Business news from Ukraine

OTP Bank ranked second among commercial banks in rating of primary dealers of Ministry of Finance

In 2023, OTP Bank was ranked second among commercial banks in the overall rating of primary dealers, according to the Ministry of Finance of Ukraine. In total, the rating includes 11 banks – primary dealers.
OTP Bank ranks fourth among state-owned and commercial banks.

The status of primary dealer ensures the exclusive right to participate in the placement of domestic government bonds conducted by the Ministry of Finance, both on its own behalf and for clients of individuals and legal entities, as well as banks and financial companies that do not have this status.

It is worth reminding that in 2023, individuals – clients of OTP Bank purchased government bonds for a total amount of UAH 6.3 billion in equivalent, and the number of transactions amounted to 2064.

In the fourth quarter of 2023, OTP Bank became the first and currently the only bank to provide its customers with access to a unique service – the opportunity to purchase government bonds directly at auctions of the Ministry of Finance. This option was implemented through the OTP Bank UA mobile application. Already in December, 93.3% of customers who wanted to invest in government bonds used it to purchase government bonds. “This tool has become particularly popular because it offers a 100% guarantee of the state to return funds with interest. In addition, it is an opportunity to contribute to supporting the country’s economy, as government bonds are a loan to the state. When we implemented the possibility of purchasing government bonds through the OTP Bank UA app, many customers began to choose this convenient way of investing money,” said Valeria Ovcharuk, product owner of Private Banking at OTP Bank.

To learn more about the possibility of purchasing government bonds in the OTP Bank UA mobile application, please follow the link.

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Ministry of Finance expects another $3.3 bln in external financing by end of year

Thanks to coordinated cooperation with international partners, Ukraine has managed to attract more than $39 billion in external financing since the beginning of 2023, compared to $32.1 billion for the entire last year, Ukrainian Finance Minister Sergii Marchenko said.

“By the end of this year, donor assistance will reach about $42.3 billion,” he was quoted as saying in a release from the Finance Ministry on Wednesday after a meeting the day before with the heads of central banks of the G7 countries, the leadership of the European Union, the IMF and the World Bank.

Marchenko also noted that Ukraine’s need for external financing in 2024 was reduced from the initial $41 billion to $37.3 billion due to measures to maximize state budget revenues, activate the domestic debt market, and reduce all capital expenditures of the state budget.

The Minister of Finance emphasized that in 2024, the priorities for financing are the military campaign and social support, the former to be provided exclusively at the expense of domestic budget revenues, and Ukraine is counting on the help of partners to finance the latter.

The desired amount of external financing in 2024, including grants, mentioned by Marchenko, was confirmed in the materials of the International Monetary Fund (IMF) based on the results of the second review of the EFF program. “Support from official donors will remain the main source of financing the deficit next year,” the Fund emphasized.

He noted that net financing through the placement of domestic government bonds, although significantly lower, will also remain an important source of financing, amounting to $3.8 billion under the baseline scenario.

“Net domestic market issuance and the use of unencumbered deposits also serve as an important shock absorber and are easier to increase quickly compared to external financing. However, the risks associated with this financing plan are significant, and it is important that guaranteed external financing is provided in a timely manner,” the IMF said.

According to the materials of the second revision of the EFF program, the United States is expected to receive $8.5 billion, Japan – $2 billion, the United Kingdom – $1 billion, and another $20.4 billion from the EU, Canada and Japan.

Earlier, Marchenko clarified that Ukraine expects to receive EUR18 billion from the EU in 2024 as part of the Ukraine Facility, which is being discussed and is expected to total EUR50 billion for 2024-2027.

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Ministry of Finance named most problematic quarter for budget of Ukraine

