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Faculty of Economics & Management



Faculty of Management

Department of International Business Activity

The banking system of Ukraine

Artyom Lysenko

Pervomayskaya st. 52ª

86391 Zhdanivka

International Economics

Specialisation "European Studies"

Semester: 3

Date of submission: 17.10.2010


1. Introduction.

2. Banking system of Ukraine.

2.1. Structure of banking system.

2.2. Classification of banks and their functions.

2.3. The National Bank as the main element of the banking system of Ukraine.

2.4. Commercial bank: its role and functions in the economy.

3. Problems and weaknesses of the banking system of Ukraine. Solutions.

4. Conclusion.



This paper deals with the banking system of Ukraine. Also described a brief history of its establishment, structure, types of banks, their functions, problems and solutions. Formation of the Ukrainian banking system is described in general terms.

Key words: bank, banking system.


The banking system - an essential component of any economy. The banks, spending cash payments, crediting the economy, acting as intermediaries in the distribution of capital, significantly increase the overall efficiency of production, promote growth of productivity of labor. The practical role of the banking system is determined by the fact that it manages in the state system of payments and settlements; most of their commercial transactions carried out through contributions, investment and lending operations; along with other financial mediators banks direct the savings to firms and industrial structures.

Modern banking system - an area of diverse services - from traditional deposit-loan and cash transactions determining the basis of banking, to the newest forms of monetary and financial instruments used by banks. The stability of the banking system has emergency importance for the effective implementation of monetary policy. The banking sector is a channel through which impulses are transmitted monetary authorities across the economy. Namely the need to study such an important component of a market economy is determined by the relevance of the topic.

“The banking system plays a crucial role in normal development of economies. Ukraine is not exception, and the transition to a market economy it has developed a new banking system. Naturally, it has some peculiarities, its own complexity and ways of solving them.”1 The whole system is currently in its infancy and can not avoid crises and shocks. That is why the aim of my work is to understand how to reduce the negative impact to a minimum. That's why the theme of the Ukrainian banking system today is particularly important for stabilizing the economy of our country.

2.Banking system of Ukraine

2.1.Strukturе of banking system

The banking system of Ukraine was founded following the adoption by the Verkhovna Rada in March 1991, the Law of Ukraine ""On Banks and Banking Activity" 2. “It is a two-tier and consists of the National Bank of Ukraine and banks of various types and forms of ownership. National Bank of Ukraine is the central bank, which conducts a single state monetary policy to ensure the stability of the national currency. Banks are on the stock or mutual basis legal and natural persons.”3 Their functions banks realize through the implementation of operations such as fundraising companies, institutions, organizations and people to deposit, deposit accounts and non-deposit fundraising, lending to business entities and citizens, investing in securities formation of the cash balances and reserves formation of other assets, cash and settlement services to the national economy, the implementation of foreign exchange and other banking operations.

The current banking system has a two-tier organization. Upper level - is the central bank, the lower level of commercial banks and lending institutions. The central bank is crucial for the banking system, its activity can regulate and control the monetary relations as a whole while maintaining the freedom of private enterprise, which is provided by commercial banks. Central banks in all countries is the main part of the banking system, institutions which carry out regulatory functions of the entire banking system. It can be make the following simple scheme of the banking system of any country:

Institute of the upper level of the banking system

Central bank

Institutes of the lower level of the banking system

Commercial banks

Universal banks Specialty banks

Investment banks

Mortgage banks

Savings banks

Banks of the consumer Credit

Branch banks


In order to improve the effectiveness and efficiency of regulatory activities of the Central Bank's practice division of the banking system in the sector, including functional characteristics similar to those of institutions. For example, the sector of land banks, the sector of consumer credit sector, leasing companies, etc. The main purpose of this fragmentation - the selective use of regulatory procedures and rules, depending on the specifics of the organization's operations and activities of institutions of a sector.

