Financial Sector Reform In Ukraine

The World Bank had undertaken a financial sector reform in Ukraine for the period between 1998 to 2001. Due to this project, the National Bank of Ukraine was given more power with regard to the supervision of banking system in the country. In this context, a new law was passed whereby the National Bank was given power to exercise influence on commercial banks. The commercial banks had become quite weak owing to the financial crisis of 1998. As such , these banks were not ready to take on the market reformations and required urgent assistance.

Pertaining to the improvement of the banking system, the main aim of the World Bank was to decrease the risk involved in lending money to the individuals and acclimatizing the banks in Ukraine with the probable risks involved in banking operations. With the introduction of the law pertaining to “On Banks and Banking Activities”, capitalization prerequisites were made more strict.

For the supervision of non banking financial establishments and insurance companies, Ukraine did not have any agency before 2003. As such, in the year 2003, unlawful exports of Hryvnias worth 3.2 billion took place in the insurance industry in Ukraine. Hyrvnias were exported to various companies in other countries, which were not registered and did not possess a valid license. On the other hand, companies taking care of life insurance, which were expected to play a vital role in the pension system of the country became weak and inefficient. Due to lack of financial sector reform in Ukraine, several non banking organizations started operating in a haywire manner and started indulging in money misappropriation activities. As part of the financial sector reform in Ukraine, the World Bank disbursed USD$250 million for funding several projects pertaining to financial activities in the rural regions of the country.

Since there was no separate organization for managing non banking institutions, a commission was formed in the year 2003 to handle the same. This step was taken as a part of the financial sector reform in Ukraine. The new commission was entrusted with the work of formulating transparent policies and to protect the consumers as well as the investors.

For streamlining the pension system in Ukraine, the World Bank propounded the “On Non state Pension Funds”. As a requisite to continue receiving financial assistance from the World Bank, it was obligatory to embrace this law. By streamlining the pension system, it would ensure social security of the pensioners and enhance possibilities of investment in the financial market.

To effect financial sector reform in Ukraine, the World Bank in the year 1996, extended a loan of USD$70 million for the “Export Development Project”, in Ukraine.