OPINION: Ukraine’s progress depends on ending oligarch-dominated clan culture

Banker Sergii Gorbachevsky believes Ukraine must reduce oligarch influence if the country is to reach its economic potential

Sergii Gorbachevsky
Tuesday, 01 August 2017 13:51

Many people know about my issue - the fact that I stand accused of a crime it was impossible for me to commit - but few know about me as a person. I consider myself a progressive Ukrainian banker.

In the first place, I am a patriot. I believe in a better future for Ukraine. This future, in essence, is my birthright. It is the birthright of all of us who want to see our country succeed. An important aspect of this success will be our ability to move beyond an antiquated banking system and reach a point where there are well-capitalized smaller institutions with less emphasis on large state banks.

I was raised in a banking family, and so from an early age was immersed in the intricacies of financial management. It has been my life. Of course, I am acutely aware of the often rough and tumble environment of business in Ukraine as exemplified by the current controversy around DV bank.



I was born and raised in Kyiv. During my student years, I managed to find positions in various commercial banks. I gained experience in finance, risk and credit management and securities. My desire was to one day have my own bank, and to put into practice progressive ideas improving my industry. Banking in Ukraine is maturing, and I want to be in the forefront of change.

One of my special interests is foreign currency market trading. Today, DV Bank is one of the few banks certified by the National Bank of Forex participants in the Ukraine market. Regulators should expand the range of Forex market instruments to include not only currencies, but also precious metals and other commodities. This will allow investors to reliably hedge currency risks and expand entrepreneurial opportunities. More than that, it will strengthen the socio-economic indicators of the country as a whole. As a result, the liquidity of the national banking market will expand.

Another key to development is expanded banking services through remote tools that allow consumers to bank with convenience. The key to the entire banking system is a wider range of products utilized without clients having to physically visit the bank. For small banks that have a limited number of branches, this would represent a huge market incentive and allow them to compete on an equal footing with the giant banks.

What do I see as the main risk to Ukraine’s banking system? It is easily the high share of state capital in banks, and at the same time, the quality of the portfolios of state-owned banks. The total share of assets managed by such banks makes up 56% of the entire banking portfolio of Ukraine. At the same time, more than 70% of those portfolios are non-performing assets.

This means that a write-off of this size would seriously drop the capitalization of state-owned banks. The State treasury would be forced to make up some UAH 400 billion by printing additional money. As a result of devaluing the national currency and knock-on impacts, we most likely would see a crisis of solvency and another deep recession.

The number one question is how to prevent this crisis? We have to create conditions for investment inflow and transparent privatization of state assets, including banks. This process requires improving the quality of state officials, including raising the level of remuneration of civil servants in order to make such positions more attractive. The civil service must attract qualified graduates from Ukraine and foreign universities. I believe that this is possible, provided civil society mobilizes around reforms and, as in the winter of 2013-14, overcomes the inertia and corruption of the state system.



My fundamental optimism about the banking sector in Ukraine remains, despite the recent corporate raiding attacks on DV bank. This partly stems from the 2014 Revolution for Dignity. Ukrainians once again showed their character and spirit. I believe the country has huge potential for capital development and the emergence of a high tech market. Ukraine could be - should be - a very attractive country for foreign investment.

Three key obstacles prevent Ukraine from realizing its potential. The country must speed up reforms, enforce rule of law, and remove the clan character that dominates the political and economic systems. This ubiquitous oligarch clan system needs to change before the country can make decisive progress. It is at the root of many problems, including the charges aimed at me and attempts to take over my DV Bank. We must end organized banditry in our country. I am committed to doing my best to achieve this by bringing my own situation to the attention of officials in Ukraine and abroad.


About the author: Sergii Gorbachevsky is the president of DV Bank

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