46. Ukraine

Tight quarantine, caused by the COVID-19 pandemic, started in March 2020 with a de facto ban on the operation of a significant part of economic activities. This led to a reduction in household incomes and corporate profits, as well as a deterioration in consumer and business sentiment. Uncertainty about the further development of the COVID-19 pandemic led to a decrease in public consumption, the suspension of certain investment projects and a deep decline in all economic activities. According to the results of the second quarter of 2020, real GDP decreased significantly by 11.2%

Against this backdrop, the National Bank of Ukraine (NBU) made considerable efforts to support the business and banking sectors of Ukraine. Its activities primarily aimed at:

  • Reducing the cost of financing for businesses, households and the government;

  • Maintaining liquidity and expanding the resource potential of banks;

  • Providing stimulus for financial institutions to expand lending;

  • Stabilising the foreign exchange market;

  • Anchoring inflation expectations.

The volume of corporate lending in 2020 was moderate, with heterogeneous dynamics. As a result of the pandemic, the demand for loans by enterprises declined and the financial conditions of borrowers started to deteriorate.

In order to reduce the negative effects of the crisis on the loan portfolio, the NBU encouraged banks to restructure the loans of bona fide debtors who had experienced difficulties because of the pandemic. Small enterprises remained the most vulnerable to the effects of the COVID-19 crisis in 2020. To support them, the government introduced government programmes that provided partial interest rate compensation and government loan guarantees. These measures and the gradual recovery of the economy contributed to the gradual revival of corporate lending in the final part of 2020.

Therefore, following a reduction in the corporate loan volume in the first half of the year, business loans in the national currency (hryvnia, UAH) increased in the second half of the year. Overall, net UAH business loans increased by 4.3% in 2020. Net foreign currency loans decreased by 11.1% year-on-year in USD terms.

Retail lending slowed sharply in 2020. The net UAH loan portfolio of individuals grew by 5.5% over the year, against a 30% increase in 2019. This was mostly the result of falling demand for certain categories of consumer goods and uncertainty about the dynamics of household incomes during the COVID-19 crisis.

The Ukrainian financial sector remains bank-centric: the share of non-bank financial institutions in the assets of the financial sector is still moderate, and in 2020 it declined due to slightly lower growth rates compared to bank assets.

In July 2020, the government introduced a “split” reform whereby the non-banking financial market was redistributed between the two regulators: the National Bank of Ukraine and the National Securities and Stock Market Commission. This should increase the transparency of the sector, eliminate the possibility of regulatory arbitrage and create a system of proportional regulation of the non-banking market.

In 2020, new SMEs loans accounted for 31% of total new business lending, showing a 2% drop compared to the previous year. As SMEs were the most vulnerable segment of the COVID-19 pandemic, the government introduced state programs, aimed for partial interest rate compensation and state loan guarantees. These actions and gradual recovery of the economy contributed to moderate revival of corporate lending. Thus, following a reduction of the corporate portfolio in the first half of 2020, in the second half hryvnia’s business loans increased. For the whole year, total net hryvnia business loans grew up by 4.3%. Banks with a foreign and private capital provided loans at a dynamic pace, namely 15% y-o-y. At the same time, currency loans decreased by 11.1% y-o-y in dollar equivalent.

An important state credit programme, called "Affordable Loans 5-7-9%", was introduced at the initiative of the President of Ukraine in order to facilitate the access of micro and small businesses to bank lending. The aim of the programme is to strengthen the competitiveness of Ukrainian micro and small businesses, create new jobs, and help migrant workers return to Ukraine. The programme is implemented by the Entrepreneurship Development Fund (formerly the German-Ukrainian Fund), established under the Ministry of Finance, through a network of partner banks together with the Ministry of Economy and the SME Development Office. The programme, as the name suggests, is characterised by the offer of loans with three different interest rates: 5%, 7% and 9%. As of the end of May 2021, the programme had disbursed 17 037 loans totalling UAH 43 955 million through 30 partner banks.

SMEs prevail in the Ukrainian economy, accounting for 99.97% of the total business population (both legal enterprises and individual entrepreneurs).

SMEs in Ukraine are a dominant social and economic power, which, among other things, provide jobs to the vast majority of employees and account for more than half of country’s production output (SMEs employed almost 82% of labour force and generated 65% of total sales). The majority of SMEs in Ukraine still operate in the wholesale and retail trade (42.9%). However, recent years have seen a growing number of SMEs in the IT sector (10.6% in 2019 versus 5% in 2015).

