PARTNERS FOR FINANCIAL STABILITY: PROSPECTS FOR UKRAINIAN INVOLVEMENT

I. Background A. Purpose The purpose of this assignment has been to determine whether the USAID Partners for Financial Stability1 (henceforth “PFS”) program would be a useful enhancement to existing bilateral assistance efforts of USAID (and other donors) focused on financial market development in Ukraine. This is part of a larger effort to determine such prospects for eight CIS countries, of which Ukraine is the first to be visited. B. The USAID Financial Sector Program in Ukraine The current USAID program in Ukraine supports financial market development through two programs (and strategic objectives): Improved Investment Climate, and Accelerated Growth of SMEs and Agriculture2. Key activities include (i) strengthening non-bank regulatory bodies, namely the Securities Commission (capital markets) and Financial Services Regulator (all non-bank financial institutions outside the capital markets, including pension, insurance, credit unions and leasing); (ii) encouraging entry and growth of market-based institutions, largely through an improved business environment and strengthened business associations and research capacity; (iii) promoting financial disclosure by helping with professional development of accountants and auditors, moving to international standards when feasible and as applicable, and strengthening the legal framework (e.g., new Law on Joint Stock Companies); and (iv) increasing access to finance for SMEs and others by strengthening institutions in the mortgage lending industry and financial leasing market, increasing capacity of municipalities and utilities to issue bonds, and helping to develop the credit information bureau. Moving ahead in the coming years, it is anticipated that USAID and the Government of Ukraine will work together along with various market players and associations/support institutions on a range of key initiatives that could involve the following3:

• Mortgage Finance, including building the capacity of the State Mortgage Institute • Municipal Finance, including the development of a pooled finance facility • Strengthening the Financial Services Regulator and the Securities Commission • A Feasibility Study for a unified financial market regulator • Developing and supporting a single stock exchange • Developing and supporting a single central depository • Establishing the second pillar (mandatory contribution) pension system

1 For more information on PFS, see www.pfsprogram.org 2 See Country Profile: Ukraine, USAID, October 2005. Also see “Phase-Out Plan: Achieving Economic ‘Irreversibility’ in Ukraine”, USAID, May 5, 2005. 3 The list of topics is based on a list presented by USAID to the Ministry of Finance as a starting point for discussion on subsequent USAID assistance to Ukraine in the field of financial market development.

1

• Developing investment-grade financial instruments • Adoption of IFRS as the basis for Ukrainian National Accounting Standards • The reconciliation of tax and financial accounting • Developing and expanding the financial leasing industry

Within this context, PFS activities would be expected to serve as an enhancement to existing agreements and activities under way that complement and reinforce commonly shared objectives regarding financial market development. These should provide the kind of “ownership” and “buy-in” expected for success and impact. C. Methodology and Approach The approach taken was based on interviews in Ukraine from October 24-November 4, 2005, with associations, regulators and market players in banking, insurance, capital markets, leasing and mortgage finance. This included policy research groups, donors and accounting/auditing firms as well. Interviews were based on a list of questions sent prior to meetings, although meetings were structured differently to stimulate discussion. A list of meetings is found in Annex 1. A list of questions is found in Annex 2. D. Acknowledgements Michael Borish, President of Michael Borish and Company, Inc. (under contract to SEGURA/IP3 Partners LLC), visited Ukraine from October 24-November 4, 2005 to carry out interviews. His visit coincided for one week with a visit by Jean Lange, Senior Financial Sector Advisor and USAID manager of the PFS program. Both wish to thank Rick Gurley (Chief, Private Enterprise Division), Darya Lyusuchenko (Program Analyst, Private Enterprise Division) and colleagues at the USAID mission in Kyiv for all help, assistance and guidance provided. Both also wish to thank Maryna Antonova for logistical, linguistic and related management and support. This specific report evaluates prospects for Ukrainian participation in PFS on a regional CIS basis. A separate memo on the suitability of Ukrainian participation in PFS program activities in Central (CEE) and Southeast Europe (SEE) has been produced by Jean Lange. II. Key Institutions The Ukrainian financial sector is comparatively small in terms of resources mobilized and levels of investment when measured on a per capita basis or relative to GDP. Within this context, banks are dominant, accounting for about 90 percent of estimated assets and most licensed financing activity4. However, the average bank had only $231 million in assets (September 30, 2005), which is small by global standards. Net of the banks, Ukrainian financial institutions are generally numerous but very small in size and scope of activity. Likewise, financial services penetration ratios (e.g., assets-to-GDP) and 4 As of July 1, 2005, banks accounted for UAH 172.8 billion in assets, and non-banks accounted for UAH 21.2 billion (most of the latter with insurance companies). For a comprehensive review of the financial sector, see Ukraine Financial Sector Review, FMI, June 2004. Also see Ukraine: Selected Issues, IMF, January 2005.

2

activity levels (e.g., revenues, earnings) are very low and reflect the limited development of these services when compared with most middle-income and advanced economies, as well as when compared with most CEE economies and some SEE economies. The following table maps out key institutions by financial sub-sector, with some brief descriptive features. Table 1: Financial Sector Institutions in Ukraine Sub-Sector Primary

Regulator Associations Licensed Market Institutions

Banking NBU Association of Ukrainian Banks (est. 1995 after original start-up in 1990) has 124 commercial bank members plus six regional unions and other financial organizations; members account for about 70% of the banking market, including all nine banks with 100% foreign capital

163 licensed institutions, with average assets of $213 million, average loans of $168 million, average deposits of $194 million, and average capital of $27 million (September 30, 2005)

Securities Markets

SSMSC No associations Eight exchanges, of which PFTS is the major market; market capitalization was nearly $12 billion as of end 2004, although most securities are not actively traded

Insurance FSR Ukrainian League of Insurance Organizations (est. 1992)

387 licensed insurance companies (January 1, 2005), with premium revenues of $3.7 billion in 2004 (equivalent to 5.6% of GDP and per capita $78), of which only about one-third of collected premiums are related to insurance (the balance is tax evasion and capital flight5)

Pension FSR No associations, although there could be overlap with the League of Insurance Organizations, given the potential role of life insurance companies in pension fund management, as well as banks as some are also active in non-state pension fund management

About 70 non-state private pension funds with accumulated assets of about $4.2 million (July 1, 2005); second pillar originally planned for 20076 with projected mandatory contributions > $1 billion per year

Mortgage Finance

NBU Ukrainian National Mortgage Association (est. 2002)

Banks mainly responsible for mortgage finance activity, with loans estimated to be $1.2 billion as of late 2005, or >3% of banking system assets and >4% of banking system loans (>23% of loans to individuals)

Leasing FSR Ukrainian Association of Leasing (est. 1997) has 59 members, although leasing volume is declining as two large state leasing

Financed leasing agreements averaged about €190 million ($225 million) per year from 2000-047, or about $3-4 million per leasing firm

5 See FMI (2004). 6 The World Bank has expressed serious doubts about a 2007 start-up for a second pillar. 7 According to Ukrainian Association of Leasing, only $13 million in leasing services were attributable to private leasing companies (see FMI assessment).

