risk Management Reform

In 2018, the National Bank of Ukraine approved new risk management approaches for banks and banking groups of Ukraine (NBU Resolution No 64). As a result, Oschadbank now focuses on implementation of the standards, requirements and www.bunews.com.ua

principles of this updated risk management system. We have developed an action plan and implemented the first two steps in accordance with the aforementioned resolution of the National Bank of Ukraine. We have revised risk rules and updated our methodology for various customer segments accordingly. This includes project financing, leasing, financing of municipal development budgets, construction financing for alternative energy generating companies, and the accreditation of developers and insurance companies.

Priority 8: Transition to IFRS 9

All Ukrainian banking industry market players were obliged to complete transition to the IFRS 9 (International Financial Reporting Standard 9) by the end of 2018. This represented a major transformation for Oschadbank. It involved moving from changes in methodology (accounting, valuation, forecasting) to the automation of complex processes calculating expected credit losses. It also meant moving from implementation of modern software solutions in the bank’s IT landscape to the creation of a new data quality management model.

Looking Ahead

In March 2019, Oschadbank met external obligations amounting to USD 477 million, confirming not just the bank’s efficient management of resources, but also the reputation of the bank as a reliable partner. We intend to keep going in the same direction. We continue to add new products and services while seeking to monetize our customer base more effectively. The bank’s toxic assets portfolio remains a significant challenge. We are actively using the available institutional financial restructuring tools to work with a non-performing loan portfolio formed prior to March 2014 that exceeds all of the similar portfolios of other stateowned Ukrainian banks put together. At the same time, our team continues to work on the development of new tools for the better management of non-performing loans. Strategically, we plan to move the bank to an entirely new technological level. This will involve the complete digitalization of all processes and the implementation of the large-scale “Integra” innovative project developed jointly with Deloitte. We continue to invest in the bank’s IT platform and information security as key priorities. The bank will soon experience a change in corporate governance with the appointment of a new Supervisory Board consisting mostly of independent members. This means that the bank will acquire additional expertise. New internal regulations will help facilitate better interaction among the Oschadbank team. Within this broader development

of our corporate governance, my personal task is to ensure the quickest and most profound involvement of new Supervisory Board members in the issues facing the bank, in order to keep our strategy updated and fulfill our tasks. These tasks are indeed numerous. Implementation requires not only adherence to new corporate governance standards based on global best practice, but also consistency from a team that has already succeeded in transforming and developing the bank.

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bank has pioneered the introduction of contactless payment technology throughout the Kyiv Metro transport system and other public transport in an expanding list of Ukrainian cities. Oschadbank has consolidated its position within the Ukrainian retail sector and now ranks in second place nationally, with the number of POS terminals currently at 45,000. As the range of services and convenience levels continue to improve, more and more of our existing customers are ready to recommend the bank to friends, family and colleagues. All this is helping to boost the prestige and the valuation of the Oschadbank brand. In 2018, influential Ukrainian current affairs publication Novoe Vremya included Oschadbank in its list of Top 100 Brands in Ukraine, noting an estimated 71% increase in brand value compared to the previous year.

The Oschadbank Team

For the past five years, the Oschadbank team has demonstrated unique skills that reflect their qualities not only as professionals but also as fighters. I am proud of everything we have achieved. The core of today’s team took shape in 2014–2015. Many talented and ambitious people joined us and high salaries were not their main motivation. Instead, most saw it as an opportunity to accept a unique challenge, take responsibility and, of course, work in a dynamic professional environment where they could truly reach their potential. Together, we have built a new corporate culture within the bank. This began with a manifesto outlining the core principles that underpin everything we do. The original Oschadbank manifesto of 2014 began with the simple statement: “My country is changing and I care because I want to live here.” This was followed by the message that as the country changes, the bank and its employees must also necessarily change and adapt to the new environment. Over the past five years, the bank has embraced this spirit of change. Today’s Oschadbank has a democratic communication system that reflects the culture of openness within the bank. Oschadbank employees have received the opportunity to grow professionally and become leaders in their respective fields. We offer a full range of development courses including our own banking equivalent of an MBA, which already boasts five waves of graduate managers. The bank we changed is now helping to change the country. As our updated manifesto now states, “Together with us, Ukrainian startups are growing and larger businesses are becoming more powerful. Together with us, millions of Ukrainians are taking their first steps financially and planning their futures.” Despite this upbeat outlook, we remain acutely aware of the huge challenges that lie ahead. We approach these challenges with a sense of optimism and confidence rooted in the strength of the Oschadbank team. As American basketball legend Michael Jordan said, “Talent wins games, but teamwork and intelligence win championships.” 51

WEST UKRAINE’S LIFESTYLE GUIDE №122/April 2019

MEET SOFIA STEFANOVSK A SMART, STRONG & BEAUTIFUL

TIME TO CELEBRATE!