2.2. The classification of banks and their functions

The main function of banks - concentrate in their own funds and make them available on loan. Historically, the original function of banks is to mediate in payments. They shall keep the money of entrepreneur on behalf of which lead to settlements with suppliers and customers, make payments to the state treasury, leading settlement service firms. Banks are also accumulating in their incomes and savings, means the state, public and other organizations. By themselves, these amounts are intended for consumption as the purchasing or payment. Meanwhile, when they fall into the hands of businessmen, they used for profit. Banks issue credit as a means of circulation - the cost of the signs that serve as money in trade and payments. Ukrainian banks perform their functions in two interrelated types of operations: passive - operations to create a bank of resources and active - operations on their placement and use of (Table 1.). Cash advances from banks are made up of their own capital and deposits - deposits from customers.

Functions of banks



Time deposits

Demand deposits

Discount of bills

Stock exchange transaction

Business loan

Blank credit

Table1:Functions of banks4

Active operations includes a variety of loans: promissory notes, stock, Bottom, blank. The most common is discounting bills. Bank buys the bill from the entrepreneur if he wants to turn it into money before maturity. Banks lead stock transaction - give loans against securities - stocks, bonds, mortgages, etc., and also buy such securities. Commercial loan granted bail products, located in warehouses in the way of turnover. If the loan is not repaid on time, the pledged securities and commodity-material assets transferred to the ownership of banks. The largest businesses, which pay no doubt, given a blank credit: loans are granted without collateral. In addition to the passive-active operations and transactions, banks are engaged in trade and commission work - buy and sell gold, exchange the domestic currency to a foreign place their loans, sell stocks and bonds, etc.

Under market conditions, banks are the key link, feeding the economy with additional financial resources. . By its location, the banks are closest to the business, its needs, changing business environment. Thus, the market inevitably puts the bank in a number of fundamental elements of economic regulation. In practice, operates a variety of banks. They are classified according to various criteria shown in Table 2.


Type of Bank

By the form of ownership






On the legal form of organization

Stock Open

Liability Company

By functionality




By the nature of the operations



By service sector








On the number of branches



On the scale of activity




Banking consortia

Interbank association

On economic grounds


External trade



Table 2:Types of banks5

In practice, in its pure form the bank almost never occur. In a modern monetary economy are more common combination of operations performed by the bank while preserving the main direction of their activities, which allows us to allocate some of their styles.

2.3. The National Bank as the main element of the banking system of Ukraine.

“Central Bank (National Bank of Ukraine (NBU)) - founded in 1991 on the basis of the former Ukrainian Republican office USSR State Bank and its regional departments. It is a system of single bank and includes a central office, located in Kiev, Crimean Republican administration and 24 regional governance. Legal status, principles of organization and activities of the National Bank of Ukraine are defined by the Constitution and the Law of Ukraine "On National Bank of Ukraine"”6. According to the Constitution and the law "On National Bank of Ukraine" NBU sole issuer of currency and organizes her treatment, is the lender of last resort for banks and organized system of refinancing for banks to establish rules of engagement provides banking regulation and supervision, carries out foreign exchange regulation, determine order of operations in foreign currency, organizes and implements foreign exchange controls over banks and other financial institutions. In addition, the NBU sets official hryvna exchange rate to foreign currencies and make it public. National Bank establishes design, security and national denominations of banknotes. NBU also stores the banking and precious metals, stones and other valuables. National Bank allocates foreign exchange reserves and performs with them, establishes the procedure for determining the discount rate and other interest rates on its operations, determined by the Bank standard of emergency funds. However, the strategic goal and the fundamental responsibility of the NBU is to create a supportive environment in which the operating commercial banks and other financial institutions. This means that the main purpose of the NBU are:

1) to protect and ensure the stability of the currency of Ukraine;

2) developing and strengthening the banking system;

3) ensuring effective and smooth functioning of the payments system. Reliable payment system that meets the needs of businesses and individuals in a safe and efficient transfer of funds - a prerequisite of successful development of a market economy in each country;

4) To establish and support a competitive environment;

5) Promote the use of new instruments of monetary policy a significant achievement for the National Bank became the input of electronic interbank payments. Another progressive step is the introduction of e-mail, through which the NBU can receive a daily balance of the banking system.