3

companies continue to receive less in budgeted allocations; and Ukrainian Union of Lessors (est. 2005)

per year. Correlation factors between leasing and investment are low in Ukraine, at about 2.2% per year8.

Credit Unions

FSR Ukrainian National Credit Union Association

More than 700 credit unions, of which about 160 were viable with estimated assets of $50 million and 350,000 active members

Accounting and Audit

MoF Ukrainian Association of Certified Accountants and Auditors (est. 2004)

About 1,470 accounting practitioners and 28 international professional accountants have been certified since 2003

Notes: Current $ figures converted from hryvnia (UAH) at prevailing exchange rate (UAH 5.10:$1 exchange rate in October/November 2005, and this same rate is used for September 30, 2005 balance sheet calculations; for 2004, average exchange rates of UAH 5.30:$1 are used). NBU = National Bank of Ukraine. SSMSC = Securities Commission. FSR = Financial Services Regulator. MoF = Ministry of Finance. Sources: NBU; FSR; Association of Ukrainian Banks, 2004; Lease Europe, October 2005; USAID; FMI; PFTS; League of Insurance Organizations of Ukraine III. Results of Interviews A. Perceptions of Financial Sector Development in Ukraine ► What are the primary gaps/challenges to developing the financial sector? There is significant consensus among market players, regulators and others that financial market development faces numerous hurdles. Some of the key challenges include (i) establishing a coherent legal framework for a stable and competitive financial market to develop, (ii) designing and effectively implementing sound corporate governance practices, (iii) increasing capital and consolidating systems (e.g., fewer but more strongly capitalized banks and insurance companies, fewer but more active exchanges, one central depository), (iv) streamlining existing regulations, designing more suitable regulations for next-stage development, clarifying institutional mandates and better coordinating regulatory arrangements across financial services, and (v) strengthening the provision and use of timely and accurate financial information for decision-making purposes. More generally, respondents often stated that Ukraine has lacked a coherent strategic vision for financial market development. The absence of an agreed road map9, high levels of turnover at senior levels of government and regulatory institutions, and Ukrainians’ self-described “authentic” approaches have culminated in a fragmented approach to financial sector development that has lacked cohesion and often featured characteristics that work 8 By contrast, annual volume per year in the Czech Republic, Estonia, Hungary, Poland, Romania, Slovakia and Slovenia averaged €1.5 billion per country per year from 2000-04, on average nearly eight times that achieved in Ukraine. Moreover, correlation factors between leasing and investment approximated 14.8% per year, nearly seven times ratios achieved in Ukraine. 9 The IMF-World Bank Financial Sector Assessment Program was intended to serve as a road map, but many of their recommendations have not yet been implemented. Political instability and turnover have weakened prospects for government “champions” to emerge that could articulate a strategic vision for meaningful financial sector reform.

4

at cross-purposes (e.g., contradictory legislation, overlapping regulatory mandates). Major gaps and challenges to developing the financial sector include (but are not restricted to), in no particular order:

• Inconsistencies in Civil and Administrative Codes, which undermines efforts at consistent legislation and regulatory harmonization and coordination.

• Weak secured transactions framework and consistent enforcement of creditor rights through the judiciary.

• Collateral-related problems resulting from weaknesses in financial sector infrastructure (e.g., property and pledge registration).

• Inadequate systems of corporate governance, low levels of financial transparency and accountability, and insufficient protection of minority investor rights.

• Poor coordination among regulatory authorities, reflecting the absence of consolidated supervision in a fragmented financial system.

• Lack of experience and insufficient technical skills at senior and middle levels in financial and regulatory institutions, and among many consumers/account holders.

• Limited capacity in the accounting and audit fields10, combined with weak incentives for accurate or comprehensive disclosure, which limits financial transparency and market development.

• Inefficiency in banking intermediation (e.g., manual processes, fragmented reporting systems, low levels of productivity, low levels of non-interest income) resulting in mediocre return measures11.

• Low levels of foreign investment from prime-rated, investment-grade Western financial institutions in banking and other financial services (although this may be starting to change as of late 200512).

• Predominance of short-term funding, which limits the volume of medium- and long-term loans that can be made for investment purposes.

• Inadequate or inefficient infrastructure for sound capital market development (e.g., multiple but unreliable depositories, multiple but largely inactive exchanges), and low levels of free-float.

• Limited number of instruments available for investment and traded/sold on the exchanges, including privatization transactions.

• Restrictive foreign currency regulations that limit product offerings in banking and capital markets (e.g., currency swaps, Eurobonds cannot be traded on domestic exchanges).

10 The Big 4 are operating in Ukraine, but most companies (apart from the largest ones or others seeking capital from abroad) utilize domestic companies that are much less expensive and do not have the same level of capacity as the Big 4. (In this regard, Ukraine is not unique.) 11 Return on Average Assets averaged 1.1% from 2001-04, lower than most transition economies in Europe (which include Russia, Belarus, Moldova and Ukraine). Likewise, Return on Average Equity averaged 7.9% during the same period, well below most emerging market banking systems in Europe. See Global Financial Stability Report, IMF, September 2005. 12 Raiffeissen Bank of Austria recently acquired 93.5% of Aval Bank for about $1 billion. Other banks are currently negotiating with potential foreign investors.

5

• Limited development of the insurance sector and private pension funds, with little consequent impact in terms of savings mobilization or effective governance in the markets resulting from active institutional investment.

• Selective treatment in tax administration, resulting in significant tax evasion (a major reason for the existence of many insurance companies).

