Ukrainian President Vladimir Zelensky recently signed into law a significant piece of legislation aimed at privatizing state-owned banks, aligning Ukraine’s financial framework with the requirements of the World Bank. This new law, which was officially published on the Verkhovna Rada’s website, comes in the wake of a legislative vote held on September 19. The primary objective of this move is to truncate the government’s involvement in the banking sector, a stipulation agreed upon in the context of financial support programs from international institutions like the World Bank and the International Monetary Fund (IMF). In particular, these institutions view the privatization of state-owned entities as essential to unlocking further loans, with Ukraine currently tied to a $15.6 billion loan agreement with the IMF.
The legislative framework introduced by the new law aims to broaden the pool of prospective investors, thereby enhancing the competitive landscape for banking acquisitions. A notable change includes the lifting of previous restrictions that mandated the sale of entire state shares in banks; now, the law permits the sale of any state-held share. Moreover, it refines the price-setting and auction processes to better conform with the World Bank’s guidelines. An important provision in this law is the prohibition against former shareholders from participating in the privatization process, ensuring a cleaner break from state control.
Included in the scope of this privatization effort are several key banking institutions such as PrivatBank and Ukrgasbank, alongside others like Sense Bank, PINbank, and Motor-Bank, which were nationalized after the onset of the ongoing conflict with Russia. Notably, the law excludes two major banks, Oschadbank and Ukreximbank, from the privatization agenda. The Governor of the National Bank of Ukraine (NBU), Andrey Pyshny, emphasized the prioritization of Sense Bank and Ukrgasbank as initial targets for privatization, highlighting the importance of engaging consultants to identify optimal strategies for the sale.
In conjunction with these banking reforms, the State Property Fund of Ukraine unveiled the “Privatisation-2024” project in July, which aims to attract strategic investors keen on obtaining government-owned assets. This initiative is part of a broader economic strategy designed to stimulate growth and improve the financial health of the country amid persistent economic challenges exacerbated by the ongoing conflict with Russia. The urgency of this endeavor is underscored by the government’s recent budget draft for 2025, which anticipates a staggering deficit of 75%, illustrating the severe fiscal constraints facing Ukraine.
Economic assessments indicate that the influx of Western financial assistance has sharply declined, with reports suggesting a nearly 50% reduction in funds channeled into the state budget compared to the previous year. This significant drop in external funding highlights the need for an aggressive approach toward privatization and investment attraction. The implementation of the new privatization law is, therefore, not only a compliance measure but also a strategic maneuver aimed at fortifying the national economy in light of dwindling external support and the ongoing war.
Ultimately, the successes and challenges of the privatization efforts will hinge on the Ukrainian government’s ability to effectively manage these transitions and entice credible investors. As the banking sector undergoes this transformative change, the focus will be on creating a stable and transparent investment environment that can reinvigorate the economy, improve public finances, and restore faith in the country’s financial system. The outcome of this initiative will be critical for Ukraine as it seeks to navigate through its current economic realities while pivoting toward a more privatized and market-driven future.