“Belong to the NBU authorities of the National Bank and the Board of the NBU. The Council consists of 14 members. Chairman of the NBU council elected by the members of the Council for three years. 7 of 14 board members, including the head of the NBU, appointed by the President of Ukraine. Head of the NBU is appointed for five years. The remaining 7 members are appointed and dismissed by the Verkhovna Rada. The Board is headed by the head of the NBU. The composition is approved by the Council on recommendation of the head.”7

2.4. Commercial bank: its role and functions in the economy

“Commercial banks are the main link of credit system in the country, which includes credit institutions, carrying out a variety of banking transactions for its clients on the basis of commercial calculation. To do this, they use not only their own capital, but also attracted financial capital in the form of deposits, deposits, interbank loans and other sources. And the funds raised are usually significantly higher than the amount of equity capital of commercial banks.”8

Initially commercial banks were created primarily as a branch. Some banks have emerged as subsidiaries of state specialized banks. So, for example, was formed Ukrinbank. Banks such as Demosbank, Kiev Cooperative Bank - predecessor Gradobank, emerged as a co-operative commercial banks. This is because while the cooperatives of the production of goods, execution of works and services were the first market structures, acting in an environment of public enterprises, organizations and institutions, and often when they. To make it easier and faster to solve problems obtaining loans for its development, cooperatives were set up their banks. In the future the shareholders or stockholders of commercial banks have increasingly become the various businesses and individuals. This process is particularly intensified after the end of 1992 state enterprises were allowed to be founders of commercial structures, including banks, and in 1993 it was decided to transfer due to the specified companies dividend income, respectively, the subordination of the state or local budget. Cooperative banks have equal rights with the commercial.

Supervision of commercial banks and the regulation of their activities pursued mainly two objectives: providing stability and preventing bank failures, limiting the concentration of capital in the hands of the few banks in order to prevent monopoly control over money market.

Mandatory for each commercial bank are the following economic standards set by the National Bank of Ukraine:

• solvency of the bank;

• indicators of balance sheet liquidity;

maximum risk per borrower;

• the size of mandatory reserves placed with the National Bank of Ukraine.9

In order to constantly increase its authorized capital, commercial banks mainly carry out such policies on dividends, which contributes to the market price of the shares. This allows us to sell a significant portion of shares in new issues on the high market rate, and thus gain significant exchange difference that is used by banks in hyperinflationary economies primarily on the indexing of shares of previous issues. To increase the authorized capital of the bank can use the undistributed profits of the bank, and at the request of shareholders' dividends due to them.

One of the main purposes of commercial banks profit, which is the source of payment of dividends to shareholders, funds of banks, the base of the well-being of employees of the bank, etc. The bank's profit is the difference between its gross income and expenditure. The main source of income for most commercial banks are the interest charged to borrowers for the use of loans. This is explained by the fact that banks are financial intermediaries engaged in the redistribution of funds among those from whom they were freed and those who at the time they had a need.

The interest rate for credit is determined by negotiation between the bank and the borrower at the conclusion of the loan agreement. And the percentage is not the same in the same bank in relation to different customers.

In setting the interest rate is also taken into account:

• The size of the base interest rate set by the NBU;

• The cost of attracting credit resources in the market loan capital;

supply and demand for credit;

• degree of risk;

• the size and maturity of the loan;

• the level of costs of the bank;

• the economic outlook and inflation.

“Banks receive significant revenues from transactions in foreign currencies. Banks may also receive income from securities transactions, but as this market is not developed, the revenue until low. Operations with foreign currency and securities may carry only those banks who have a license issued by the NBU and the Ministry of Finance of Ukraine.”10 Many commercial banks charge their clients a fee for the commission payment transactions translation, letter of credit, collection. This fee should cover the expenses of the bank to perform payment transactions, including bank fees and a regional clearinghouse for the conduct of electronic payments. Relatively constant is the cost banks pay and charge to it, forms and stationery, maintenance of premises, security, fire alarm systems and more. Profit is an important parameter for evaluating the performance of commercial banks. It is used by analysts to determine the rankings of banks based on their balance sheets. Now, neither we nor abroad there is no generally accepted methodology for calculating ratings of commercial banks. Therefore, ratings, calculated by different methods can differ, and hence will be assessing the various activities of banks.