Financial support commitments undertaken by Ukraine’s partners and the actual allocation of funds are still very different, which creates a liquidity problem and the threat of further monetary financing of the state budget deficit by the National Bank with all the negative consequences for inflation, exchange rate and macro stability, Finance Minister Sergei Marchenko said.
“You know perfectly well that there is a huge difference between commitments and payments… The first quarter of 2023 is the most problematic for us right now… Even a huge amount of commitments will not help us in the first quarter of 2023 (if these funds are not provided),” he said in Wednesday at the discussion “War in Ukraine: Financing the Victory” organized by the think tank Bruegel.
The day before in Berlin, at the International Expert Conference on the Reconstruction of Ukraine, the minister said that Ukraine’s fiscal and quasi-fiscal financing needs in the first quarter of 2023 are estimated at $11.4 billion. Of these, $4.2 billion is for gas purchases: January – $1.9 billion, February – $1.4 billion and March – $0.9 billion.
In total, the financing needs are: January – $4 billion, February – $4.1 billion and March – $3.3 billion, the Finance Minister’s presentation said. According to it, in the remaining months of 2023, they are estimated from $2.1 billion in August to $3.9 billion in June, for a total of $37.9 billion.
Marchenko recalled that in April 2022, it was agreed with international partners that the monthly gap in Ukraine this year is estimated at $5 billion a month, but the actual payment of funds is far from this figure. “For example, in April there were only $1.7 billion, in May – only $1.5 billion, in June – $4.4 billion, in July – $1.7 billion, in August – $4.7 billion, in September – about $2 billion.” , – stated the head of the Ministry of Finance.
According to him, if by the end of this year the EU’s macro-financial assistance (about EUR3 billion – IF) and the funds announced by the United States ($7.5 billion – IF) are allocated, then the Ministry of Finance will feel comfortable.
“But again, this does not mean that we will be able to cover all our expenses before the end of the year. It only means that we can manage the liquidity gap … we are able to meet critical expenses, while other expenses can be deferred,” Marchenko said.
He recalled that for 2023, the Ministry of Finance estimates the need for additional external financing of socially necessary budgetary spending in the amount of $3-3.5 billion, excluding emergency recovery costs, the likelihood of an increase in the background of the latest record Russian strikes on civilian infrastructure.
According to the minister, the commitments to allocate EUR 1.5 billion per month by the European Union in 2023 and EUR 18 billion in total for the year, which were taken the day before by the President of the European Commission Ursula von der Leyen, make it possible to assume a solution to this problem.
“But again, it is important for us to plan ahead. It is not yet clear whether we will be able to use this money in the first quarter of 2023,” Marchenko said.
He said that he discussed this issue at a meeting with the Minister of Finance of Germany, with the ministers of other countries.
“If you are ready to support Ukraine, please do it faster, because while you spend some time creating a solution, we do not have time. January is just around the corner, and January is not covered,” the head of the Ministry of Finance stressed.
He added that he expects to be connected to US funding. “But again, it’s not clear to me when the money can be paid, and if not, we have to find other options, we’ll look at another perspective, perhaps with bilateral creditors, etc. That’s why predictability is so important,” Marchenko added.

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Ministry of Finance announced the first cargo under “customs visa-free” Ukraine and EU

The Convention on the Joint Transit Procedure (CCTP) or the so-called “customs visa-free” for Ukraine came into force on Saturday: goods are already flowing into and out of the country under such a procedure, the Ministry of Finance reported.

“Today, October 1, Ukraine entered into force and business opened up the possibility of international movement of goods with 35 other participating countries under one transit document,” the press release says.

The Ministry of Finance clarified that the first country from which the cargo was sent for delivery to Ukraine under the joint transit procedure was Germany: Ukrainian customs officers already see the T1 transit declaration in the NCTS electronic transit system and are waiting for the truck to arrive.

In Ukraine, the first transit declaration for leaving the country was also issued: according to it, the cargo now follows through Poland to Germany.

Currently, the system is also awaiting the arrival of goods at the customs office of departure and other declarations, according to which the goods will be placed under the joint transit procedure and delivered to the customs offices of destination on the territory of the countries participating in the Convention, the report says.

The Ministry of Finance recalled that in accordance with the “customs visa-free” for the delivery of goods from one country to another, a single transit document is submitted: from the customs office of departure to the customs office of destination. This speeds up the passage of customs formalities at the border and reduces the associated costs for businesses. According to the forecast of the Directorate General for Taxation and Customs Union of the European Commission (DG TAXUD), Ukraine can enter the top ten countries in terms of the number of transit declarations.

“Customs is responsible for controlling the goods. We in the EU are striving to spend less time for control at the border, and more inside the country. In Ukraine, so far, most goods travel without checking inside the country – all control work takes place directly at the border. Therefore, queues form at the border. NCTS solves most of this problem: it is possible to submit a declaration to the system in advance, after checking inside the country, to put the necessary seals that are recognized in the EU. Then at the border, you only need time to read the barcode number, as it is done in a supermarket,” summed up the international expert of the Program for Public Financial Management in Ukraine (EU4PFM) Vytenis Alishauskas.

