Ukrainian banking system too small to handle lion's share of recovery - Raiffeisen Bank Ukraine CEO

MOSCOW. Nov 28 (Interfax) - The Ukrainian banking system is stable but too small and does not have enough capital for large-scale restorations after the crisis ends, Raiffeisen Bank Ukraine CEO Alexander Pisaruk said.

"Total assets of the Ukrainian banking system stand at around 60% of GDP, which is one of the lowest levels in the world.[...] The operating loan portfolio nears 15% of GDP, which is definitely the lowest anywhere," Pisaruk told the Ukrainian press.

In his words, the 60% asset-to-GDP ratio is ensured, above all, by vast international assistance, the influx of liquidity in Ukraine and the banking system, without which the level would have been even lower.

"The banking system is very small. It is incapable of supporting economic growth and large-scale national recovery in the medium term," Pisaruk, who chairs the management board of the fourth biggest bank and the biggest private bank in Ukraine, said.

If the crisis ends next year, large-scale recovery may begin if not in 2025, then in 2026-2027, he said.

"The banking system will not have enough capital to support a surge increase in lending and financing of recovery projects, especially if the retrospective taxation of bank profits remains at a rate of 50%," Pisaruk said.

Currently, banks have excess capital due to high profitability and a ban on dividend payments, but this excess capital will be spent on lending within a year or two in case of the positive scenario of national recovery, he said.

In fact, the Ukrainian banking system is too small to handle the lion's share of Ukraine's recovery, as its total assets near $85 billion versus $486-billion needs of Ukraine estimated by the World Bank.

"The only possible way for Ukraine to get so much funding is to attract foreign creditors, investors and donors. Direct foreign investment combined with loans from various sources, including foreign commercial banks, export credit agencies of foreign countries, and development banks, can probably become the core of financing Ukraine's recovery," Pisaruk, who once served as first deputy head of the National Bank of Ukraine and worked in the IMF and ING Group, said.

International financial institutions such as the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), the International Finance Corporation (IFC), and the US Development Finance Corporation (DFC) should all join within their mandates to raise money for Ukraine's recovery, he said.

Maintaining the bank profit tax at 25% would also allow capital to be saved for lending to the economy in much larger volumes, Pisaruk said.