Bank guarantees market in Ukraine grew by 16%: what it means
16 January 15:28
The bank guarantee market in Ukraine is showing rapid growth. According to the National Bank of Ukraine, in the first nine months of 2024, the volume of the guarantee portfolio increased by UAH 11.88 billion, an increase of 16.08% compared to the same period last year. Galyna Yevchuk, Deputy Chairman of the Board of Globus Bank, explained what contributed to this growth and how bank guarantees affect Ukrainian business, "Komersant Ukrainian" reports.
It is noted that as of October 1, 2024, the total guarantee portfolio reached UAH 82.7 billion.
According to the banker, the significant growth of the bank guarantee market in 2024 is due to several factors related to economic, regulatory and market changes, including:
1. Development of public procurement. The Prozorro system, which is used for public tenders, requires bidders to provide tender guarantees. Every year the number of procurements through Prozorro is growing, which stimulates the demand for bank guarantees. In addition, bank guarantees are becoming a prerequisite for participation in many national and international projects.
2. Growth in business activity. Despite the military and economic challenges, many companies are expanding their operations and entering into new transactions that require collateral. The resumption of export-import operations after long-lasting restrictions related to the Covid-19 pandemic and the war has contributed to the increased use of guarantees in foreign trade.
3. Development of infrastructure projects. The restoration of damaged areas has stimulated the development of infrastructure projects. Such projects often use bank guarantees as a means of securing the fulfillment of contracts.
4. Increased confidence in the banking system. The Ukrainian banking system has become more stable after the 2014-2020 reforms. Confidence in banks has increased, and the number of institutions issuing guarantees has increased. In turn, transparent conditions for obtaining guarantees make this financial instrument more accessible.
5. Ease of access to guarantees. Competition among banks is leading to simplified procedures for obtaining guarantees and lower costs. New digital solutions are also appearing on the market to speed up the process of obtaining guarantees.
6. The need for financial security. In a “shaky” military economy, many companies are interested in minimizing risks in their relations with partners. A bank guarantee provides financial security for both parties.
7. International assistance and investment. International donors and investors often require bank guarantees as one of the main conditions for disbursing funds or participating in recovery and social projects in Ukraine.
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Protection against risks
The expert noted that bank guarantees are used to ensure the fulfillment of obligations by one party to another, protect the interests of the parties to the transaction and ensure that in case of default by one of the parties, the bank will pay a certain amount to the other party.
“This tool is most often used to ensure the fulfillment of existing agreements between partners, for example, to ensure the fulfillment of obligations to supply goods, perform work, or provide certain services. In addition, bank guarantees are an effective means of protecting against possible risks, as this mechanism ensures that the customer or partner is guaranteed to receive compensation if the other party fails to fulfill its obligations,” the banker explained.
She emphasized that a bank guarantee is a sign of trust between partners, demonstrates financial reliability and seriousness of intentions of the parties to the transaction, as the bank guarantees compensation, which helps to avoid financial losses.
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“For example, bank guarantees are a prerequisite for participation in many tenders (e.g., in the Prozorro system), international agreements, or large projects. That is, a bank guarantee greatly simplifies a company’s access to possible contracts. Thus, bank guarantees are an important tool to ensure the stability and security of financial transactions,” Galyna Yevchuk emphasized.
For reference
According to the Financial Pulse Center for Economic Research and Forecasting, the 5 largest banks in terms of bank guarantee portfolios as of 01.10.2024 include:
- “Ukrgasbank (10.17% of the total portfolio of bank guarantees),
- “Ukreximbank (9.24%),
- globus Bank (9.21%),
- “Raiffeisen Bank Aval (8.87%)
- FUIB (8.85%).
The portfolios of these banks exceed UAH 7 billion, and the total portfolio of guarantees is 46.34% of the total volume of bank guarantees.
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