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Banking reform in Ukraine: Fighting on all fronts

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’What the central bank under Valeria [Gontareva] did is nothing short of amazing, and which was not previously possible,’ says Raiffeisen Bank’s Oleksandr Pysaruk

Despite the Russian bombs pounding Ukraine, there have been no wartime bank runs, no bank collapses or even the suggestion of a systemic wobble. That is largely thanks to the work of former National Bank of Ukraine governor Valeria Gontareva. She tells Euromoney that the time for further reform to the stricken country’s banking sector is now.

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Peering into a Zoom screen, Valeria Gontareva appears safe, healthy – “I’m even playing some tennis now” – and relatively happy.


Happy, that is, as this proudly patriotic and determined former governor of the National Bank of Ukraine (NBU) can be in London, anxiously tracking the progress of her compatriots’ defence of their homeland from Russia’s onslaught.

Gontareva’s plight since she was hounded from the NBU in 2017 to exile in London reminds us that Russia isn’t Ukraine’s only existential threat and that destructive homegrown enemies remain present and powerful within.

In July 2019, two years after leaving the NBU governorship, Gontareva was crossing a pedestrian strip in Knightsbridge, metres from Harrod’s, when she was run over by a car. The still-unsolved hit-and-run left her in a wheelchair.

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  • Powerful nemesis
  • Gontareva is no doubt who was responsible for that attack and many others on her, her family and former NBU colleagues – and they are not Russians.

    When she was NBU governor, she made powerful enemies as she implemented a necessary and long-overdue reform of Ukraine’s banking system. Backed by the IMF, which had bailed out Ukraine (and is poised to do so again), Gontareva modernized the “medieval monster” she inherited at the NBU.

    She floated the hryvnia, introduced best-practice regulatory rigour and closed down more than 100 banks that either couldn’t or wouldn’t comply with her new regime. Many were so-called zombie banks: licensed but often without assets or even staff.

    I have a lot of respect for her. I think she did an absolutely great job. She closed half of the banks – and there was a good reason to do it
    Margeir Pétursson, Bank Lviv
    Margeir-Petursson-Bank-Lviv-2-960.jpg

    The attacks upon her were relentless and ultimately unbearable. She remembers the coffin that was left outside the central bank’s door in central Kyiv with her effigy inside it. Another time, graffiti saying “Russian pig” was scrawled across her house. Soon after being struck down in London, her Kyiv home was razed by arsonists. It became impossible to do her job.

    “I left the central bank after three years, but my contract was for seven years,” she says. “These were real death threats, daily death threats.”

    Such things tend not to happen to central bankers, but Ukraine has never been Switzerland. Although she’s no less Ukrainian for it, Gontareva’s chilling experience also offers a dark twist to the wartime narrative advanced by its president, Volodymyr Zelenskyy, of a heroic Ukraine, a blameless innocent bullied by an intimidating tyrant. As Gontareva knows only too well, Ukraine has its own demons.

    “My family still criticize me for this project because they said it destroyed completely my life and their life, but all the same, it’s a reality,” Gontareva tells Euromoney. “It’s frightening [but] it happened, we would not change any part.”

    Big fans

    Five years after her time at the NBU, it may be cold comfort that she has many fans today, given the personal price Gontareva has paid for her work as governor. Those fans run Ukraine’s biggest banks and directly attribute Ukraine’s ability to largely withstand the massive shock to its economy from Russia’s invasion to the reforms she and her team made to the financial system.

    She was governor from 2014 to 2017, appointed by president Petro Poroshenko, who as a businessman had been a client of Gontareva’s Kyiv-based investment bank, Investment Capital Ukraine.

    Gontareva had been a banker with Societe Generale and ING before starting her own firm.

    Although Russian bombs pound Ukraine and its troops have occupied as much as 25% of its territory, there have been no wartime bank runs, no bank collapses or even the suggestion of a systemic wobble. It has helped that the NBU has banked around $6 billion in international support and has sold $12.4 billion of its gold reserves.

    Powerful nemesis


    It’s safe to say that Valeria Gontareva’s nemesis, Ukrainian oligarch Igor Kolomoisky, is not a fan. He has repeatedly denied that he is responsible for the sustained terror campaign against her, claiming she in turn is waging a “public relations campaign” against him.

    He claims the NBU charges about PrivatBank are “mythical” and that he and the bank were “victims of NBU tyranny.”

    That is not what corporate investigator Kroll concluded in 2018 after a two-year investigation of PrivatBank.