More than 7.4 million persons, or more than 82% of all employees, operate in the SME sector. The sector accounts for 65.5% of sales of goods, works and services, and 64% of value added.

SMEs account for a significant part of all enterprises operating in Ukraine. According to Ukrstat, in 2019 1 941 625 SMEs (both legal companies and individual entrepreneurs) operated in Ukraine, which accounts for 99.97% of the total business population. It is worth mentioning that 80% of economic players are registered as individual entrepreneurs. The majority of SMEs are micro-enterprises (96.%).

SMEs contribute significantly to the domestic economy, creating almost 64.1% of value added (at cost of production). In 2019, SMEs employed about 7 409 466 people, i.e. 82.16% of all employees in Ukraine1. At the same time, the presence of SMEs in foreign markets is low. This sector accounted for 29% of total Ukrainian exports in 2015-2017, and in 2018 the figure decreased to 26%, with half of the volume falling on medium-sized enterprises2.

In 2020, outstanding business loans to SMEs accounted for 61.23% of total outstanding business loans, showing almost 10% increase compared to 2017 (52%) and a 5% increase compared to pre-crisis 2019 (56.7%). This means that bank loans are an important source of financing for SME sector.

According to the report «COVID-19 in Ukraine: Impact on Households and Businesses»3 almost two thirds of respondents in the survey of micro, small and medium sized enterprises owners stated that the pandemic "significantly" affected their way of doing business (57.4%), more than a third of companies had to "partially" cease operations (39.6%) and less than a third (29.7%) had to completely stop business activity.

According to NBU’s survey on conditions of bank lending in the second quarter of 20214, the positive sentiment of banks regarding the dynamics of lending in the IV quarter of 2020 remained until the end of the I quarter of 2021: despite the expectation of new quarantine restrictions, the demand for loans increased from business and households, in particular the demand for mortgages. Banks noted a moderate easing of both corporate and retail lending standards, forecast further growth in retail and corporate funding, and expect higher risks in the second quarter.

In January-March 2021, the demand for business loans increased, mostly for SME loans, hryvnia and long-term loans. The main factors which contributed to the demand’s recovery are lower interest rates, the need of enterprises for capital investment and working capital, as well as debt restructuring. Banks explain the easing of credit standards to business due to high levels of liquidity, increased competition with other banks, and improved expectations regarding overall economic activity and the development of certain industries, especially for SMEs. Lower interest rates are the main reason for the easing of lending conditions. Almost a quarter of respondents noted an increase in the level of approval of business loan applications and a relaxation of loan requirements. More than 80% of financial institutions rated the debt burden of corporate borrowers as average, while for large enterprises the rating is higher compared to SMEs.

The beginning of the pandemic fell on a cycle of softening the NBU’s monetary policy. During the first half of 2020, the NBU reduced the discount rate 4 times to a historically low level of 6% per annum. Such decisions contributed to the cost of credit resources, despite the crisis. Reducing rates by for two months in spring banks suspended rates reduction, with the following continuation in May.

According to NBU’s survey on conditions of bank lending in the second quarter of 20215, for two consecutive quarters (I and II quarters of 2021), banks reported a moderate easing of credit standards for businesses. In particular, the easing of requirements applies to loans for SMEs, short-term and hryvnia loans.

The easing of credit standards was influenced by high liquidity and competition with other banks. In addition, financial institutions have improved their expectations regarding general economic activity, and especially the development of certain industries, especially for small and medium-sized businesses. Large banks have slightly tightened standards for large enterprises due to deteriorating exchange rate expectations.

Banks forecast easing next quarter business lending standards, more for short-term and hryvnia loans and credits to SMEs.

In the first quarter, almost a quarter of the surveyed banks indicated a slight increase in the level of approval of loan applications to businesses, especially for SME loans and short-term loans. The reason for the growth of approved applications, a significant proportion of banks call the reduction of interest rates. In addition, almost a quarter of respondents said that getting a bigger loan has become easier.

In 2020, the interest rate for SME loans was 13.84%, while the interest rate for large companies was 8.68%6.

The 2020 trends for non-banking financial services were largely determined by the corona crisis, which affected market participants unevenly. In particular, the growth of assets slowed down significantly, for some financial institutions it did not resume until the end of the year. Different dynamics of assets of non-banking financial institutions determine the structure and trends of the sector. Currently, financial institutions have the largest assets among non-bank financial institutions. Together, they account for 72% of the assets of non-bank financial institutions regulated by the National Bank of Ukraine. The second largest segment is insurance. Other non-bank financial institutions have only 2.4% of assets7.

