The buyers of the frozen deposits, although they cannot withdraw the money, can use the full value of the deposits to cover the value of loans issued by the banks for home, car and land purchases on which customers have defaulted, and thereby take possession of the repossessed property.

Currently the discounts on buying a frozen deposit are in the range 10-34%.

The majority of traded deposits and credits are distributed between those Ukrainian banks when Temporary Administration of the National Bank of Ukraine has been appointed: Nadra Bank, UkrPromBank, Bank Kiev etc.

The Ukrainian Rail monopoly UkrZaliznytsya has been checked by the State Audit Department amid the monopoly’s announced plan to gradually increase prices for train tickets and cargo rail services. The first increase of 5% came effective as of 1st June this year. UkrZaliznytsya claimed it was loosing money due to its democratic tickets pricing.

The results of the State Audit Department showed that the money lost by UkrZaliznytsya was not due to low ticket prices. Numerous facts of embezzlement and mismanagement of the company have now been reveled. One of the major?  facts of embezzlement was related to financial reports produced by Ernst & Young.

Ernst & Young Ukraine is one of the four major global audit companies and it has been operating in Ukraine since 1991.

Through a series of merger and acquisition (M&A) deals launched in 2005, European banking groups bought some of Ukraine??™s most prized banks for top dollar.

And while Ukraine??™s banking industry awaits a second wave of M&As, the new international players are briskly competing with their Ukrainian counterparts, increasing competition and quality of service, experts said.

Competition also caused credit rates to decline, said Viktor Guroma, head of financial assessments at the fast-growing Deltabank, established in Kyiv in 2006.

???The entrance of international banks into Ukraine has brought lower credit rates, new products and procedures, and the banking system??™s improved transparency,??? Guroma said.

Austria??™s Raiffeisen Bank kicked off the spree in 2005, paying about $1 billion for Aval Bank, one of Ukraine??™s largest banks. The price paid shocked many bankers at the time, but it remains a bargain compared to the prices paid for smaller banks in the following years.

France??™s PNB Paribas, Italy??™s UniCredit Group, Germany??™s Commerzbank and Sweden??™s Swedbank are among a handful of European banks that marched into Ukraine paying between $500 million and $2 billion for a share of the small but fast-growing market.

Only in the last two-and-a-half years, the value of M&A deals in Ukraine??™s banking sector totaled about $7 billion, according to Vitaly Strukov, managing director and head of investment banking at Concorde Capital, a full-service Kyiv-based investment bank.

During these years, banks with foreign capital increased dramatically as their presence on the market rose from below 10 percent to about 30 percent, in terms of net assets.

Experts said more M&A activity is ahead, predicting that foreign banking groups could capture about 50 percent of the market share in coming years.

So far, the competition has reduced loan interest rates by about 2 to 3 percent in recent years.

Competition has brought many other improvements. Longer loans have enabled Ukrainians to extend mortgages from a maximum of 10 years before 2005, to between 25 and 30 years nowadays.

Corporate clients also have benefited with access to cheaper loans, Strukov said. Before 2005, an average company could at best expect an annual rate of 12 to 15 percent. Now rates of 8 to 11 percent are common.

M&A deals and foreign investment brought new services and products that were previously poorly developed, or non-existent. As an example, analysts cited the emergence of Internet banking, giving clients the opportunity to use and pay for banking services much faster.

The presence of international players will continue to gradually bring down interest rates and offer new competitive services to Ukrainian clients.

Backed by financial muscle and better access to credit from their parent groups abroad, the foreigners can afford to offer lower rates because Western banks, thanks to their high international ratings, can borrow at rates 5 to 6 percent lower, according to Strukov.

Due to their low credit ratings, even the largest Ukrainian banks can borrow at interest rates of 10 to 11 percent on average, though some have struck better deals, he said.

However, loans offered by international players will only be slightly cheaper than those offered by Ukrainian banks, because internationally owned Ukrainian banks need to recover the costs spent on the purchase of their Ukraine bank operations, while producing profit for shareholders, experts said.

That??™s why the difference between credit rates offered by foreign investors and large Ukrainian domestic banks will remain small in the near future, about 0.5 to 1.0 percent, Strukov said.

Looking ahead, industry insiders expect more M&A activity, though smaller in size. After all, more than 150 banks operate in Ukraine, many of which are too small to compete nationally.

About 70 percent of the whole market is controlled by the top 20 banks, according to Guroma.

The tendency towards consolidation will remain strong for another five years. Many so-called pocket banks, which have in the past served as private banks for the business group owning them, will be sold off to foreign banks, or will merge together with other regional banks after which they will be sold off to foreign bidders, he said.

The growth potential is strong in Ukraine, a country with about 46 million citizens who are only beginning to make use of classic banking services.

According to Guroma, 46 percent of Ukrainians make use of banking services today. Of this, each uses less than two bank products, while in Europe clients typically make active use of at least four bank products.

Source: KyivPost