    “PrivatBank was subjected to a large-scale and coordinated fraud over at least a 10-year period ending December 2016, which resulted in the bank suffering a loss of at least $5.5 billion” Kroll stated.

    Kroll also found that 95% of the bank’s corporate lending had been to “parties related to former shareholders and their affiliates.”

    Kolomoisky, who continues to wage legal battle over control of PrivatBank in Ukraine, Switzerland, the UK and the US among other jurisdictions, didn’t respond to Euromoney’s request to be interviewed and to comment on Gontareva’s situation.

    As with many Ukrainian oligarchs, Kolomoisky’s influence and wealth has diminished in recent years and particularly since the Russian invasion. Washington has banned and sanctioned him for corruption. In July, president Volodymyr Zelenskyy stripped him of his Ukrainian citizenship (he now travels on Israeli and Cypriot passports).

    That was a bitter blow for an oligarch who many Ukrainians regard as Zelenskyy’s patron. The two have a longstanding relationship built around Kolomoisky’s profitable airing of Zelenskyy’s popular political satire, ‘Servant of the People’, on his television network. The series became a political party and elevated Zelenskyy to the Ukrainian presidency in 2019.

    But the 59-year-old Kolomoisky is not a man to trifle with. In the years after Russia’s 2014 seizure of Crimea and the loss of large areas of the Donbass region to Russian-backed separatists, Kolomoisky was made governor of his home fiefdom of Dnipropetrovsk, modern-day Dnipro, where he based PrivatBank.

    A pivotal industrial centre, Dnipro became the strategic buffer zone defending the capital Kyiv and southern Ukraine from the Russian-backed push from the east, and gave Kolomoisky enormous sway over national affairs. Even today, with Kolomoisky’s influence eclipsed, bankers are reluctant to discuss PrivatBank openly.

    Throughout the war, payments and clearing processes have been orderly, bank branches have remained open when safe to do so, employee salaries and business invoices have been paid, shop shelves well stocked, loans managed and new ones issued.

    Day-to-day commerce has been transacted largely normally and Ukrainians have retained confidence in the banks and their currency, the hryvnia. Remarkably, Ukrainian bankers gently complain that they are awash with liquidity.

    “The Ukrainian banking sector entered this war in an absolutely different shape than it entered the 2014 war,” says Gontareva. “It was very well capitalized; it was liquid and the central bank was professional.”

    “We cannot give [her] enough credit,” says Gerhard Boesch, the Austrian chief executive recruited by the NBU to run Ukraine’s biggest retail bank, PrivatBank.

    The lender is now state-owned after Gontareva’s NBU seized it in December 2016 from its oligarch owners Igor Kolomoisky and Gennadiy Bogolyubov.

    An 18-year veteran of the Ukrainian banking industry (he was formerly an executive at Raiffeisen Bank), Boesch tells Euromoney, what Gontareva’s NBU “did after 2014-2015… cleaning up the banking system, closing more than 100 banks forced everybody to adhere to the rules and introduced more or less European-style Basle conformity. I would say probably some of the bankers learned their lessons. She paid for it and she paid mainly for the fact that they took away PrivatBank from two oligarchs.

    “In 2021, I think the banking system was never so stable, so profitable and so professionally managed overall since the beginning of the [1991] independence of Ukraine,” he says. “I think that created a sense of stability. We saw in the first couple of weeks [after the February invasion] that people realized their money is probably safe, probably safer in the banks than under the mattresses or in the garden.”

    Margeir Pétursson, owner of Bank Lviv, says: “I have a lot of respect for her. I think she did an absolutely great job. She closed half of the banks – and there was a good reason to do it. There’s no doubt in my mind the financial sector was reformed.”

    The legacy of Gontareva’s reforms is inherent in remarks to Euromoney in April this year by her successor at the NBU, Kyrylo Shevchenko, describing how Ukraine’s financial system has withstood the invasion.

    “The result speaks for itself,” Shevchenko said. “It sounds like a miracle, but now our banking system is in full operational mode, I mean payment systems, debit/credit cards etc. About 75% of the branches of systemically important banks operate in the areas where their operation is not endangering lives. The banking system is holding up well, people’s cards are working and cashless payments are being made smoothly and without restrictions”

    What the central bank under Valeria did is nothing short of amazing, and which was not previously possible
    Oleksandr Pysaruk, Raiffeisen Bank. Photo: Reuters
    Oleksandr-Pysaruk-Raiffeisen-Bank-Reuters-960.jpg

    In 2017, the IMF’s then deputy managing director David Lipton told The New York Times: “Governor Gontareva has done a fantastic job in an incredibly difficult situation, despite huge resistance from some people and political factions. When she came in, the country was on the edge of instability. It had an exchange-rate system that had contributed to paralyzing exports and growth.