Main indicators of banks in Ukraine over the past 7 years can be seen in Table3

consecutive number

Title index








Number of registered banks





Excluded from the register bank





The number of banks who are in the process of liquidation





Number of acting banks





Of which: foreign capital





Including a 100-percent foreign capital





Total assets (mln.UAH.)





Net assets (mln.UAH.)





Highly liquid assets (mln.UAH.)





Loan portfolio (mln.UAH.)





Long-term loans (mln.UAH.)





problematic credits(mln.UAH.)





Investments in securities (mln.UAH.)





Liabilities (mln.UAH.)





Equity (mln.UAH.)





Liabilities of banks (mln.UAH.)





Individuals' funds (mln.UAH.)





Regulatory capital (mln.UAH.).





Income (mln.UAH.)





Cost (mln.UAH.)





The result of activity(mln.UAH.)





Return on assets (%)





Return on equity (%)




Table 3:Main indicators of banks of Ukraine on 01.03.191011

3.Problems and weaknesses of the banking system of Ukraine. Ways to solve them

“It is unlikely that today in Ukraine there is a person, company or organization, entirely satisfied with the work of the domestic banking system. In this range of estimates is quite wide: from total denial of any positive developments in recent years to the triumphant reports of outstanding achievements. In a number of negative ratings can be found as follows: "the weakest point of the Ukrainian economy", "not responding not only to European Union requirements, but also the requirements of economic development", "tends to move to the line of destruction", "... state absolutely can not meet any current size, or quality of the banking system. " Among the more lenient ratings - is not sufficiently developed to support the many promising projects, "" not healthy, deep and stable, rather fragile, surface. " So why are not supported the work of Ukrainian banks?”12

“We can distinguish some basic problems of the banking system of Ukraine.

In 1991, the start to be formed, "youthful" Ukrainian banking system has suffered a blow sokruschayushy. The collapse of the Union, the disintegration of the USSR State Bank into its constituent parts - the National Bank, the loss of the Savings Bank of Ukraine, all contributed to the fact that the population's deposits in Sberbank to dust. All further attempts of Ukrainian politicians to use this theme as an excuse to raise their own political ranking led only to the fact that people are more and more to dissuade a possible return of lost funds.”13 People carried their money, believing in getting at least some profit, at least some compensation, to protect their money in a runaway hyperinflation. And then there came a sharp sobering. And understanding that no one will be responsible for the money. Thus was born and strengthened total disbelief. Distrust of depositors to banks, distrust of the state, unable to protect savings of their citizens from thieves and swindlers in beautiful suits and ties. The situation became critical, and only the creation of the Deposit Guarantee Fund of individuals (FGVFL) was able to reverse the trend. “Originally FGVFL guaranteed return of deposits in an amount not greater than 500 hryvnia. Gradually increased and the amount reimbursed by the end of 2008 reached 150 thousand hryvnia (the last increase in the amount - to 3-fold, from 50 to 150,000 hryvnia - have already been conducted during the period of the last moratorium in October 2008).”14 The first such moratorium was imposed NBU under the leadership of Arseniy Yatsenyuk in December 2004 - and then he played a positive role. The dollar was retained at around 5.41, no one was hurt. “And now, the volume of deposits in banks is far behind "pre-crisis". The bulk of the population that has suffered a money back into banks, according to the testimony of employees deposit department, puts it on deposit currency. Crisis of confidence grows. So what to do to melt the ice of distrust investors to Ukrainian banks? The answer is obvious: only a very long period of stability and the absence of shocks can turn the face of depositors in banks. But this takes time.”15

