Formation, function and development of the banking system of Ukraine

Financial sector reform has proved to be one of the greatest challenges facing the members of the former Soviet Union in their transition to a market economy. Their central banks have played a vital role in this reform—mainly shaping developments, but also being shaped by them. The Ukrainian experience is by no means unique. Banking was given priority in the reform process in Ukraine. By granting loans on the basis of profitability criteria, strengthened, sound banks are to encourage companies to operate according to free-market principles and to assist the economic recovery process. After independence in 1991 Ukraine begin to develop its own banking system. There has not yet been a comprehensive study dealing with formation and function of the banking system of Ukraine and this thesis aims to remedy this omission. The major objective of this thesis is to examine and analyse the development of the banking system of Ukraine, its operation and its implications for a market economy. It also focuses upon the transformation' process necessary to bring about the required changes. The thesis presents an overview of the Ukrainian economy and its underlying principles; these are the cornerstone for transformation to a market economy. Subsequent chapters focus on Ukrainian banking and the experience of other postcommunist states. A major part of the thesis is the unique access to and interviews with a substantial number of senior Ukrainian bankers. The research shows that Ukrainian banks developed despite the burden of Soviet structures, inept monetary control and managements unprepared for market based banking. The ultimate decline of the "system" banks and the rise of commercial banks is highlighted and the expectations as Ukrainian banking begins the new millennium are outlined.