► What are your priorities? As differing sub-sectors and institutions have differing areas of focus, priorities vary. However, they generally reflect the desire to reduce the gaps and challenges noted above. Beyond that, there has been a market push in some cases for effective reform, irrespective of laws and regulations. This has primarily involved banks, leasing companies and other enterprises seeking funding from a range of banks and investors that insist on financial reports audited by an international firm, and in some cases have required ratings from one or more of the international credit rating agencies. As such, the following table highlights fundamental priorities by type of market player. Table 2: Summary of Market Institutions’ Priorities for Market Development Sub-Sector Priorities of Market Institutions and Associations Banking • Strengthen corporate governance, investor protection, and management

• Develop risk management capacity • Increase capital and debt funding (e.g., syndicated loans, corporate bonds), including

from foreign direct investment and links to the Euromarket • Develop new products to boost volume and earnings • Prepare for eventual liberalization of exchange rates • Prepare for eventual consolidated supervision • Develop mortgage lending market • Strengthen accounting standards and dissemination of financial information to the

public • Improve understanding, management and public awareness of responsibilities in

consumer lending Securities Markets13

• Streamlined legislation to permit new financial instruments (e.g., mortgage bonds, asset-backed securities, foreign exchange instruments, certain derivatives like futures/forwards/swaps)

• Internet trading Insurance • Improved legislation, regulation and tax environment resulting in higher investment

(including FDI) • Harmonized standards and practices related to licensing, solvency, investment policy,

consumer protection, claims processing • Personnel training and ongoing certification • Better/broader dissemination of useful information to members

Pension • Best practice re fiduciary and custodial responsibilities • Cross-selling • Consumer education and public awareness

Mortgage Finance

• Develop real estate sector—institutional, financial, etc. from primary market and eventual development of secondary market

• Better information disclosure for effective scoring of risk • Reduced corruption in issuance of permits, licensing, zoning

13 These priorities are from discussions with PFTS, the main market in Ukraine.

6

• Introduction of more/better insurance products, including eventual introduction of mortgage default insurance

• Development of mortgage products for insurance companies to be able to invest • Working with IFIs to obtain TA + lobbying of government to achieve market

development • Improved legislation • Increased public awareness re mortgage obligations of borrowers • Better data and information for research, analysis and market development • Need more risk management capacity at the banks re real estate finance and financial

stability • Other: (i) cross-selling, (ii) consumer protection, (iii) retail distribution for bank

delivery • Working groups currently in (i) Legal, (ii) standards, (iii) information development

and dissemination (via State Mortgage Institution) Leasing • Decrease tax burden on leasing transactions for lessors, lessees and suppliers

• Greater certainty in the tax code to reduce the need for leasing companies to have to amend lease agreements (e.g., payment terms and schedules) due to shifting tax regulations

• Enhance judicial capacity for faster dispute resolution • Increase training for employees of lessors, banks, insurance companies and vendors • Promote a positive image for leasing and the Associations • Enter LEASE EUROPE in 2006 (at least one of the two Associations) • Increase/Attract foreign direct investment • Create and promote a professional certification program (at least one of the two

Associations) Credit Unions

• No meetings with credit unions or association, although priorities are typically sound capital and liquidity management for stable growth and development, continued safety of deposits, and ongoing access to credit as needed at reasonable and affordable rates

Accounting and Audit

• Improvements in the investment climate to strengthen corporate governance standards • Implementation of standards and a code of conduct that enshrines the independence of

auditors ► What are the government’s priorities? Government priorities are unclear to many financial sector institutions, be they associations or market players. This is largely due to the absence of an agreed coherent strategy, the nature of the parliamentary process in which many legal and regulatory decisions are negotiated, and high levels of turnover in what has been a relatively volatile political environment for many years. Nonetheless, more recently, there have been clear statements by government to join the WTO and the EU over time. As such, the various respondents recognize that legal reforms will be introduced, and with these, more market-based practices will need to be observed that are consistent with “international” standards. On a positive note, the various associations (e.g., Association of Ukrainian Bankers, Ukrainian National Mortgage Association) noted they are working with parliament and other government (regulatory) officials on legislation, and that such relationships are constructive for their members and for market development.

7

Table 3: Summary of Financial Market Regulators’ Priorities Sub-Sector Priorities of Financial Regulators and Government Agencies Ministry of Finance

• Develop financial intelligence capacity to identify and limit criminal activity • Develop the mortgage finance system, including secondary market instruments • Develop the Treasury bill market to extend the yield curve and establish benchmark

rates for differing instruments traded in the market • Develop municipal finance and leasing markets • Improve the depository system

National Bank of Ukraine14

• Strengthen early warning systems, including increased capacity for contingency planning and stress testing

• Improve monitoring of liquidity management practices of the banks, particularly as rising credit for housing and other medium-/long-term purposes is anticipated

• Increase transparency of ownership in the banking system, and improve corporate governance standards

• Move to consolidated supervision Securities Commission

• Increase capital formation and earnings inside Ukraine • Strengthen the investment climate by protecting minority and preferred share

investors • Adopt international standards of accounting and audit to improve governance and

increase confidence for investment • Make ownership structures more transparent by improving the registration and

depository system, and implementing full delivery versus payment • Implement pension reform to encourage asset accumulation and institutional

investment • Improve the judicial and court system • Introduce more effective tax treatment to reduce discrimination in the selection of

financial instruments in which to invest • Consolidate numerous exchanges and increase the range of debt and equity

instruments available • Increase volume and transparency of trade for more accurate market valuations

Financial Services Regulator

• Increase licensing and supervisory capacity (on- and off-site) • Increase budget to increase the number of trained supervisors and department heads

(commissioners), and to pay them enough to reduce turnover • Determine how to charge market institutions to increase revenues and reduce

dependence on parliament for the financing of FSR operations • Obtain better IT systems for electronic reporting • Establish an English-language web site for international communications • Harmonize legislation and regulations with EU and international standards • Join the International Association of Insurance Supervisors • Increase coordination with relevant “satellite” professions (e.g., accounting, audit) • Make academic training in finance and law more available at institutions of higher

learning • Public awareness and consumer education

14 These are the priorities specifically mapped out by NBU for USAID. The Deputy Governor also noted the NBU has other priorities, some of which are being addressed with assistance from other donors. These include risk management, corporate governance and gradual movement to Basel 2 with assistance from the IMF, World Bank and EU-TACIS.

8

► How would you rate the stage of financial development in your country compared to your neighbors? Respondents generally recognized that Ukraine is still in the relatively early stages of market development. Banking has experienced deposit growth and a credit boom in recent years, particularly in housing loans. Likewise, GDP growth has been high, and export growth has been substantial in metals, machine-making, and other export-oriented sectors (although there have been some recent slowdowns). However, those interviewed recognize that the level of services and range of products provided by the banks lags other markets, and that other parts of the financial sector significantly lag. On the other hand, those interviewed also identified areas of progress in recent years, including better loan origination standards, improved understanding of some credit and market risks, improved IT systems, growing recognition of the importance of financial disclosure based on accurate information, and the need to converge with Western standards to obtain increased funding and extended maturities. In non-bank areas, there is even less development. Insurance sector reform is just commencing15, first and second pillar pension reform is in the process of conceptualization, third pillar pension funds are limited in experience and resources, and leasing is relatively small and limited in activity. Housing finance has increased in recent years, but movement to more standardized primary markets and eventual securitization is also just beginning. In general, the view is that Ukraine lags CEE countries, but that it is generally ahead of most CIS countries’ financial systems (apart from Kazakhstan). ► Who are the major private sector players in the financial sector? Banks? Financial Groups? On the government side?