HAPPY EASTER AND SPECTACULAR CITY DAY!

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Why a Catholic Archbishop May Yet Become Ukraine’s Leading Voice in the US Gudizak was born in Syracuse, New York. He entered a Ukrainian seminary in Rome and subsequently got his PhD at Harvard. In Rome Borys met octogenarian Ukrainian cardinal Josyf Slipyj, who had arrived in Rome after 18 years imprisonment in Soviet gulags. Slipyj was released as a result of a chance liaison between the Vatican, an American political journalist, the young (Catholic) US President John F Kennedy, and Nikita Khrushchev. Slipyj had a big influence on the young seminarian and it was in the Eternal City that Borys crystalized his service to the Ukrainian people and their church. He may not get, however, an overwhelmingly warm reception from everyone in America. The cover of June’s edition of The Atlantic, an influential US monthly magazine, features a darkened photo of St. Patrick’s Cathedral above the headline “Abolish the Priesthood,” calling on Catholics to detach themselves from the clerical hierarchy.

Andy Hunder, President of the American Chamber of Commerce in Ukraine, Treasurer of AmChams in Europe “God probably has a great sense of humor,” reckons Borys Gudziak, president of the Ukrainian Catholic University (UCU). The US-born archbishop transformed what was designed to be the Soviet communist party’s atheist ideology center in western Ukraine and, in its place, erected a thriving catholic university.

The irony of this transformation is potent. Only thirty years ago the Ukrainian Catholic Church was the world’s largest banned religious organization. Its bishops and priests in the Soviet Union were jailed and harassed. Today the Church’s archbishop heads one of Ukraine’s top universities. Gudziak is widely respected and recognized as a key moral authority in an independent, predominately orthodox, Ukraine. Gudziak is now being sent back to his native US. On June 4th he will be inaugurated as metropolitan archbishop to serve Ukrainian Catholics in America, the biggest job in the Ukrainian Catholic Church outside Ukraine.

Arhbishop Gudziak’s new job description includes teaching doctrine, governing Catholics in his jurisdiction, sanctifying the world and heading the Church’s external relations. It is in representing the Church, and Ukrainians, where Gudziak will be able to get their voice over to US policymakers in government and on the Hill. A Harvard graduate with a powerful charisma he should quickly have the ear of officials and influencers in US.

58-year-old Gudziak is best known for launching and leading UCU to become a world-class educational institution, and a symbol of a new Ukraine. Bishop Borys has spent his professional life preaching the message of freedom, dignity for all, and building trust among people. The latter, not an easy feat in a post-genocidal, traumatized post-soviet society. Gudziak has over two decades been healing those wounds, talking to people from all walks of life with his visionary, charismatic and inspirational approach. He also has a remarkable track record of fundraising, allocating tens of millions of dollars to build and run a state-of-the-art University. UCU hosts one of the country’s best business schools, LvBS, inspiring ethical business and entrepreneurship. In his sermons and public talks, the bishop has the determination to raise challenging topics, most recently talking about the prospect of reconciliation between Ukrainians and Russians. Gudziak spent the past seven years as bishop in Paris. There he often heard about France’s reconciliation with Germany. In July Gudziak will travel to the Vatican where Pope Francis has invited him together with other top clergy from the Ukrainian Church to strategize on what more the Church can do to help end the suffering and deaths in eastern Ukraine. Gudziak arrives to America at a time of jumbled perceptions about Ukraine. The White House, State Department, Congress, Senate are all striving to understand how the future may unfold in Ukraine. Both US and Ukrainian politicians will be paying close attention and making critical decisions on foreign policy. As Archbishop Gudziak commences his new appointment, Ukraine’s new foreign policy team, diaspora and politicians would be well advised to make good use of his advice and voice. US government officials could also benefit greatly from listening to him.