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THE MINISTRY OF FINANCE AND THE EBRD DISCUSS THE PROVISION OF A LOAN TO OSCHADBANK

The Ministry of Finance and the European Bank for Reconstruction and Development (EBRD) have discussed the possibility of providing a subordinated loan to Oschadbank with option to convert the loan into equity shares.
This was reported in a press release of the Ministry of Finance on Wednesday following the meeting of Finance Minister Serhiy Marchenko and Deputy Minister Oleksandr Kava with EBRD Managing Director, Eastern Europe and the Caucasus (EEC) Matteo Patrone.
“During the meeting, the issue of providing Oschadbank with EBRD long-term financing in the form of a subordinated loan with option to convert the loan into equity shares was raised. The parties continue to work actively to implement the sale of a stake in Oschadbank. The key issues remain the completion of the preparation procedures and the accession of Oschadbank to the households deposit guarantee system,” the ministry said.
The parties also discussed potential joint projects with the EBRD for 2022, namely the reconstruction of the Lower Dniester irrigation system.
Earlier, the Ministry of Agricultural Policy and Food announced the readiness of the EBRD to invest EUR 90 million for the reconstruction of the main water pumping station of the Lower Dniester irrigation system (Odesa region).
As reported, in March 2021, Ukrgasbank received a loan of EUR 30 million from IFC with option to convert the loan into equity shares. The next step for the privatization of the bank is to find a financial adviser for the bank.

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UKRAINE PAYS OUT $170 MLN UNDER VRI

The expenses of the Ministry of Finance of Ukraine under the “payments on value recovery instruments (VRI)” item in December 2021 amounted to UAH 4.635 billion, the State Treasury said in a report on the execution of the state budget on Friday.
According to the National Bank’s average official hryvnia-to-U.S. dollar exchange rate for December, this corresponds to about $170 million, which was probably used to buy out VRI on the market.
The Ministry of Finance did not comment on these December changes in the item of state budget expenditures to Interfax-Ukraine.
In total, over the past year, expenses under this item totaled UAH 5.633 billion, with an updated plan for the year of UAH 6.755 billion, while the original plan was UAH 1.155 billion.
Within its framework, in May, Ukraine, according to the Ministry of Finance, made the first payment on VRI issued as part of the restructuring of Ukraine’s public debt in 2015, which amounted to $40.751 million.
The May report of the State Treasury indicated the amount of expenses UAH 1.123 billion, but a month later it was reduced by 11%, to UAH 997.72 million, probably taking into account the partial buyout of about 11% of VRI by the Ministry of Finance in August 2020.
VRI were issued as part of the restructuring of Ukraine’s public debt in 2015 instead of eurobonds for a nominal amount of about $3.239 billion (20% of the restructuring volume) and are not part of the country’s public debt. Payments under VRI are made annually in cash in U.S. dollars, depending on the growth dynamics of Ukraine’s real GDP in 2019-2038, but after two calendar years, that is, between 2021 and 2040.
If GDP growth for the year is below 3% or real GDP is less than $125.4 billion, then there will be no payments on securities. If the growth of real GDP is from 3% to 4%, the payment on securities will be 15% the value of the GDP growth between 3-4%, and if it is higher than 4%, then 40% of the value of the GDP growth above 4% is paid. In addition, payments are capped at 1% of GDP from 2021 to 2025. The absence of any restrictions on payments after 2025 in the event of rapid GDP growth has been criticized by individual politicians and experts within the country.
Quotations of VRI in December fluctuated within 90.7% -95.3% of the nominal value – one of the lowest levels in the past year. At the same time, as a result of the escalation of the situation around Ukraine and the sale of Ukrainian assets caused by it, the value of VRI decreased in January 2022 and dropped to 66.7% of the nominal value this week. This is the lowest level since the beginning of the summer of 2019, not counting the short dip in value at the beginning of the COVID-19 pandemic. On Thursday, January 27, amid positive news, VRI rose by 9.4% to 73.5% of the nominal value.
Taking into account the quotes in December and the volume of expenditures made, it is possible to roughly estimate the volume of new purchases of VRI at about 5.7% of their total volume.
The growth of Ukraine’s GDP for 2021 is estimated by the National Bank of the country at 3%, which means no payments in 2023.

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