Ukraine’s banks will be capable of competing with European lenders after the country’s accession to the EU, but the sector must first complete its transition to EU regulatory standards by 2027, National Bank of Ukraine (NBU) First Deputy Governor Sergiy Nikolaychuk said on Wednesday.
EU membership would allow European lenders to operate directly in Ukraine’s market, potentially increasing competition for domestic banks.
However, Nikolaychuk said, the sector has already weathered multiple crises and remains competitive and innovative – which he believes positions Ukrainian banks to compete with EU institutions when the market eventually opens.
“Ukraine’s banking sector has gone through many tests and challenges and has handled them quite well,” Nikolaychuk said. “If the transition to EU standards is successful, the sector should be fully capable of competing with European banks,” he said during an interview with Eckonomichna Pravda.
Banks’ survival will depend on business models
Nikolaychuk said it is too early to predict whether some Ukrainian banks will leave the market once competition intensifies. The outcome will depend largely on whether each institution maintains a viable business model under the conditions of a unified European financial market.
European banking sectors themselves differ significantly in structure, he noted. While the Baltic states have relatively concentrated markets dominated by a small number of lenders, Germany maintains a large number of smaller regional banks that remain competitive within specific segments.
“The question is whether each bank has a viable business model,” Nikolaychuk said. “That viability will be tested under the conditions of the single market.”
He added that he does not expect a new wave of bank failures driven specifically by the EU integration process.
Ukraine’s banking sector underwent a major cleanup between 2014 and 2017, when the National Bank shut down dozens of insolvent lenders as part of sweeping reforms following the country’s financial crisis.
Ukrainian banking regulation nearly aligned with EU standards
Nikolaychuk said that the regulation of Ukraine’s banking sector is already 78 percent equivalent to EU standards, based on the most recent confirmed assessment.
One of the largest remaining regulatory gaps concerns securitization – a financial mechanism that allows banks to bundle assets, typically mortgage loans, and issue bonds backed by those assets. Under such structures, banks sell the securities to institutional or retail investors, generating additional liquidity for lending.
The instrument gained international attention in 2007-2008, when poorly regulated mortgage-backed securities contributed to systemic financial instability and, ultimately, helped bring about a global financial crisis. However, Nikolaychuk said that regulatory frameworks governing securitization have evolved significantly since then.
Ukraine currently lacks a functioning securitization market, though legislation aimed at introducing the mechanism is under review.
“We received a draft law on securitization from the National Securities and Stock Market Commission,” Nikolaychuk said. “It is now being reviewed by our departments.”
Once adopted, the legislation will require further regulatory work by the National Bank before the instrument can operate fully within Ukraine’s financial system.
The goal, Nikolaychuk added, is to stimulate the development of a new segment of the financial market while maintaining financial stability.