There is broad consensus that banks are dominant among financial institutions. However, banks are often part of a larger whole, owned by non-bank shareholders who also own leasing companies, insurance companies, brokerages and enterprises. Ownership in Ukrainian financial institutions is opaque, and financial institutions have generally been established as vehicles for connected lending (e.g., banks, leasing companies), tax evasion and capital flight (e.g., insurance companies), and insider dealing in company shares (e.g., brokerages negotiating off-market deals). In many cases, these banks and financial services companies are extensions of earlier roles played as captive finance companies tied to particular companies or industries. As such, the major private players in the financial sector are largely considered to be the heads of the large financial-industrial conglomerates that dominate the formal economy and have significant representation in the parliament. The inter-locking nature and conflicts of interest are reinforced by a legal framework that provides parliamentary immunity to members of parliament, and lacks the checks and balances in the system to prevent/contain risks of cronyism, nepotism, insider dealing, etc. As an example, a bank owner can sit in parliament and also sit on the supervisory board of the NBU. Such a framework invites

15 While Ukraine has reasonably high levels of gross insurance premiums as a share of GDP (5.6%), its per capita density measure of $78 (2004) is low.

9

and helps to sustain the abuses of privilege and power that have weakened the economy for years. B. Traditional Assistance and Perceptions of Effectiveness ► Does your institution receive any assistance from the international financial institutions or donors? In most cases, public and private sector entities noted previous and/or current support from the donor community. Key players from the donor community in financial market development are the World Bank Group (including IFC), EBRD, EU-TACIS, USAID and the Canadian International Development Agency. (The World Bank Group has also benefited from contributions from other donors. For instance, the Swiss Government is teaming with CIDA to finance IFC activities in SME corporate governance. Likewise, a Dutch grant to the World Bank will help finance policy work carried out by the Bank.) Examples of assistance provided are mapped out below (recognizing that this is not intended to be complete, given the significant level of activity over the last decade16). Table 4: Technical Assistance in Ukraine for Financial Market Development TA Recipients Technical Assistance Providers and Type of Assistance

Banks • EBRD (via IPC) works with about 10 banks to provide lending to SMEs and at the micro-credit level, and has provided financial resources to ProCredit Bank

• EU-TACIS has a pilot program with about 10 banks • IFC is helping several banks with corporate governance as a precursor to

involvement in lending programs (or possible investment) • USAID (via Pragma) has worked with several banks on potential securitization of

mortgage loans NBU • USAID (via Barents/Bearing Point) provided a decade of assistance in banking

supervision17 • IMF has assisted in numerous areas • World Bank is currently assisting NBU with risk management • EU-TACIS has a project that assists NBU with reconciliation of Ukrainian

regulations with EU standards and practices Association of Ukrainian Bankers

• Some assistance from the German Bankers Association, EU-TACIS and the World Bank (in mortgage lending)

Securities Markets

• PFTS received help from USAID (via FMI) to set up the market at inception (e.g., market development, depository, governance, products like municipal bonds)

SSMSC • The Securities Commission claims to have not received much assistance at all, although USAID (via FMI) has provided help and the USAID accounting project (CIPA) is helping with financial disclosure consistent with IFRS/ISA

Financial Services Regulator18

• USAID (via PADCO) has assisted with non-state pension fund development • CIDA (Canada) has assisted credit unions • The Office of the Superintendent of Financial Institutions (regulator in Canada)

16 Web sites for these entities have broader descriptions of their strategies and assistance programs. 17 See “Banking Supervision Development Project: Final Report”, Bearing Point, September 15, 2005 for a description of topics and activities during the 10 years. 18 FSR claims TA has not been carried out in a comprehensive or strategic manner.

10

has provided assistance to FSR in insurance supervision • USAID’s CIPA project is working with FSR to train private pension and

insurance companies in IFRS • World Bank via Rural Development Financing project, Programmatic

Adjustment Loan(s), and Development of Pension Reform • International Finance Corporation and USAID (Pragma) with leasing • European Commission helping with insurance and rural development (SMEs and

cooperative lending via GTZ) • Project of Polish Scientific Foundation (CASE) and Polish Savings and Credit

System (credit unions) League of Insurance Organizations

• EU-TACIS has a €3.5 million, three-year program to assist with insurance sector development consistent with EU principles and practices

• CIDA funded technical assistance delivered by OSFI (Canadian regulator for banks, insurance and pension funds)

• IFC has assisted with crop insurance • Some unspecified USAID assistance was reported

Pension • The World Bank is working on design/implementation of a second pillar and evaluating transition financing needs

• USAID (via PADCO) has assisted with non-state pension fund development Ukrainian National Mortgage Association

• EU-TACIS on primary market legislation (via the German Mortgage Federation) • USAID (via Pragma) for the preconditions for eventual secondary market

development

Leasing • USAID (via Pragma) is helping the Ukrainian Union of Lessors develop the financial leasing market, and has also provided some general training to the older Ukrainian Association of Leasing

• IFC has been active in areas of legislation, regulation and taxation Credit Unions • The Canadian International Development Agency has provided assistance to

strengthen the financial condition and management of credit unions Accounting and Audit

• The Ukrainian Association of Certified Accountants and Auditors has received assistance from USAID, EU-TACIS and the World Bank for training in regulation and ongoing certification and professionalization

Research • Think tanks and research centers have generally received funding from a variety of donors

► Do you or your institutions participate in regional, European or international meetings/training programs? Are they useful? Why (or why not if not useful)? Responses varied, although regulators and associations have generally had exposure to some regional, European or international conferences, seminars, or training programs. Likewise, market players meet with correspondents, lenders, investors and others on individual transactions-oriented bases as well as via conferences of regional/global interest. On the whole, most believe these have been useful, although in many cases the respondents believe that training needs to be more focused on problem-solving. Another critique has been that there has been so much general training that impact has been limited, and that training now needs to be more focused, customized, targeted at the right people, and then followed up with practical implementation. However, targeting has been difficult in an environment in which there has been substantial turnover, evident as well in the private sector, not just government positions. In several cases, institutions also mentioned that they believed participants should be required to pass an examination at the

11

end of the training session, as required by the Canadian Office of the Superintendent of Financial Institutions when they provided assistance to the insurance supervisors. A sampling of regional coordination and reasons for (in)effectiveness are highlighted below. Table 5: Regional Coordination and Effectiveness of Assistance

Recipient Providers Why Useful Why Not Useful Association of Ukrainian Bankers

Varied (see above) Some banks mentioned that training via the Association has been useful, notwithstanding the Association’s views on why general training has not always been very useful

Banks have differing needs, thus hard to customize; training is expensive; has not been useful as a tool to attract capital to the banks

National Bank of Ukraine

Barents/Bearing Point (USAID)

Banking supervision project of USAID was highly professional; other assistance from IFIs and EU considered helpful as well, although the USAID project was on-site for 10 years, and therefore appeared to have far greater impact

