EUR 200 million to strengthen the Ukrainian banking system - KfW issues promotional loan for government deposit guarantee fund

Following the conclusion of a framework agreement for loans worth up to EUR 500 million signed by the German Federal Government and the Ukrainian state, KfW today finalised its first individual loan agreement for EUR 200 million. The funds, which are fully covered by a guarantee from the German Federal Government, are designed to improve the financial basis of the deposit guarantee fund, which currently safeguards the deposits of 46 million savers, with a value of up to EUR 7,000 each. The average savings deposit is around EUR 300. Only those deposits held by natural persons are secured, independent of their nationality. In this way, KfW is helping to secure the assets of poorer and middle-class citizens who have been particularly affected by the current frailty of the Ukrainian banking system. As a result of the economic recession and the associated loan losses and outflow of deposits, more than one in four banks among the formerly 180 institutes are currently under state administration or insolvent.

An important aim of this financing is therefore also to strengthen investor confidence in the local banking sector. Thanks to the financial support of KfW, the deposit guarantee fund, which is also responsible for the sequestration of impaired and insolvent banks, has some additional leeway for compensating small savers who have invested their savings in banks now insolvent.

This support from Germany has been provided in close coordination with the Financial Sector Development Policy Loan of the World Bank. The agreements made include sufficient financial provision for the deposit guarantee fund using national budget funds, an improved legal framework for restructuring insolvent banks and quicker processing of deposit reimbursement to small savers, among other things. KfW's commitment is therefore reinforcing the aid from the World Bank and the IMF.

Following the implementation of this initial measure in the financial sector, the framework agreement is set to be further implemented with more projects, which will also be provided with federal guarantees and are aimed at gradually rebuilding the country. These include planned measures for electricity transmission in eastern Ukraine (EUR 150 million) as well as delivery of goods for rebuilding infrastructure (EUR 60 million) and municipal infrastructure (EUR 90 million) in the same region.