Ukraine’s state-owned Oschadbank has guaranteed €837 million ($967 million) in Dutch-funded drone contracts, creating a protected payment channel that speeds cash to Ukrainian manufacturers and reduces corruption risks – a model Kyiv hopes will guide future defense financing deals.
The Netherlands will purchase drones directly from Ukrainian private producers under the arrangement – similar to Denmark’s weapons procurement model – but with a key difference. Dutch payments will be deposited into an escrow account at Oschadbank, which then issues a first-tier guarantee to The Hague that the funds will be used strictly for the contracted drones or returned if obligations aren’t met.
“The introduced mechanism significantly reduces risks for our international partners when financing through direct agreements,” said Roza Tapanova, a member of Oschadbank’s supervisory board. “Oschadbank has become the first Ukrainian bank to launch such a model for implementing an international grant aimed at supporting drone production by private companies. At the same time, the bank guarantee provided is a first-tier obligation that does not require reinsurance in international banks.”
The guarantee does not require reinsurance with foreign banks, making the process faster and cheaper. While Denmark finances Ukrainian defense producers directly without a guarantee, Oschadbank says its system could become a template for partners that require extra safeguards.
Four Ukrainian drone manufacturers have already benefited from the Dutch deal, though their names remain undisclosed for security reasons.
New tool for future defense deals
The transaction is part of Ukraine’s “Drone Line” project, initiated by President Volodymyr Zelensky to expand domestic drone production.
“The mechanism for using bank guarantees to execute defense and security contracts—developed and agreed upon with the government of the Netherlands – through direct financing by our international partners is yet another way to leverage the potential of the banking system to strengthen the country’s defense capabilities,” an Oschadbank press release quotes Deputy CEO in charge of Corporate Business Yuriy Katsion.
The Netherlands’ involvement follows Dutch Prime Minister Dick Schoof’s March statement that he had discussed a €700 million drone investment package for Ukraine with Zelensky.
Defense industry financing boom
The country’s defense sector boosted homegrown weapons manufacturing in 2024, including electronic warfare, unmanned aerial, naval, and ground vehicles, howitzers, ammunition, armored vehicles, bullets, and mines.
To meet growing demand, companies require more upfront financing and more international buyers willing to make advance payments.
In September 2024, Kyiv began compensating interest rates for arms manufacturers, lowering borrowing costs from market levels of 15-20% to 5%.
Since Russia’s full-scale invasion, Oschadbank has signed ₴17.5 billion ($420 million) in defense industry loans. It also launched Ukraine’s first defense financing consortium in late 2024, pooling ₴2.8 billion ($66.7 million) with Ukrgasbank and PUMB.
Ukraine’s defense industry, alongside energy projects, comprised one-fifth of the general growth in loans, Director of the NBU Financial Stability Department Pervin Dadashova said, answering the question from a Kyiv Post reporter during the June presentation of the National Bank of Ukraine’s (NBU) Financial Stability Report.