    “Moreover, Ukraine had many banks that were either or both mismanaged and failing. She has dealt with those problems, and deserves a medal for it as far as I am concerned.”

    Arguably the Ukrainian banker that knows Gontareva best and what she has endured, is Oleksandr Pysaruk, chief executive of Austrian-owned Raiffeisen Bank in Ukraine. Pysaruk was her deputy governor at the NBU, arriving from the IMF.

    “What the central bank under Valeria did is nothing short of amazing and which was not previously possible,” says Pysaruk.

    He joined the NBU from a senior IMF post in Cairo, where he advised a procession of Egyptian governments in the aftermath of the 2011 Arab Spring revolution to reform a similarly rotten system.

    Like Gontareva, Pysaruk’s time at the NBU continues to extract a personal toll on him and his family. Although he has restored his career in the private sector at Raiffeisen, he has been subject to a succession of corruption investigations and lawsuits related to his time at the central bank. At one point in 2019 he was taken into detention by Ukraine’s anti-corruption court, along with former and current NBU colleagues.

    “There’s a criminal case, which I think is payback for my work for the central bank and it is not closed, it’s still ahead of me,” he explains. “Maybe it’ll go into the court, it’s not for sure. I went through such a difficult experience in the central bank and with this criminal case. I have to say that my resilience is probably stronger than an average person and maybe an average CEO even because of my personal experience.

    “Valeria got hit personally with the house and the car [incident],” he says. “She doesn’t have the criminal case. I do.”

    Another chance

    The waning power of oligarchs such as Kolomoisky has even made EU-minded Ukrainians begin to believe that the era of the oligarch is coming to an end and that Ukraine is not a mirror of Putin’s Russia.

    They note that many eastern European nations had their share of homegrown oligarchs in the rush to embrace raw capitalism after the late 1980s collapse of communism, but their domination of the economy was progressively diluted, particularly after these countries joined the EU.

    “Ukrainians see their neighbour Poland taking off and say that they want to be that,” says Petursson.

    “I… only hope that this is Ukraine’s third chance,” says Pysaruk. “The first was the Orange Revolution in 2004, which was, unfortunately, a missed opportunity. Maidan [in 2014] was not completely lost. I always said to Valeria: if we are changing the banking sector, we’re making this transparent, implementing rules, proper supervision and cleaning it up. It’s just not sufficient if the rest of the country does not change; we’re not going to win because it’s still part of the country but it’s not the whole country.

    “What we’ve never had in Ukraine is reform on this scale. Not at just certain places like the central bank but consistently. If Ukraine doesn’t do it now, particularly having received the EU candidate status, which is an anchor, which gives us a chance to pursue the reform agenda, I don’t want to think about it.”

    Gontareva agrees.

    “We did all reforms during wartime,” she says, referring to the ongoing war in Ukraine’s east since 2014. “That’s why there is no excuse for anybody right now to say that it’s not a time for reform because it is wartime. Moreover, you will have less resistance from politicians during wartime. It’s even easier to do reforms during the war because there’s a unity of political purpose.”

    The IMF and World Bank are set to meet in October in Washington and Ukraine will likely dominate the agenda. Gontareva says it’s essential that the IMF backs Ukraine.

    “I’m a great supporter of the IMF programme,” she says. "We need the IMF for the banking system, for financial stability.”

    She anticipates the IMF and Kyiv will negotiate a support package of around $15 billion to $16 billion.

    “It’s not a big amount for our recovery, but it’s a good anchor for all of the donors."

    And as for her future in her beloved Ukraine, Gontareva is keen to return but knows it’s not safe for her and her family – and not just because it’s at war. She’s been a fellow at the London School of Economics for four years and says she is “quite happy here and quite busy as well. We have our life and I have here all my family with me.

    “But my dream is maybe one day visit Ukraine again,” she says. “I say it like it is.”

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    Eric Ellis
    Eric Ellis has covered Asia for Euromoney since 2006. He is a former southeast Asia-correspondent for Fortune Magazine and Time, and an ex-Asia correspondent for Australia’s economic and business newspaper the Australian Financial Review.
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