“Rampant hyperinflation, almost daily devaluation of the ruble at first, then - coupon-karbovanets led to the fact that in order to preserve their savings citizens began to pay attention to the only alternative at that time - the American dollar.”16 The dollar remained himself, despite the series of changes in the national currency's purchasing power also remained unchanged, he was accepted for payment all - and legal and natural persons. Gradually, the dollar is not only a means of accumulation, but began to perform other important functions of money - became a means of payment. Alternatively people did not have. Worse, that the state and national bank for too long could not implement adequate measures to protect and promote its national currency. “Now that all these processes are already partially behind the role of currency naturally decreases gradually. The dollar ceases to play the function storage means and all rarely used as means of payment.”17 But finally dismissed in the first place, many years formed the mentality of the population, and, secondly, the dangers that beset even the fledgling Ukrainian economy in the face of continuing economic crisis, I think, still not worth it.

“One of the main problems of the banking system of Ukraine - a crisis in personnel matters. For anybody not a special secret of how personnel issues are resolved in the majority of companies in Ukraine. Most often, the lower and middle management positions were appointed by the children of important customers or employees of regulatory bodies.”18 And there would be nothing - as "thieves" usually complemented the true pros in their field, able to work for himself and for "that guy" to meet their and others' responsibilities, often settle for lower wages in general - keep afloat Bank in which he works. But the situation changed abruptly in late 2008. Then, as a result of shocks occurring in the banking system on the street was set as the surprisingly, professionals, behind which there were no "right people". Skill and experience have been sacrificed because of "the right people." “As a result, the overall level of professionalism in the banking system dropped sharply. Has suffered great harm as the banking system as a whole and the individual banks, which could not then survive in the fierce competition.”19 Can the banking system and revive the self-organization in this matter? Difficult to answer specifically, one thing is clear: from such malpractice in personnel matters must be resolutely rejected.

All of this speaks only of one. In no event should not be considered the banking system as a coherent and clearly never giving a failure mechanism. He has the problem that is not always visible on the surface. Try to anticipate potential problems, understand their severity, time to react to them, find the correct solution of the problems - that is the task of those who are going okay to build a business in our country, those who simply want to preserve their capital. "Who warned - that is armed"20

4. Conclusion.

It can be say that the domestic banking system is going through hard times. The reason for this situation are the increased competition among banks, unstable socio - economic situation, the imperfect and constantly changing legislation, and risky lending policies of many banks in the pursuit of high profits. The absence of an effective system of deposits left investors of the Ukrainian banks with little or no guarantee a return on their money. In this the hard way could see many thousands of people. The role of the banking system in any economy is extremely high. Strict "separation of powers", that is, the definition of clear lines of authority and division of spheres of influence between the Central Bank and commercial banks can significantly improve the efficiency of the banking system, which will help the local economy.


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Money and credit: Textbook / M.I. Savluk, A.M. Moroz, MF Pudovkin; under. Ed. M.I. Savluk. - K.: KNEU- 2001. – 254-273pp.

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1 Финансовые риски ”Банки”(2008)

2 The Law of Ukraine: "On Banks and Banking Activity"

3 Финансы Украины”Структура банков”(2008)

4 Economy and the State (2007)

5 Вестник НБУ”Классификация банков”(2006)

6 НБУ(2005)

7 Экономическая наука “Состав НБУ”(2007)

8 Финансовые риски”Банки”(2008)

9 НБУ”Нормативы банковской системы Украины”(2006)

10 Вестник НБУ”Банки Украины”(2003)

11 Вестник НБУ”Основные показатели деятельности банков Украины на 01.01.10”




15 Экономика и государство” Проблемы банковской системы Украины: пути их решения ”(2009)

16 Deputy Chairman of the Index-Bank, Sergei Borisov


18 Бухгалтерский учет и аудит”Проблемы украинских банков”(2009)

19 Банковские риски”Влияние кризиса на банки Украины”(2009)

20 proverb

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