Ukraine Market Report — Q4 2016
The country's largest bank was taken into state ownership in December. It was the final and largest act of the banking clean-up, and it removed the last systemic risk in the financial system.
Overview
In December the country's largest bank was taken into state ownership, following a determination of a substantial capital shortfall.
The year closed with the economy growing modestly for the first time since 2013.
Why the nationalisation mattered
The institution held a very large share of retail deposits and of the payments system. Its failure in an uncontrolled manner would have produced a systemic event.
Taking it into state ownership, recapitalising it and keeping it operating meant depositors were protected and the payments system continued functioning without interruption. That is what a resolution framework is for, and it worked.
The fiscal cost was substantial and was added to public debt.
Its significance for the following decade is that it completed the clean-up begun in 2014. After it, the Ukrainian banking sector contained no institution large enough to threaten the system that had not been examined, recapitalised or resolved.
The sector's performance through the far larger shock of 2022 — no deposit run of significance, no payments failure, no bank collapse of note — is directly attributable to the work finished in this quarter.
Macro position
Modest growth for the year, the first since 2013. Inflation substantially lower than 2015. Currency stable. Reserves rebuilt from their 2015 low.
Sectors
Agriculture — the year's strongest performer.
IT services — growing.
Food processing — beginning to access EU markets facility by facility.
Metals — operating below pre-2014 capacity.
Banking — the clean-up complete in its major elements.
What the quarter settled
That the financial system had been made safe, at a large fiscal cost, in the only way it could have been — by removing or repairing every institution that could not stand on its own balance sheet.
Ukraine paid for that between 2015 and 2016. The return on it was collected in 2022.
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