As of November 30, 2020, the number of non-banking market participants decreased from 2079 to 2071. Currently, the non-banking market consists of 191 risky (non-life) and 20 life (life insurance) insurers, 302 pawnshops, 322 credit unions, 146 leasing companies, 1025 financial companies8, 65 insurance brokers9.

The Ukrainian investment market is growing steadily, and in 2019 the total volume of venture capital deals has reached USD 509.9 million. The number of venture capital deals has also increased. In 2019, 111 deals were made, whereas by the end of 2018 their number totalled 11510. In 2020, the Ukrainian investment market continued to grow, in particular, the total funding amounted to USD 533.5 million, with a 188 deals.

Data on bankruptcies is available for all businesses (with no distinction between SMEs and other firms). Since 2015, the number of bankruptcies has been decreasing due to regular amendments in Bankruptcy Procedure Code of Ukraine. In particular, in 2020 after the start of COVID-19 pandemic, the Law of Ukraine was adopted ‘About modification of the Code of Ukraine on bankruptcy procedures concerning prevention of abuses in the sphere of bankruptcy for the period of implementation of the measures directed on prevention of emergence and distribution of a coronavirus disease COVID-1911. According to this law, bankruptcy proceedings have been "freezed" since March 12, 2020. Therefore, in 2020 the expected spike in the number of bankrupt companies is not evidenced in the data.

On 17 March 2020, the Verkhovna Rada of Ukraine adopted Laws of Ukraine No. 530-IX and No. 533-IX on support for business in Ukraine in connection with the spread of coronavirus (COVID-19) and its prevention. In addition to that, on 30 March 2020, the Ukrainian Parliament adopted the Law “On Amendments to Certain Legislative Acts Aimed to Ensure Additional Social and Economic Guarantees Due to the Coronavirus Disease (COVID-2019) Spread” (the Law No. 540-IX), which introduces to the Ukrainian legislative environment new complex rules aimed at minimizing the negative impact of the spread of the COVID-19 in Ukraine.

The below summary focuses on key changes introduced by these Laws:

  • Unified social contribution (USC). Temporary release from the obligation to calculate and pay the USC for private entrepreneurs, individuals carrying our independent professional activities and farmers.

  • Sanctions and penalties. Temporary cancellation of fines for certain violations of tax legislation and late or incomplete payment of the USC or reporting on the USC, as well as the suspension of interest payments with respect to taxpayers and payers of the USC, together with the already accrued interest payment, for a specified period.

  • Payment for land. Temporary cancellation of a land tax and rent payment for land plots of state and communal property that are in possession or use (including on lease terms).

  • Real estate tax. The real estate tax on non-residential property is temporarily suspended.

  • Declaration of personal income tax. The term to file the annual declaration of property and income for 2019 and to pay the relevant tax for 2019 has been extended.

  • Conducting inspections. Temporary moratorium on tax audits and other planned measures of state supervision (control) in the field of economic activities subject to certain exceptions.

  • Fiscalisation postponement. Postponement of the requirement for the use of registrars of settlement transactions.

  • Force majeurs. Opportunity to obtain a certificate on force majeure due to quarantine.

  • Rent relief. For the duration of the quarantine, tenants are relieved from rent payments in accordance with p. 6 of art. 762 of the Civil Code of Ukraine (the “CCU”). The mentioned article of the Civil Code stipulates that tenants are exempt from the obligation to pay rent over the period when property could not be used due to circumstances for which it is not liable.

Credit program "Affordable Loans 5-7-9%" was introduced at the initiative of the President of Ukraine in order to facilitate access of micro and small businesses to bank lending. The program, in particular, includes a working capital loan, refinancing loans, investment loans.

It should be noted that the program and its relevant terms and conditions are developed and updated on a regular basis. For example:

  • the maximum allowable state aid from 200 thousand to 400 thousand euros for the period of quarantine and for six months after its abolition was increased;

  • the maximum level of annual income of SMEs has been increased to the equivalent of 20 million euros;

  • loan conditions are liberalized: the term of the loan to finance working capital has increased to 3 years; deferred payment for loan repayment may be up to 12 months; the first installment in the implementation of the investment project is reduced (10% for existing businesses and 15% for startups), the requirement that there are no problem debts on loans in Ukrainian banks as of March 1, 2020 is excluded;

  • the conditions for refinancing loans in terms of ensuring the preservation of the payroll are reduced - a reduction of up to 50%, the number of staff - up to 50% (as of March 1, 2020);

  • for working capital loans, interest compensation is set up to 0% per annum for the period of quarantine and restrictive measures, and after their cancellation their compensation continues at 3% per annum, and for refinancing loans interest compensation is set up to 3% per annum after 31.03.2021.