Some of the IFI work has been peripatetic and off-site, reducing some of the effectiveness NBU believes it can benefit from (e.g., stress testing capacity); personnel turnover and inadequate targeting have limited the impact and effectiveness, as has the shortage of problem-solving assistance provided

Financial Services Regulator

PADCO, CIDA, GTZ, IFC, Federation

of Polish Credit Unions, World Bank,

Toronto Center

Technical information helpful and useful

High turnover of staff due to budget constraints undermines usefulness and effectiveness; some of the study tours and internships have not been focused enough; need to have examinations; need more comprehensive and strategic approach to technical assistance for the FSR

Ukrainian National Mortgage Association

German Mortgage Federation, Polish

Mortgage Federation, Hungarian Mortgage

Association

The German and Polish Federations have been helpful in several areas related to EU standards, banker training, association development, joint web platform, scoring methodology for loans

The Hungarian Association has been less useful because of language issues and the view that Ukraine has less to learn from this experience than they do from Germany and Poland

PFTS Varied Useful to meet counterparts from other markets (e.g., Poland, Western markets)

Ukraine’s uniqueness in approach undermines effectiveness of knowledge transfer

Ukrainian Association of Certified Accountants and Auditors

Eurasian branch of IFAC and USAID

(via Chemonics and Pragma)

Certification and knowledge of standards is helping to build professionalism and capacity

12

C. Financial Sector Needs ► What areas of the financial sector might lend themselves to a regional (CEE/SEE/Eurasia) multi-country approach? Most Ukrainian financial institutions (public or private) did not cite regional or multi-country approaches apart from regulatory coordination in areas of mutual concern (e.g., foreign exchange risk, money laundering), and training to learn from others’ experiences and lessons (e.g., how to or not to implement financial sector reforms in transition countries, product/service development, functioning of markets in more advanced economies). Part of the reason for low interest in regional or multi-country approaches was attributed to the limited cross-border investment of Ukrainian financial institutions, with almost all being exclusively focused on the domestic market. Another reason was the admitted lack of exposure to market developments in CEE and SEE countries. The exception in this case was with the League of Insurance Organizations, which has had relations with several CIS counterpart organizations (e.g., Russia, Belarus, Azerbaijan, Kazakhstan). However, here as well, there is little interest in models from other CIS members, although joint activities in commonly shared areas of interest (e.g., reserve and solvency calculations, licensing standards, supervision, claims processing) would be of interest. On a product development basis, the exception was in leasing, where (i) the Financial Leasing Association is interested in coordinating with other CIS markets on equipment finance leasing, and (ii) the Ukrainian Association of Leasing is interested in coordinating closely with Russia (where leasing is reported to be more developed), Belarus, Kazakhstan, and the Kyrgyz Republic to more fully develop the regional leasing market. In the case of the latter association, there is a view that language and a more common history can make it easier to develop markets within CIS while also seeking to expand markets with the West. In terms of specific financial sector topics, there is interest in several areas, including, but not restricted to (i) increased capacity for effective loan origination and portfolio management (credit and market risk), particularly in housing finance, (ii) product development and cross-selling, (iii) retail distribution, (iv) governance standards and practices, (v) IFRS and implementation of better audit practices, and (vi) best practice in a range of regulatory and supervisory areas (e.g., pension, insurance). However, such interest has not yet been translated into concrete programs for regional multi-country approaches. For instance, there was very little discussion of cross-listings of shares on international or regional exchanges (e.g., London, Frankfurt, Warsaw), and there is even the view in some quarters that the uniqueness of legal and regulatory systems make multi-country or regional coordination difficult except at the high end when major issues emerge. As noted, the exception to this approach may be in the insurance sector, although the League of Insurance Organizations is mainly interested in EU members’ (including recent accession countries from CEE) or other advanced economies’ models, such as Canada and the US. At the moment, and notwithstanding medium- or long-term objectives of joining the WTO or EU, Ukrainians currently appear most interested in

13

sorting out domestic market weaknesses based on domestic (rather than regional) solutions, possibly influenced by practices in successful Western economies and/or some transition economies (e.g., Poland, Baltic states). These viewpoints may change as momentum for legal reform builds, as foreign investment into the financial sector increases, and as exposure to other markets introduces new ideas and approaches that can be effectively applied to the Ukrainian market. ► What countries in the region (CEE/SEE/Eurasia) provide models of financial sector development more broadly or in a specific area (e.g., banking supervision, stock market development, corporate governance, accounting, insurance, pension reform) whose experience you could benefit from? Are there any countries in Eurasia (e.g., Kazakhstan housing finance or pension reform) whose experience you could benefit from? Most Ukrainian institutions expressed an interest in learning more about progress in CEE and, to a lesser extent, SEE markets, with particular interest in Poland and, to some extent, the Baltic states19. Very few expressed interest in other CIS markets, believing these markets have generally failed to achieve the results Ukrainians want to achieve in terms of financial market development. Likewise, many expressed little to no interest in SEE markets. The one exception in CIS markets was Kazakhstan, where several Ukrainian institutions expressed an interest in the Kazakh approach to movement to a unified supervisory agency along with its pension reform experience. In a few cases, some mentioned that Russia also had useful lessons to share in leasing development. There may be other examples, such as the International Mortgage Bank (Western NIS Enterprise Fund) purchase of proprietary housing finance systems and software from Delta Credit in Russia. However, in general, there is little interest (in Kyiv) in the experiences of other CIS countries. Several respondents also noted Russia could learn from Ukraine in many ways. Poland featured as the main source of interest among transition countries. This may be due to the ongoing coordination of Polish financial institutions with Ukrainian counterparts over the last several years (partly financed by USAID). There is also interest in several other potential models, such as in the Baltic states and Kazakhstan (as noted above). However, expressions of interest remained broad, largely because Ukrainians claim to not know much that is specific about what is working in other transition economies. Thus, Ukrainians are seeking guidance from experts to recommend specific models in areas where the financial sector needs to develop. This includes next-stage reforms in banking, pension reform (e.g., stabilization of the PAYG system, movement to a second pillar and development of the third pillar), insurance sector development, primary and securitized mortgage finance market development, accounting standards and practices, and corporate governance standards.

19 Advanced and other markets were also cited from time to time. For instance, FSR expressed interest in learning more about insurance in Canada, consumer protection in Ireland, pension reform in Chile, and accounting standards and corporate governance principles in EU member states.

