Unfavorable economic and political situation are the major obstacles for banking in Ukraine. This has been found by the survey of Ukrainian banks conducted by the Institute for Economic Research and Policy Consulting (IER) following the 2nd quarter of 2014.
In every IER quarterly banks survey, banks are asked about the factors that have negative impact on their business. As the results of the latest survey show, all the banks report unfavorable economic conditions in the country as an obstacle. Additionally, almost all of them (91% of the surveyed banks) say that complicated political situation is a reason for the problems in their business.
While the economic and political developments are alarming, other market factors, such as demand and competition, lose their relevance for the banks. Specifically, while 70% of banks reported competition in their sector as an obstacle for business in the 2nd quarter of 2013, this share dropped down to 36% in the 2nd quarter of 2014. 27% of banks report low demand (there were 30% of such banks a year ago).
However, a significant share of the banks continues to mention problems caused by government regulation. 64% name unfavorable regulatory climate as a negative factor for their business. This percentage has dropped slightly since 2013 when 70% of the banks had reported unfavorable regulatory climate as an obstacle.
Therefore, banks assessed business climate negatively in the 2nd quarter of 2014. The corresponding index of business climate assessment fell down to -0.64 from the previous mark of -0.3 where it had been in the 2nd quarter of 2013.
Economic growth and the restoration of security and territorial integrity of Ukraine are crucial for the banking sector development. Yet considering the unpredictability and massive scale of economic and political processes, it will be complicated to avoid the destructive impact of these factors on Ukrainian banks. Nevertheless, unfavorable regulatory climate is the problem that is possible to be solved in a shorter perspective. Improvement of banking regulation will help Ukrainian banks endure the period of economic and political challenges.