B2G Dialogue PANEL DISCUSSION “CREATIVE AND INNOVATIVE UKRAINE: THE TIME IS NOW” AmCham Ukraine Members discussed how Ukraine can develop creative and innovative sectors giving rise to unique products, securing international investments and enlarging the potential of business. Participants touched upon key challenges and opportunities with regard to intellectual property rights as well as development of effective regulatory and institutional mechanisms related to IP protection. PANEL DISCUSSION “PROTECTING IP THROUGH PROMOTING INNOVATIONS & DEVELOPING CREATIVE INDUSTRIES” Participants discussed key steps with regard to intellectual property rights’ protection that need to be implemented in Ukraine to boost economic development and achieve further growth. Promotion of innovations and development of creative industries are among key priorities. MEETING WITH REPRESENTATIVES OF UKRTRANSGAZ The Chamber Energy Committee held a meeting with representatives of Ukrtransgaz and Naftogaz to discuss the results of the first month of daily balancing functioning on the natural gas market and next steps on balancing platform improvement as well as possible shift to gas calculation in energy units and expected change of gas transmission system’s tariff rates. ROUNDTABLE DISCUSSION WITH AMERICAN BAR ASSOCIATION INTERNATIONAL LEGAL EXCHANGE DELEGATION AmCham Ukraine Members had an opportunity to discuss corruption-related issues during the roundtable discussion “Fighting Corruption in Ukraine: Retrospective and Current Issues”, in particular, anti-corruption developments in Ukraine since 2014, role of a lawyer in preventing corruption and ensuring human rights in investigations of corruption cases.

B2G Dialogue AGRICULTURAL COMMITTEE MEETING WITH OLGA TROFIMTSEVA, ACTING MINISTER OF AGRARIAN POLICY AND FOOD The Chamber Agricultural Committee Members discussed key sectoral issues with Olga Trofimtseva, namely, retention of international markets for Ukrainian grain, agrarian logistics and system of export VAT refund for soybean and rape seed.

MEETING WITH OLEKSANDR KOMARIDA, DIRECTOR GENERAL OF THE PHARMACEUTICAL DIRECTORATE OF THE MINISTRY OF HEALTH Reference pricing for medicinal products included into the National Essential Medicines List is an important issue for business which AmCham Ukraine Healthcare Committee Members had an opportunity to discuss with Oleksandr Komarida. FOOD & BEVERAGE COMMITTEE MEETING WITH OLGA SHEVCHENKO, NEWLY APPOINTED DEPUTY HEAD OF THE STATE SERVICE FOR FOOD SAFETY AND CONSUMER PROTECTION AmCham Ukraine Food & Beverage Committee continues to keep rent issues within international trade, position on framework Draft an effective dialogue with representatives of the State Service for Law “On Waste Management” and harmonization of food regulations Food Safety and Consumer Protection. Participants discussed cur- with EU standards.

B2G Dialogue NEW POLICY PLATFORM – THE CHAMBER RETAIL & E-COMMERCE COMMITTEE AmCham Ukraine launched a brand-new Policy platform – Retail & plans to focus on the following issues: supporting Government’s initiaE-Commerce Committee to address a wide range of issues facing the tives aimed at improvement of regulations on taxation, payments & delivbroad nature of the retail and e-commerce. The mission of the Com- eries, promoting a positive and stable environment for retail businesses mittee is to unite representatives of international retail and create a and eliminating barriers to trade, supporting the Government in adopting one voice position in the dialogue with key stakeholders as well as to fair and reasonable regulations aimed at improvement of state control create conditions for the rise in Ukraine’s retail e-commerce followmechanisms, as well as providing AmCham Ukraine Members with an ening the global trends. gagement platform to share best practices, challenges faced, and interact In the upcoming activities, the Chamber Retail & E-Commerce Committee with key stakeholders. Yuliia Stelmakh Senior Policy Officer (Food & Beverage Issues) ystelmakh@chamber.ua SALES & MARKETING EFFECTIVENESS OPEN DISCUSSION The American Chamber of Commerce in Ukraine jointly with Chamber Member Company AC Nielsen Ukraine held an event to share best practices on sales and marketing effectiveness, pres-

Yana Pozniakova Policy Officer (Food & Beverage Issues) ypozniakova@chamber.ua

ent insightful case studies from the Ukrainian market and discuss opportunities and challenges of the market with other senior executives.

