IFC and NBU Strengthen Partnership to Boost Financial Sector Resilience, Support SMEs Access to Finance

·       Two new agreements will advance digital financial services and help address NPLs resolution.

·       Initiatives aim to drive innovation, support smaller businesses, and bolster the financial sector.

·       Collaboration supports Ukraine’s alignment with European standards.

Washington, D.C., United States, October 28, 2024—IFC, a member of the World Bank Group, signed two new cooperation agreements with the National Bank of Ukraine (NBU) to enhance access to finance and support the country’s economic recovery amid the ongoing challenges posed by Russia’s invasion.

Russia's invasion has resulted in significant losses to Ukraine's financial sector, estimated at $5.7 billion as of December 2023, according to a World Bank Group report. Despite these setbacks, Ukraine’s banks continue to be resilient, remaining relatively liquid and well-capitalized.

To further support lending to businesses, IFC in partnership with State Secretariat for Economic Affairs (SECO), Facility for Investment Climate Advisory Services (FIAS) and the government of UK, will provide advisory services to the NBU in two critical areas—digital financial services and asset resolution companies.

·       Advancing Digital Financial Services

Building on previous successful collaborations between IFC and the NBU, this first new agreement aims to further advance Ukraine’s digital financial services ecosystem. Key initiatives include driving innovation through sharing financial data and services with trusted third parties, promoting resilient agent banking models, encouraging businesses to introduce and live-test innovative financial services under regulator’s supervision utilizing the regulatory sandbox, and supporting the growth of cashless operations. These efforts are expected to enhance competition, improve financial service offerings, foster a cashless economy, and contribute to Ukraine’s alignment with European standards. The agreement is supported by Switzerland through SECO and through UK government’s Good Governance Fund (GGF).

·       Addressing Non-Performing Loans

The second agreement addresses the growing issue of non-performing loans, exacerbated by the war, by creating a legal framework for establishing Asset Resolution Companies (ARCs) in Ukraine. ARCs, currently absent from Ukraine’s financial system, are vital for managing distressed assets and attracting private investment. They often outperform banks in restructuring distressed assets, offering specialized debt recovery solutions that ensure long-term business viability. By aiding business recovery, ARCs boost the SME and MSME sectors, fostering a competitive and resilient business environment. By efficiently resolving NPLs, ARCs can help reduce the overall number of non-performing loans, thereby improving the health of the banking sector.  This partnership will also help mitigate risks for banks and other financial institutions to maintain their lending in Ukraine. The agreement includes legislative reforms, training initiatives and workshops, and the harmonization of policy frameworks. The agreement is supported by FIAS.

“These agreements to advance digital financial services & address non-performing loans are part of IFC’s efforts to improve access to financing for Ukrainian businesses amid Russia’s invasion.” said Alfonso Garcia Mora, IFC's Regional Vice President for Europe, Latin America, and the Caribbean. “This is the result of fruitful cooperation between IFC, SECO, FIAS, GGF and the Government of Ukraine. Together, we aim to build a more inclusive, and sustainable financial sector, vital for rebuilding Ukraine’s economy.”

“We are sincerely grateful for the strong technical and financial support provided by the World Bank Group and appreciate our long-standing successful cooperation. The assistance of the Group’s experts is always efficient and professional, and the NBU together with them continues to implement ambitious reforms and programs in a wide range of areas. These include improving the banking supervision and regulation system, introducing a war risk insurance system that will significantly improve the conditions for attracting investment to Ukraine, developing instant payments, tokenization and oversight, green finance, and much more,” said NBU Governor Andriy Pyshnyy.

Since February 2022, IFC has invested $1.6 billion in Ukraine, including $530 million mobilized—more than double its average annual financing before the invasion. This support is part of the World Bank Group’s (WBG) response package, which has assisted more than 15 million Ukrainians by helping businesses stay afloat and enabling the government to provide essential services, pay wages, keep schools and hospitals open, and make critical repairs.

The WBG has mobilized more than $47 billion in financing to date, including commitments and pledges from development partners.