How the Ukrainian financial ecosystem has remained resilient
After the start of the full-scale Russian invasion of Ukraine, Hanna Khrystianovych, a fintech expert with over 15 years of experience in the industry, like many of her compatriots, was forced to leave the country. Working in a Swedish-Ukrainian technology company, Hanna decided to join the Stockholm office of Sigma Software Group. After waiting 30 hours in the car at the border, she finally arrived in the Swedish capital with her family.
Shortly after, she was invited to speak at Sthlm Fintech Week by Michal Gromek. She said a lot of interesting things about the Ukrainian financial community, its banking system, fintech startups and revealed the secret sauce of Ukrainian resilience and spirit.
The following piece is an article providing his unique perspective on the situation.
Thirty years of turmoil
Historically, banking systems are one of the most sensitive areas. Especially during a war. When such upheavals occur, people immediately face problems with payment instruments: they cannot withdraw money, bank cards stop working, foreign exchange becomes impossible, depositors lose their investments, etc. In most countries facing war, the financial system is on a “holiday”. Banks generally stop their operations only a few days after the outbreak of hostilities.
Unfortunately, or fortunately in this particular case, due to multiple crises, the Ukrainian financial system was prepared for this.
Since 1991, when Ukraine became an independent and free state, we have faced 2 revolutions, the global financial crisis, the annexation of the Crimean peninsula and the war in the East, and to the Covid-19 pandemic. Every two to four years, Ukrainians have witnessed shocking events that have influenced their lives to an extreme level.
During its thirty years of existence, Ukraine has not been in a state of static prosperity for very long. We have always been exposed to stress. But lately that has started to change.
A booming Ukrainian tech ecosystem
Ukrainians have always been at the forefront of innovation, turning bold ideas into market-leading products and helping to digitize big business. Think of Jan Koum (WhatsApp), Steve Wozniak (Apple) or Max Levchin (PayPal). All are from Ukraine.
Ukraine was becoming the first emerging European technological power. The local IT sector has grown five times faster (25%) than the global average (4-6%). We were on the crest of the wave: 5,000 technology companies and nearly 300,000 specialists were accelerating the growth of the entire ecosystem, making it one of the leading export industries in our economy.
According to AVentures Capital, 2021 was the best year ever for the Ukrainian tech industry, breaking all previous records for the total volume of capital raised. Our startups raised €786m in total, marking more than 45% year-over-year growth.
2021 was also the most profitable year for the banking system: 69 banks generated 2.5 billion euros in revenue for the country. The Fintech ecosystem with over 200 companies was also on the rise. As marked at the historic first-ever UK-Ukraine Fintech Summit, our fintech industry was maturing and we had all the prerequisites to become a thriving fintech marketplace in Europe.
Then came February 24.
Cyberattacks served as a warm-up
Ukrainians will long remember the terrifying cold winter morning. Rockets bombarding the cities, queues of several kilometers at ATMs, pharmacies and gas stations, endless traffic jams, people rushing with luggage, anti-aircraft sirens… Panic.
But before Russian troops invaded our territory, there was a so-called “warm-up”. In January, Ukrainian banks, government portals and state websites simultaneously began to suffer cyberattacks. It was not necessary to guess where they came from. However, as Mykhailo Fedorov, Ukrainian Deputy Prime Minister and Minister of Digital Transformation mentioned, we were ready for it.
There was quick and open communication with their audience. Customers received transparent information on social media about what was going on, what these attacks were, and what measures were being used to deal with them.
Financial Defense of Ukraine
On February 24, just hours after the shocking news, the National Bank of Ukraine published its first actions to stop the panic among the population. To begin with, the Central Bank introduced a set of limitations and measures. These were;
- A fixed UAH exchange rate
- A ban on buying foreign currency
- Limited cash withdrawals (€3,000 per day)
- No limitation for deposit withdrawals
- 100% state guarantee on bank deposits
Such measures helped to avoid the collapse of the financial system in the first hours and days.
The next step was to introduce stimulation to help people adjust to the extraordinary situation. The adaptation of banking services included:
- Cash withdrawals in stores, shopping centres, pharmacies, petrol stations, etc. (200 € max)
- Extending expiration dates for physical payment cards
- Zero commission for cashless transactions for merchants
- Loan “repayment holidays”
- Exchange UAH outside the country
All these steps and measures were accompanied by clear, transparent and rapid communication on all possible channels (social networks, messaging, mail, telephone, bankers-bloggers, etc.). Additionally, banks and government entities were able to explain complicated things in plain language.
Companies were also heavily damaged by the military actions: 70-80% of companies were forced to stop their activities during the first days. Trade activities fell sharply and exports dropped significantly due to logistical problems. In order to support businesses, the banking system issued €74 million in loans. By May, farmers had received more than 640 million euros in loans on favorable terms under various government programs.
How banks reacted to the conflict
Banks have faced great challenges trying to cope not only with external but also internal circumstances. Employees, partners, infrastructure, ATMs, branches – a lot of headaches all at once.
However, they had done a lot of preparation because the Russian-Ukrainian war had not started at the end of February 2022. It had started eight years before. This is why, since 2014, banks and other companies like Sigma Software have their own business continuity plans.
Things went pretty well. First, they helped evacuate and relocate their people to safer places in the West. “Thanks” to Covid-19, banks already had experience in organizing remote workstations. Then some announced that they would support their employees until the end of the year with their own emergency fund.
Due to the decentralization measures introduced by the banks, many ATMs and branches have continued their work in safer locations across Ukraine, which has also helped to reassure people.
Digital channels and infrastructure also remained intact as cloud service regulations were passed in Ukraine and banks were allowed to use cloud technologies located in the EU, UK, US , in Canada and other countries.
Finally, to support Ukrainians and boost morale, some banks like Monobank have introduced special inspirational skins with brave Ukrainians on cards in Apple and Google wallets.
Lives changed, a financial landscape challenged
The horrific, shameful and bloody war that Russia unleashed has obviously changed the lives of millions of Ukrainians. We will never be the same again and neither will anything else. But the will to resist and collaborate with each other has been reflected in all our social and political lives.
Thanks to the trust between ordinary people, business and political elites, the speed and wisdom of decision-making, the correct and timely reaction, the synchronicity and interaction of all key market and regulatory players, and the use of modern technology, the Ukrainian financial and banking system is holding up quite well.
From a legislative, regulatory and financial point of view, Ukraine and its financial community have done a lot of good things to ensure that customers have confidence in the Ukrainian banking system.
From time to time, new restrictions are added or certain operations are prohibited. But we all understand that such corrective actions are necessary at times like these. As long as the decisions made are highly professional and all key players keep their hands on the pulse, we are guaranteed that the banking system will not only survive, but thrive in the years to come.