ACC Exclusive Reception: Ukraine in the Midst of Elections AmCham Ukraine gathered key movers and shakers in business, politics and media at the exclusive reception. Guests had a unique opportunity to meet members of the new team that have taken office following the elections, catch up with business decision makers and discuss Ukraineâ&#x20AC;&#x2122;s opportunities and upcoming elections. EVENT PARTNERS

ACC Exclusive Reception: Ukraine in the Midst of Elections

Ukraine Celebrates Europe Day with Gala Europa Concert Kyiv’s National Opera House hosted a spectacular evening of classical music on 18 May as Ukraine celebrated Europe Day in

style. The Gala Europa event, sponsored by PRAVEX BANK, fea-

tured world-renowned performers from Italy, Romania, Ukraine

and a host of other countries. “For PRAVEX BANK, as well as for

the Intesa Sanpaolo Group, which we have been part of since

2008, it is very important to contribute to the development of culture. As part of an international banking group with head-

quarters in Italy, we seek to help introduce audiences to Italian culture that has enriched the world,” commented Chairman of the Management Board at PRAVEX BANK Taras Kirichenko.

networking events

www.bunews.com.ua

Turkish Business Community in Ukraine Hosts Traditional Iftar Dinner Ukraineâ&#x20AC;&#x2122;s growing Turkish business community welcomed Ukrainian and international guests to a traditional Ramadan Iftar din-

ner at the InterContinental Hotel in central Kyiv on 27 May. Attendees included Turkish Ambassador to Ukraine Yagmur Ahmet Guldere, along with a number of officials representing Ukraineâ&#x20AC;&#x2122;s international business associations and chambers of commerce.

The Turkish business presence in Ukraine has expanded rapidly in recent years as bilateral ties have strengthened and Turkey has emerged as one of Ukraineâ&#x20AC;&#x2122;s leading trade partners. Talks on a Ukraine-Turkey Free Trade Agreement are set to conclude in 2019, paving the way for a further deepening of cooperation between the Black Sea neighbors.

networking events

www.bunews.com.ua

School of Legal Services Business Development Launches in Kyiv Ukraineâ&#x20AC;&#x2122;s Legal High School (LHS) initiative launched a new School of Legal Services Business Development in May, with founder Rustam Kolesnik presiding over the official opening ceremony. The program for the new School features input from many of the leading figures in the Ukrai-

nian legal services industry and will address everything from setting up a law firm to developing a strong brand in what is an increasingly competitive and dynamic legal services market.

networking events

Ukrainian-American Artist Inspired by Taras Shevchenko Ukrainian-American artist Ola Rondiak welcomed guests to the opening of her lat-

nian identity alongside references to the country’s turbulent post-Soviet nation-building

All the Same to Me”. Rondiak’s art has traditionally reflected ancient aspects of Ukrai-

poses the disarmingly straightforward question: “Is it all the same to us?”

est Kyiv exhibition in late May. Hosted at Ra Gallery in the heart of the city, the “All the

Same?” exhibition was inspired by Ukrainian bard Taras Shevchenko’s 1845 poem “It’s

www.bunews.com.ua

journey, provoking a dialogue about the value attached in today’s globalized society to issues of ethnicity, nationality, language and culture. With this latest exhibition, the artist

opinion

Security vs Privacy in Ukraine

Public discussion can ease concerns over the use of technological solutions to security challenges

About the author: Andriy Dovbenko is a businessman and venture investor The San Francisco City Council recently banned the use of facial recognition systems. This decision sparked a fresh round of discussion over the relative importance of security and privacy in today’s increasingly tech-driven world. I propose we look critically at both terms in order to explore what they mean and figure out how all of this is relevant for Ukraine. It is worth starting with the ideas of privacy and security, and looking at what they mean in contemporary society. Until last year’s scandals with Cambridge Analytica, many social network users knew very little about the amount of information they were willingly (albeit unknowingly) conveying to private companies. In fact, it is now hard to argue with the conclusion that our smartphones are also the best possible spies. This includes the access we allow when installing apps and the consent we give to transfer personal data. Against this background, video cameras with facial recognition are only one of the many elements playing a role in the ongoing erosion of privacy. Recently, however, we may have reached what many believe to be a turning point in the broader debate. Not so long ago, Facebook creator Mark Zuckerberg announced that his social network would become more encrypted, with an emphasis placed on personal communication. In other words, the shift towards privacy is gaining momentum. There are also numerous changes taking place in the sphere of security issues. On the one hand, enough time has passed since the 70