14

► Do you see specific examples of where your country’s financial sector/your institution could benefit from participating in seminars/training programs designed to harmonize financial sector laws, policies, and practices to promote a regional financial market or product? Convergence with international standards is increasingly recognized as essential for market development. Recent efforts by Ukrainian banks and companies to access funding from syndicated lines of credit, Eurobonds and direct equity financing from Western banks and investors have served as a catalyst to comply with international standards. Broadly, efforts to join the WTO and, at some point, the EU serve as drivers for this process across the economy as a whole. Specific to the financial sector, closer contact with Western markets will drive harmonization over time. As noted, the example of banks seeking to diversify their funding sources in the international syndicated loan market and Eurobond market reflects such movement. To accomplish this in greater amounts for longer terms at more favorable rates, banks recognize their financial statements need to be credible and that international credit ratings need to be obtained (at least in most bond issues). This is bringing Ukraine closer to advanced capital markets from the funding side. The recent sale of Kryvorizhstal (steel) to Mittal suggests that several large enterprises may also be moving in this direction, even though few Ukrainian firms (unlike counterparts in Russia and Kazakhstan) are active in the international depository receipt (i.e., ADR, GDR) markets. Likewise, the recent sale of Aval to Raiffeisenbank and ongoing negotiations with other Ukrainian banks (e.g., Ukrsibbank with SEB of Sweden) suggests that the financial sector is opening up to foreign direct investment. This will likely serve as a catalyst for Ukraine to move closer to harmonizing its financial sector laws, policies and practices in financial services overall. The Ukrainian National Mortgage Association has likewise expressed interest in learning more about the potential for regional products/markets, and all three major regulators believe laws, regulations and practices should be harmonized with international standards. The Association of Ukrainian Bankers mentioned that coordination with the Russian Bankers Association would be prudent in dealing with financial crises and contingency planning, something that could be considered along with NBU and others. The two leasing associations likewise expressed an interest in harmonizing commercial law, regulatory, tax, and accounting treatments with EU/major market standards. In accounting, the Ukrainian Association of Certified Accountants and Auditors believes that certification programs, standards and codes of conduct should be harmonized (as is the intent of IFAC). The insurance sector wants to move forward and harmonize standards and practices with EU directives and IAIS guidelines. However, because Ukraine has little cross-border investment at the moment, there was little discussed about regional financial products or markets. For instance, as mortgage finance reform takes hold, there may be interest from outside investors in mortgage bonds or mortgage-backed securities issued in Ukraine. However, the primary market is still developing, secondary market instruments are not yet in place, and when issued they are expected to be for sale to Ukrainian institutional investors in the domestic economy (e.g., life insurance companies, pension funds, investment funds, banks). Thus, there is little discussion at the moment of regional financial products or markets.

15

► Do you look to the European Union directives for guidance? Associations and regulatory officials generally mentioned EU directives as part of the larger package of international standards they are reviewing for guidance. This is less the case for individual institutions, as they are mandated to operate according to the prevailing legal framework in Ukraine. However, as banks and other institutions seek funding from EU market players, a growing convergence of standards and practices is expected to occur. The NBU has a dedicated unit that profiles how Ukrainian legislation and regulations in banking are harmonized (or not) with EU directives. The FSR participates in a special task force set up to promote harmonization of standards and practices with EU directives. The SSMSC has not followed EU directives, and is the only regulator at the moment that seems to diverge from EU practice (e.g., licensing eight exchanges, multiple depositories). However, SSMSC is expected to change and harmonize approaches with EU directives. PFTS follows the Financial Markets Directive (2004) for guidance in the main capital market. A new EU-TACIS insurance project will promote closer convergence of Ukrainian standards and practices with EU norms in this sector. Likewise, in the professions, accountants and auditors are following EU directives as part of their training. This includes use of EU Directives 4 and 7 that address accounting standards and practices, and EU Directive 8 that focuses on auditing standards and practices. The Ukrainian National Mortgage Association is following these as part of their mortgage market development framework, reinforced via the training they have received from the German Mortgage Association and the Polish Mortgage Federation. Likewise, they hope to join the European Mortgage Federation in the future. The Financial Leasing Association is following EU directives as they apply to leasing as part of their plan to join Lease Europe (European Leasing Association) in 2006. The Ukrainian Association of Bankers has also coordinated with Polish and Lithuanian counterparts on harmonization with EU standards. D. Willingness to Actively Participate ► A key principal of the PFS program is cost sharing. Would your institution be interested in organizing meetings on subjects of interest including preparing agendas, key background documents, and inviting appropriate experts and counterparts from other countries? If others including PFS were to organize meetings, would your institution be interested in hosting such meetings? Would your institution be prepared to cover some of the costs of participating in PFS regional activities/training in neighboring countries? Institutions generally expressed interest in participating in various PFS training seminars, study tours, etc. They also expressed willingness to share in the cost burden, often in-kind via the provision of facilities and/or preparation of research or materials for seminars/conferences. Several institutions expressed a willingness to host regional events, with other CIS countries and/or counterparts from non-CIS transition countries. In most

16

cases, associations mentioned they had limited budgets but could help defray some of the costs (e.g., airline tickets for selected participants). Regulators and market players have budget for such activities as well, although in the case of the former, this is dependent on budget approved by parliament and/or donor funding. Donors (e.g., IMF, IFC) and market players (e.g., banks, accounting firms) also expressed a willingness to co-sponsor events and/or assist with their organization on a country-specific or multi-country basis. ► Are there specific institutions (national, international, or donor) operating in the region that you believe would be a good partner in the activities that you would like to pursue? Most of the institutions cited as potential partners are donors or donor-supported institutions. Key donors in the financial sector cited as potential partners include EBRD, IFC, USAID, EU-TACIS and the World Bank. Depending on the type of institution, the partners they support are also cited (e.g., IPC for micro-credit, Pragma for assistance in leasing and mortgage finance). In some cases, domestic associations were cited as helpful partners. This was particularly true of bankers who expressed favorable opinions of the Association of Ukrainian Bankers. It is likely that bankers and other mortgage finance companies will find the services of the Ukrainian National Mortgage Association to be helpful as that market develops, and that accountants and auditors are benefiting from services rendered by the Ukrainian Association of Certified Accountants and Auditors. The League of Insurance Organizations is expected to increase its capacity to train insurance sector personnel in key areas of compliance with insurance market regulations. FSR cited the need to increase capacity and coordination with the National Association of Credit Unions, the Society of Actuaries and the Auditing Chamber. IV. Feasibility Issues A. Cost Issues Costs are not expected to be a major problem for Ukrainian participation in PFS. Virtually all institutions expressed a willingness to defray some costs, notwithstanding tight budgets in some cases. Airfare is the main cost, and this burden is mitigated by much of the PFS activity being provided in nearby markets (e.g., Poland, Baltics, SEE countries). In addition, there is scope for Ukrainian institutions to host events and cover costs on an in-kind basis, by providing facilities and related support. The shortage of hotel space might be a problem, although it is uncertain if space is limited, or simply that there are only two highly regarded hotels in Kyiv. Beyond these issues, PFS can make use of distance learning and increasingly publicize materials on its web site to reduce the cost burden. However, as everything is in English, some allocations for local language or Russian translation might be useful for generalized application in CIS countries, including Ukraine.

