The stage of cleansing and transition from financial repressions to financial liberalization, which has been undergone in due time by banking and non-banking financial systems of all the transformed countries, has been delayed in the financial sector of Ukraine.
We expect that by 2020 the conditions for a stable economic development of Ukraine will be created, based on the transformation of the financial sector of Ukraine into a competitive environment with an investment and innovation climate. First and foremost, we focus on the three major sectors of the financial market of Ukraine: banking sector, stock market, and insurance sector.
The main issues at the middle and final stages of the transformation of banking systems, characteristic of the Ukrainian banking sector, as defined by the World Bank, are the following:
- - Poor crediting, big credits to the public sector, financial and industrial groups, and «clients with good connections», which had resulted in a large amount of bad credits.
- - Public banks, crediting either their «traditional» clients, or «clients with good connections», keep playing a considerable role.
- - Liberalization of bank licenses has resulted in emergence of pocket banks which credit the affiliated persons or launder money.
- - Closed nature of the financial market has allowed the local elites to maintain or increase their economic and political influence, while the system of state deposit guarantee provides them an unimpeded access to the deposit resources.
- - Impeded development of the environment necessary for the emergence of local capital market (equity and debt) — it is necessary to develop the regulatory framework, to ensure the actual implementation of bankruptcy procedures, to strengthen protection of minority shareholders, and to formalize the rules of conduct of market participants.
Along with the reforms aimed at addressing these issues, Ukraine needs to bring the practices in the market of pension provision and insurance in line with the international standards.
Balances of insurers need cleansing of troubled assets; risk provisions are formed too late and not in full, which is a result of the non-implementation of effective monitoring of the insurance sector on the basis of IAIS and Solvency II. Defined contribution pension system should be introduced.
As a result of the delay, the amount of long-term investments in Ukraine at the expense of long-term reserves of insurers remains extremely low.
Conditions for the protection of agricultural producers through agricultural insurance have not been shaped. Conditions for voluntary healthcare insurance have not been created, which limits the possibilities of Ukrainian citizens to provide themselves with healthcare insurance on a voluntary basis.
Consumer rights of those using the service of insurance of civil liability of vehicle owners should be strengthened, especially in view of extremely low compensation payments for damage to life, health, and working ability of traffic accident victims.