attacks of 11 September 2001 for the sense of public fear to stop being so acute. On the other hand, the series of tragic events in Europe during more recent years has shown that no counter-terrorism legislation currently in force is effective against the kind of threat posed by loners in trucks. While we have become accustomed to the fact that one needs to undergo fingerprinting in order to obtain a passport (something only previously required by those who had committed a crime), we have stopped noticing the widespread use of surveillance cameras. With their ubiquitous use, however, the big question remains. Have we have actually become any safer? At the same time, journalists around the world continue to investigate and confirm that many states are not against abusing the rights of their citizens if the pretext is to fight terrorism. Listening to phone conversations or monitoring those in illegal detention may well become common practice, even in Western countries, if it is possible to justify such measures with security concerns. Understanding the dynamics with regard to such important issues is necessary because the logic concerning the hype can often force one to change one’s point of view radically. Whereas yesterday, everyone wanted security at any cost, today many also want freedom at any cost. In this climate of extremes, the concept of “at any cost” is perhaps the key threat. In terms of the recent San Francisco precedent, it is important to understand the context in which it originated and not rush to support or refute any particular point of view headlong. I saw completely opposing arguments expressed in Ukraine following the publication of this news, many of which barely took into account either the context of war or the problems of corruption. These questions, of course, are central to any consideration of security and privacy issues in a contemporary Ukrainian context. More importantly, in order to facilitate the ethical implementation of solutions like face recognition, there should be public discussion. Facial recognition system testing reportedly began earlier this year in Kyiv. I do not want to question the qualifications of the experts involved in the development or testing of these systems, and I would assume that, from the point of view of technical issues and practical benefits, everything is and will be fine. What worries me, however, is the fact that society learned about implementation after the fact. Even if I am not personally an opponent of such a system, it is still important to hold discussions within Ukrainian society and understand why the introduction of facial recognition technology is necessary. Transparency in the introduction of such technical solutions is also important because it removes public suspicion. Otherwise, we all run the risk of becoming hostages to constant speculation and conspiracy theories. A lack of transparency is a fertile feeding ground for fake news. At the same time, I am not talking about simple populism: one does not need to follow the majority blindly. Rather, any public discussion should be one that clarifies positions and allows us all to find useful and rational solutions for society at a whole. www.bunews.com.ua

finance

Ukraine Sovereign Eurobonds Is Now a Good Time to Invest? Ukrainian Eurobonds are in demand but geopolitical and fiscal funding issues require consideration The Safest Way to Gamble on Ukraine?

About the author: Alexandre Mougel is the founder of Renedes Investment Management For the last decade, Ukrainian sovereign bonds have enjoyed a love-hate relationship with investors, going from the world’s worst-performing security to more recent stellar price recovery. Eurobonds issued by the Ukrainian Ministry of Finance are currently trading in the 9% yield range, representing one of the highest returns in the world. Is now the right time to buy? Are the returns attractive enough to cover the ongoing risks?

Eurobonds Explained

A Eurobond is defined as an international bond that a government or a company sells to investors in foreign currency (most of the time denominated in USD or EUR) for a fixed period. Eurobonds are international instruments ruled by English or US law and listed on international stock exchanges (London, Dublin and Luxembourg being the most popular ones). However, they trade as Over-TheCounter (OTC) securities, which means they are available via a broker-dealer and not on centralized exchanges. In addition, coupons and principal repayments are paid via a global securities depository (Euroclear and Clearstream) which means investors need to have a custodian account to buy, sell and receive payments from their investments (most of the time, a broker provides such services for clients). Eurobonds usually have a high minimum denomination (i.e. minimum investment) of USD 200,000, which makes them an investment reserved for professional investors. 72

Because Ukrainian Sovereign Eurobonds are all drafted under UK law and come complete with cross default provision clauses, they tend to be much safer for foreign investors than domestic instruments (i.e. OVGZ). As such, a default event will be recognised by English courts and enforcements against foreign assets are more likely. In practice, the 1999, 2001 and 2014 precedents have shown that the Ukrainian state proactively engages with investors to find mutually acceptable restructuring terms to avoid a straight default. For example, in 2014-2015, when Ukraine’s thenFinance Minister Natalia Jaresko was leading restructuring talks with international investors, a debt write-off of 20% was agreed on all Eurobonds. However, investors were compensated by being granted a Warrant (or option) for the amount that was written off (USD 3.6 billion) and linked to the recovery of the Ukrainian economy. While the Warrant is not paying anything until 2021, it is currently trading and could be sold at more than 60% of its nominal value, which means that investors have already recouped most of their initial losses less than four years following the restructuring. This is a strong recovery value compared to other Ukrainian financial instruments.

