Bank Corporate Governance

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Over the last several years Ukrainian banks have grown rapidly, reflecting the improving operating environment as well as a rise in public confidence in the banking system. However, such rapid growth in the banking sector raises concerns about risk management and the corporate governance systems in place. While the Ukrainian banking system can function well in times of economic prosperity, periods of economic downturn can lead to deterioration in asset quality and a systemic banking crisis. As Fitch Country Report points out, a number of significant weaknesses characterize the Ukrainian banking system, particularly low capitalization and high concentration levels. In the absence of a developed national securities market, the only possible choice for banks is to solicit foreign institutional investors. However, the participation of foreign investors in Ukrainian banks is not possible without transparency and the implementation of principles of effective corporate governance. All these factors provide banks with the incentive to change, increasing the demand for implementation of modern corporate governance principles and best practices.