17

B. Impact Based on the interviews, impact is expected to be greatest if the participants are closely matched with the area of expertise, and the program is focused and practical. USAID may want to consider examinations in some of its activities to raise the threshold of qualification for participation. However, because costs are shared and many of the people selected are senior personnel, much of the training is expected to have a favorable impact. This will be particularly true once Ukraine gets beyond legislation and maps out regulatory principles, approaches and practices. This is an area where many officials and market players expressed recognition of Ukraine’s weaknesses. This will be particularly needed if/when Ukraine moves to consolidated supervision, which will require significant strategic coordination across regulatory authorities, associations, market players and donors. As for effectiveness and impact, there appears to be little in CIS that Ukraine can benefit from, apart from reforms in Kazakhstan. However, there may be some innovative programs and developments in some CIS countries that could be relevant in Ukraine, such as accounting reform efforts in Armenia (with the Institute of Scottish Chartered Accountants). However, apart from clear recognition of progress in Kazakhstan, there is little about developments in CIS that are likely to benefit financial market development in Ukraine. Based on this presumption, substantive focus of Ukraine’s efforts under PFS should be on lessons learned from transition countries, EU standards, and global standards and best practice. V. Preliminary List of Possible Topics to Cover While PFS is a demand-driven process, a number of topics emerged from discussions that might be useful for coverage as part of the program. In many cases, these could be co-sponsored with domestic institutions, market players and/or donors as part of the exercise as well as part of the cost-sharing burden. In most areas, Ukrainian institutions were interested in the experiences of Poland, the Baltic states, some of the other early transition countries, and to a much lesser extent experiences in Southeast Europe. In some cases, experience in EU countries and North America were of interest, although generally considered less relevant than experience from transition economies. In some cases, topics below (and others) have already been covered by some of the donors, although the list below reflects starting recommendations from a variety of public and private sector institutions. Some topics (in no particular order) include: Banking and Monetary Issues

• Internal controls at banks, the usefulness of outsourcing, and the role of regulators in validating systems

• Internal audit function re boards and management • Risk management and governance, including at the enterprise level • Training NBU examiners in evidence-based information gathering and

consolidated supervision emphasizing common transactions, relationships (insider, related-party, etc.), and legal roles and support

18

• Basel Two Capital Accord and implications for new capital measures, internal ratings based systems, etc.

• International standards in accounting (IFRS) and audit (ISA), and how these apply in real terms to differing levels of financial institutions and the enterprises to which they have loan or investment exposures

• Contingency planning and Lender of Last Resort policies • Movement to a floating exchange rate regime and inflation-targeting • Securitization of warehouse receipts • Costing and pricing of risk

Housing Finance

• Practices in issuance of permits and licenses, enforcement of building codes, and consumer protection

• Refinancing facilities and institutional operations in other markets • Standardization as a basis for movement to securitization (bonds, MBS) • Line items in the chart of accounts for better data/information on exposures to the

housing (and commercial property) market Capital Markets

• Centralized depositories, registration systems and markets • Joint listings and information disclosure requirements • Product development (e.g., Eurobond and other foreign currency-denominated

instruments, municipal bonds, corporate bonds, derivatives) • Free float models and experience in increasing liquidity and capitalization • Tax policy and investment decision-making (choice of instruments and range of

incentives) • Models and capacity needs for self-regulation

Insurance Market Development

• IAIS principles and harmonization experience • Regulatory approaches to licensing, ongoing risk identification via off-site

surveillance and on-site inspections, reserve calculations, investment policy • Principles of claims management (and recourse when disputes emerge) • Product development in life, pension, health/medical, vehicle, crop, and other

lines of business • Actuarial capacity development and data base management

Pension Fund Development

• Fiduciary responsibilities, controls, compliance monitoring and enforcement • Investment policy • Reporting standards

Accounting and Audit

• Enforcement of international standards (to the extent feasible) and how other transition economies have increased capacity and market confidence

19

• Experience in standards-based self-regulation, peer reviews, second partner review criteria and formats

VI. Risks to Success Some basic risks to effective impact are presented below, based on what those interviewed considered weaknesses to some of the technical assistance and training provided in the past.

• Language is a risk to success, as many key officials do not speak English well enough to participate directly in PFS activities. Thus, on a multi-country basis, those attending will have to have good enough English to actively participate in these activities. As PFS is contemplating CIS activities, this risk could be mitigated by having many of the activities in Russian. However, this will not be feasible in many cases when those providing material and lessons are from EU countries, Southeast Europe, or elsewhere outside CIS.

• Turnover has been a challenge in Ukraine in public and private sector institutions,

which then weakens impact re knowledge transfers that might be targeted for specific functions or institutions. There is no way for PFS to control this, and turnover in some ways reflects a dynamic and mobile financial sector environment. However, when selecting participants, in some cases, it will be essential that those selected plan to stay in current positions for some time.

• In many cases, training has lacked focus, customization or specificity. This can be

partly remedied by focusing modules on lessons as well as performance indicators that could subsequently be implemented. Linking these exercises to specific regulations, by-laws, and procedures for implementation may be a way to make these exercises more practical.

• Examinations should be required for those attending seminars and workshops to

ensure they are taken seriously. In some cases, there have been reports of participants not attending or participating once they have arrived in country. Examinations may be a way to inject greater seriousness into participants in the program.

• Lack of linkage between market players and regulators has also been reported as a

weakness. By bringing public and private sector players together, this may serve as a basis for solving common practical problems faced by both.

VII. Conclusion There is clear expressed demand by Ukrainian institutions to participate in PFS, either via the SEE link and/or via a broader multi-country approach with other CIS markets. Virtually all institutions expressed a willingness to share in the costs of co-hosting, either in-kind when budgets are thin or via financial contributions (and other) when resources

20

are available. This includes the many associations, regulatory authorities, donors, and market institutions. In terms of content, there is clear interest in practices and experiences from CEE countries, mainly Poland and the Baltic states. There is interest in other EU accession markets as well, although less so. By comparison, there is less interest in the experiences of SEE markets, and considerably less interest in most cases within CIS markets. In the latter case, Kazakhstan is the one exception, as there is a perception that success in Kazakhstan with pension reform, housing finance development, and movement to a unified supervisory framework could be potentially useful for application in Ukraine. A minority of those interviewed mentioned that there is more relevance to CIS experience given common traditions, although there was also general consensus that this is more cultural, linguistic and historical, rather than based on any evidence of success that could be useful to financial market development in Ukraine. In general, Ukrainian institutions were more general in their interests, claiming to not have much exposure to experiences in other markets. This varies by institution, although knowledge of developments in SEE markets and some of the CEE markets is fairly limited. Overall, many of those interviewed expressed interest in all topics, and requested guidance from PFS in terms of relevant models and experience. This may be a role for the implementing agent to assume if USAID moves forward with a CIS-oriented PFS program. The final observation is that Ukraine can benefit from existing PFS activities, and should not have to wait for a CIS-oriented program. It is also to be determined if a CIS program should be developed, and if so, what its focus should be. Given the lagging performance of most CIS economies and financial markets, it is likely that CIS involvement would be as recipients, focusing more on experiences from more successful non-CIS transition economies. This is subject to further investigation through 2Q 2006, during which potential market integration based on sound financial market standards and practices will be evaluated. In this regard, Ukraine’s experience might be of use to some CIS countries, namely in the areas of debt management, payment/settlement systems, and experience with crisis management during the political turbulence in late 2004.