Individual entrepreneurs and employees who were forced to cease their operational work due to quarantine restrictions were able to apply for the state financial assistance in the amount of UAH 8 000. The government defined a list of business sectors which are eligible for financial assistance (i.e retail, restaurants, cafes, cultural and sports facilities).

Such an initiative was introduced in December 2020 and April 2021.

Another initiative implemented in Ukraine during the covered period is a creation of Factoring Hub. Factoring Hub is an online platform for ordering factoring by business which operares in public procurement. Factoring Hub offers its customers a service of fast and convenient application for factoring in electronic form to participate in public procurement of the Prozorro system.

There is an strong support of agricultural business in Ukraine. Namely, the Cabinet of Ministers of Ukraine has provided UAH 4.7 billion in the state budget for 2021 to support the agro-industrial complex. The provision of state aid is designated by the following programs: cheaper purchase of agricultural machinery and equipment; cheaper loans; development of farms; livestock development; development of horticulture, viticulture and hop growing; continuation of support at the expense of the program 5-7-9% (about 60% of loans within the program); support and development of private reclamation systems, as well as the provision of state grants for the development of state reclamation systems. It is expected that about 9,000 agricultural enterprises will receive assistance under these programs.

Another program which aims to support Ukrainian SME’s is a State lending program with a governmental guarantees coverage on a portfolio basis12. The purpose of providing guarantees on a portfolio basis is to support micro, small and medium-sized businesses in Ukraine by facilitating access to bank financing for enterprises. The program designes for the provision of state guarantees to ensure the partial fulfillment of debt obligations on the portfolio of loans of creditor banks provided to business entities of micro, small and / or medium enterprises. Thus, a mechanism of partial credit guarantees has been created to address the problem of lack of collateral and insufficient credit history of SMEs.

1. It should be noted that Ukraine has a number of international financial support programs aimed at SMEs. International support programmes, which are implemented through Ukrainian banks, provide credit funds to Ukrainian SMEs that meet the programme’s requirements. Usually, the programmes targets entrepreneurs in rural areas and SMEs that operate in strategic sectors (agriculture, forestry and fisheries, manufacturing, hospitality, provision of electricity, gas and steam). The international support programmes involves the provision of a grant and targeted programmes by donor organisations.


← 1. State statistics service of Ukraine, own calculations; Access: http://www.ukrstat.gov.ua/

← 2. Review of small and medium enterprises in Ukraine 2018/2019. Access: https://sme.gov.ua/analytics/

← 3. Access: https://sme.gov.ua/wp-content/uploads/2020/12/6_COVID19%20in%20Ukraine_Impact%20on%20Households%20and%20Businesses.pdf

← 4. NBU survey on the conditions of bank lending in the second quarter of 2021. Access: https://bank.gov.ua/ua/news/all/banki-vidznachayut-zrostannya-popitu-biznesu-y-domogospodarstv-na-krediti-ta-vvajayut-ipoteku-vagomim-rushiyem-podalshogo-pojvavlennya-popitu-naselennya--opituvannya-pro-umovi-bankivskogo-kredituvannya

← 5. Ibid

← 6. Weighted average for 2020

← 7. NBU’s annual 2020. Access: https://bank.gov.ua/ua/news/all/richniy-zvit-natsionalnogo-banku-ukrayini-za-2020-rik

← 8. Financial companies are those which have a licence to credit, leasing, factoring, guarantee provision, money transfer, currency exchange).

← 9. Results of licensing and registration of financial institutions by the National Bank in November. Access: https://bank.gov.ua/ua/news/all/rezultati-litsenzuvannya-ta-reyestratsiyi-finansovih-ustanov-natsionalnim-bankom-u-listopadi

← 10. Ukrainian Venture Capital and Private Equity Association: http://uvca.eu/en/news/uvca-has-presented-overview-of-the-ukrainian-investment-market

← 11. Law of Ukraine Access: https://zakon.rada.gov.ua/laws/show/728-20#Text

← 12. Resolution of the Cabinet https://www.kmu.gov.ua/npas/deyaki-pitannya-nadannya-derzhavnih-garantij-na-portfelnij-osnovi-u-2020-roci-i251120-1151

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