Time to Buy?

While the current 9% yield on Ukrainian sovereign Eurobonds seems to be highly attractive on an absolute basis, several risks exist that are worthy of consideration before making the decision to invest. Ukrainian Eurobonds performance is closely linked to the continuation of cooperation between the Ukrainian government and the IMF. While the Ukrainian debt burden is sustainable (61% debt to GDP ratio as of the end of 2018), the country’s debt maturity profile is a problem, with USD 13 billion of external debt to be repaid during the 2019-2020 period. If we add Ukrainian fiscal funding needs (the difference between tax revenues and repayment of domestic and external debt plus government deficit) to this amount, the number is close to USD 24 billion for the same period. Dragon Capital has calculated that the Ukrainian government will

need USD 4 billion in 2019 and USD 5 billion in 2020 just to meet these fiscal funding needs. As such, it is critical for the government to obtain the next USD 3.9 billion in IMF tranches in 2019-2020. Severing cooperation with the IMF, or even a significant delay in obtaining the next tranches, will lead immediately to a currency crisis and probably cause a new default. Even assuming the IMF program continues as planned, this would leave Ukraine heavily reliant on Eurobond markets (to the tune of USD 5-6 billion for the next 2 years) to finance fiscal funding needs. As a result, investors already expect a heavy debt supply from the country in the near future. Appetite for Ukrainian debt should not be overestimated, and in the case of a global market backdrop, Ukraine would struggle to find buyers for its debt. It is also important to appreciate that Ukraine is a commodity-driven economy and its GDP is highly sensitive to oil, gas, steel and grain prices. For example, we estimate that a USD 30 decrease in grain prices would lead to a deterioration in GDP growth by as much as 1%. As such, we see the current US-China trade war as a major risk for commodity prices and consequently for Ukrainian creditworthiness. The ongoing tense geopolitical situation with Russia further raises levels of uncertainty surrounding the ability of the country to service its debt obligations. While we believe the situation is unlikely to significantly deteriorate (or improve) in the medium-term, the Russian government still has a lot of leverage over the Ukrainian economy. For example, the potential end of Russian gas transit through Ukraine in 2020 could have an up to 4% negative impact on GDP growth next year and lead to USD 3 billion of annual losses in revenues for Naftogaz, which is currently the country’s largest taxpayer. In the final analysis, Ukrainian Eurobonds are suitable for investors looking for an equity-type return. In today’s low interest rate environment, they offer one of the highest positive carry trades globally. However, ongoing issues related to high fiscal funding needs, large redemption amounts in the near future, and the tense geopolitical situation with Russia should be subject to careful consideration when investing and monitored continuously.

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and finally

Finally! Boryspil airport unveils long-awaited multi-level car park

A four-story car park with space for over 1000 vehicles opened at Boryspil International Airport in late May, easing vehicle congestion around the airport and providing travelers with long overdue parking convenience just in time for the summer peak season. The new facility, which cost an estimated UAH 439 million, comes compete with electric car charging points and a fully automated system indicating free spaces. Fees are modest at UAH 30 per hour and UAH 300 per day, with drop-offs of up to ten minutes set to remain free of charge in a bid to reduce traffic flows outside the airport’s main terminal building. The car park opening brings to an end an awkward saga. Work on the facility first began back in 2011. It was initially due to open in time for Ukraine’s role as co-host of the UEFA Euro 2012 football championship. However, the project experienced prolonged delays amid talk of disappearing contractors and missing money, becoming an embarrassing monument to mismanagement. For much of the past decade,

the half-finished shell was one of the first things visitors encountered as they exited the country’s main international gateway. The launch of this multi-level car park facility is certainly well timed. Boryspil International Airport is currently one of Europe’s fastest growing air hubs, with a record 12 million passengers in 2018 and additional 22% growth in the first three months of the current year as Ukrainians fly more than ever before thanks to three years of sustained economic growth and the summer 2017 advent of visa-free EU travel. The car park is the latest in a series of upgrades that have improved access to Ukraine’s busiest airport. November 2018 saw the opening of the Boryspil Express, offering a direct rail service connecting the airport to Kyiv’s Central Railway Station. Meanwhile, preliminary work is now underway on a four-star hotel to serve the airport. Funded by Israeli investors, the hotel will be located alongside Boryspil’s main Terminal D.

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