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system reform, #5068, which regulates the appointment of the members of the High Council of Justice (HCJ), the highest body in the judiciary branch of power. The approval of such a law, which must ensure that the council’s members have “impeccable reputation and integrity” is one of the structural benchmarks listed in the latest memorandum with the IMF. According to media reports, the law stipulates that the first commission to select members of the HCJ will be created on the same principles as the commission to select HQCJ (namely, there will be six commission members, of which three to be appointed by Ukraine’s Western partners and will have decisive power).
2.4 The slow pace of Ukraine’s banking privatisation
The current government strategy sets a target of reducing the state-owned share of the Ukrainian banking sector to 25% by 2025. However, the government has already failed to meet similar goals on several prior occasions, leading to repeated revisions of the official privatization strategy. Understandably, many observers now question whether the current plan is achievable.
The first version of the Ukrainian government’s banking sector privatization strategy was drawn up in February 2016. At that point, state-owned banks Oschadbank, Ukrgasbank, and Ukreximbank were unprofitable and often required additional capital from the state budget due in part to large existing portfolios of non-performing loans (NPLs).
The situation changed rather dramatically in December 2016 when the Ukrainian authorities were forced to nationalize the country’s largest bank, Privatbank, in order to ensure the stability of the Ukrainian banking sector. This move caused the state’s share of the banking industry to leap from around 26% to 55%. Inevitably, the nationalization of Privatbank meant that the government’s initial privatization strategy needed to be revised.
The updated plan identified a new timeline for steps towards a reduction in the state-owned share of the banking sector. Ukrgasbank was chosen as the first bank to undergo privatization. In line with the government strategy, the International Finance Corporation (IFC) would acquire a 20% stake in the bank by the end of 2018, and would identify a strategic investor for a further 75% share of the bank’s capital by January 2020.
Meanwhile, the European Bank for Reconstruction and Development (EBRD) would take a 20% stake in Oschadbank by mid-2020, with this share rising to an unspecified amount by 2022. The Cabinet of Ministers was likewise committed to finding a minority shareholder for a 20% stake in Ukreximbank by 2021. The privatization plan also anticipated the sale of Privatbank by mid-2022.
This ambitious strategy would have reduced the share of state-owned banks in Ukraine from 55% to 24%. Unfortunately, the slow pace of reforms in the country and the turbulence caused by the 2019 presidential and parliamentary elections meant that none of the targets outlined in the revised government strategy were actually met. Then came Covid-19 and further disruption.
The most recent update to the government’s privatization plans for the Ukrainian banking sector was approved by the Cabinet of Ministers in August
12 UKRAINE Country Report August 2021 www.intellinews.com