21

Annex 1: List of Meetings Yevhenia Akhtyrko, Senior Economist, International Center for Policy Studies Anatoliy Balyuk, Chairman, Securities and Exchange Commission Geoffrey Berlin, Managing Director (Ukraine), GlobalNet Financial Solutions Anna Burliay, Banking Advisor, EU TACIS Banking Project Loïc Chiquier, Lead Housing Finance Specialist, World Bank Mark Davis, Senior Country Economist, World Bank Vladislav Draganov, Head, International Business Department, Ukrgasbank Richard du Cloux, Team Leader, EU TACIS Banking Project Olexander Filonyuk, President, League of Insurance Organizations Jeffrey Franks, Senior Resident Representative, IMF Inna Golodniuk, Academic and Research Director, CASE Ukraine Jason Hollmann, First Secretary, Embassy of Canada Nataliya Ivanenko, Head of Banking Supervision and Methodology Department, National Bank of Ukraine Volodymyr Kharytskiy, Commissioner, Securities and Exchange Commission Ruslan Kilmukhametov, Head of Research, Ukrsibbank Mr. Kostytskiy, Head, State Mortgage Institution Volodymyr Krotyuk, Deputy Governor, National Bank of Ukraine Vladimir Kucheruk, Chief of Information and Analysis Center, Association of Ukrainian Banks Alex Kutsenko, Chief of Party, Bank Supervision Development Project at the NBU, BearingPoint Andriy Kyyak, Deputy Head, Ukrainian Financial Group Vitaliy Lisovenko, Deputy Minister, Ministry of Finance of Ukraine

22

Ralph Livesay, IMF Advisor to the NBU, Chicago Federal Reserve Bank David Lucterhand, Director General and COP, Pragma Corporation Bohdan Lupiy, Executive Director, PFTS (stock exchange) Dmitry Lyapin, Vice-President, Institute of Competitive Strategy Kseniya Lyapina, Parliament Member Yury Mardak, Trade Commissioner, Embassy of Canada Nataliya Martynenko, Economist, International Center for Policy Studies Heather Matson, Assistant Operations Manager, IFC Vadim Mironyuk, Head of Investment Financing and Funding, Ukrsibbank Tetyana Mosiychuk, Deputy Head, State Commission for Regulation of Financial Services Markets Vira Nanivska, Director, International Center for Policy Studies Mykhailo Nepran, Chief of Staff, Securities and Exchange Commission Yurakov Oleksander, General Director, Crossroad Investment Company Desmond O’Maonaigh, Project Manager, IFC Viktor Ponomarenko, Head of Business Client Development, ProCredit Bank Philipp Pott, Deputy General Manager, ProCredit Bank Oleksiy Pylypets, Project Coordinator, Ukrainian National Mortgage Association Oleksander Rohozynsky, Development Director, Economic Development Consulting Tatyana Rudnenko, Head of Securities Department, Association of Ukrainian Banks Irina Samoylova, Head of Administrative Department, Association of Ukrainian Banks Anton Sergeev, Executive Director, Ukrainian National Mortgage Association Lyubov Slobodenyuk, Mortgage Analyst, Ukrainian National Mortgage Association

23

Tatyana Smorgonskaya, Project Manager, Financial Services, EU TACIS Yuriy Sosyurko, President, Ukrainian Association of Leasing Oksana Strashna, Vice President, Horizon Capital, Western NIS Enterprise Fund Peter Stredder, Senior Banker, Deputy Director, EBRD Olexander Sugoniako, President, Association of Ukrainian Banks Victor Suslov, Chairman, State Commission for Regulation of Financial Services Markets S. Svyatko, Deputy Head, State Mortgage Institution Maxim Sych, Investment Finance and Funding Business, International Department, Ukrsibbank A. Tarasen, Securities and Exchange Commission P. Mason Tokarz, Managing Partner, KPMG Svitlana Tyugayeva, Director of International Department, League of Insurance Organizations Oleg Ustenko, Senior Economist, the Bleyzer Foudation Iryna Zarya, President and CEO, PFTS (stock exchange) Roman Zyla, Project Manager, IFC Oleksandr Zholud, Economist, International Center for Policy Studies Andriy Zhylynskiy, President, Financial Leasing Association, Pragma Corporation Maxim Zrezartsev, Councillor to Chairman, Securities and Exchange Commission

24

Annex 2: List of Questions

o What are the primary gaps/challenges to developing the financial sector? What are your priorities? What are the government’s priorities?

o How would you rate the stage of financial development in your country compared to your neighbors?

o Who are the major private sector players in the financial sector? Banks? Financial Groups? On the government side?

o Does your institution receive any assistance from the international financial institutions or donors?

o Do you or your institutions participate in regional, European or international meetings/training programs? Are they useful? Why (or why not if not useful)?

o What areas of the financial sector might lend themselves to a regional (CEE/SEE/Eurasia) multi-country approach?

o What countries in the region (CEE/SEE/Eurasia) provide models of financial sector development more broadly or in a specific area (e.g., banking supervision, stock market development, corporate governance, accounting, insurance, pension reform) whose experience you could benefit from? Are there any countries in Eurasia (e.g., Kazakhstan housing finance or pension reform) whose experience you could benefit from?

o Do you see specific examples of where your country’s financial sector/your institution could benefit from participating in seminars/training programs designed to harmonize financial sector laws, policies, and practices to promote a regional financial market or product?

o Do you look to the European Union directives for guidance? o A key principal of the PFS program is cost sharing. Would your institution be

interested in organizing meetings on subjects of interest including preparing agendas, key background documents, and inviting appropriate experts and counterparts from other countries? If others including PFS were to organize meetings, would your institution be interested in hosting such meetings? Would your institution be prepared to cover some of the costs of participating in PFS regional activities/training in neighboring countries? Are there specific institutions (national, international, or donor) operating in the region that you believe would be a good partner in the activities that you would like to pursue?

25