Trade Finance In Wartime

The huge drop-off in trade involving Russia and Ukraine has hit trade finance hard.


According to the World Bank, Ukraine’s GDP over 2022 will have contracted by some 35%. Further decline is expected for 2023, as the full economic implications of Russia’s war become clear.

The international media has rightly focused on the huge disruptions to supply lines, including shipments of Ukrainian grain from Black Sea ports, where Moscow repeatedly broke agreements allowing exports to desperate customers overseas. Now, with winter here, Russia’s targeting of Ukraine’s energy infrastructure has cast much of the population into freezing darkness and has massively disrupted business. Power cuts have rendered digital point-of-sale systems unreliable, prompting a widespread return to cash. Regular business tasks are now fraught with uncertainty.

“We’ve had to continue doing our job with electricity shutdowns for 12 hours a day, sometimes more, with four hours of power followed by four of none [being] not unusual,” says Serheii Kostogryz, head of the Trade Finance and Factoring Department at Raiffeisen Bank in Kyiv. He says 40% of the staff now work remotely.

“Business continuity is hard to maintain when your priority is the safety of your staff and knowing you might all soon have to head to the basement,” he says. “So far, we manage it very successfully—clients can depend on us 24/7.”

The huge drop-off in trade has of course severely impacted trade finance. Many of the correspondent banks that used to do regular business pulled away, while long-term financing projects have been pretty much shelved across the board. Export credit agency (ECA) coverage is scarce in the extreme. In many cross-border transactions, cash is king.

Against such a backdrop, Ukraine could have effectively ceased to be a modern trading nation. But the central bank worked to foster normality and bolster monetary confidence, increasing interest rates from 10% to 25% on June 2. In July, the Ukrainian hryvnia was devalued by some 25%, to 36.9 hryvni to the dollar. This prevented big trade finance outflows from the monetary system. Today, trust in Ukrainian banks remains high and lending continues.

“Unlike some other banks, RBI Group continued to service the market locally via RB in Ukraine and with cross-border trade finance transactions, securing the import of critical civilian goods,” says Martina Zimmerl-Egger, head of Trade Finance at Raiffeisen Bank International (RBI) in Vienna.

RBI has been helped by its long history in Ukraine—it bought local bank Aval in 2005 and now has over 300 branches in the country, 85% of which continue to operate despite the disruption—and by its successful prioritization of corporate trade finance.

But it hasn’t been acting alone. At least 10 banks—seven private and three state owned, have been doing their utmost to keep trade flowing with imports (especially for the agricultural and energy sectors) and exports (notably of grain) deemed key to Ukraine’s survival and eventual postwar emergence as a viable state. Although many transactions are indeed cash based, trade finance continues to play an important role here, with international and local bankers working together to ensure that financial and product flows are maintained and protected. Olexander Shchur, board member at Ukreximbank, says that during the first nine months of the full-scale war it became a leader in providing finance of a record 23 billion hryvnia to Ukrainian enterprises.


“Our operational system remains stable,” says Shchur. “When there is no power supply, Ukreximbank continuously serves customers face-to-face with backup sources.” He adds that the bank has managed to significantly reinforce digitalization and IT.

“The system is so stable it allows even complex processes to be carried out remotely without interruption, without the need for customers or employees to be physically present on the bank’s premises,” he says. “And Ukrexim was already providing credit financing to clients soon after the [February 24] invasion.”

Shchur says that Ukreximbank uses a wide range of trade finance products including “nonresource financing in the form of all types of bank guarantees and confirmed letters of credit, as well as trade finance within the limits of foreign banks using letters of credit with post-importation financing, negotiation of documents for export letters of credit and discounting of letters of credit with deferred payment.”

Unsurprisingly perhaps, the focus of bank trade finance has changed with the realities of war, away from supporting Ukrainian exports and toward financing the essential imports, especially of pharmaceuticals, energy and agricultural inputs. A major grain exporter, Ukraine is relatively self-sufficient in food.

Vladislav Berezhny, director of trade and structured finance at Credit Agricole in Ukraine, says the war nicked 10% from the bank’s trade finance portfolio and new originations, with volume expected to fall further by early 2023. Many banks have retained links with the country, he says, and are keeping existing credit lines open. But the day-to-day challenges remain huge.

Raiffeisen’s Kostogryz says transaction cycles that were typically 90 days before the war are today stretched to 150. Transactions requiring physical paperwork have been a challenge, with international couriers suspending activities in Ukraine; and he says that bankers have often had to carry documents in their luggage.

Longer financing periods are caused to a large extent by hiccups in logistics, where costs have risen several times over since February 24. Some 30% of storage capacity for grain—a major export—has been destroyed. Shipping has been complicated by access to seaports, leading to a pickup in exports via rail and river barges that pushed many businesses to western Ukraine, with export financing needing to be adjusted accordingly.

But Kostogryz stresses there has been no interruption in service, with the bank continuing to provide all its main products and putting in place a range of backup and risk-dispersal systems. “The fact that staff is dispersed throughout Ukraine and even in some neighboring countries, means a majority of the trade finance team have access to electricity and internet,” he says. “Our business continuity management ensures that major offices are equipped with generators and several internet providers are actively used.” RB is now providing portable phone chargers and access to satellite internet to keep day-to-day activities unharmed even in case of longer blackouts.

“Under difficult circumstances, the Ukrainian bank sector managed quite well,” he adds. “And Covid-19 helped us get used to working in hybrid mode.”

However, with foreign banks and customers understandably jittery, the role of international financial institutions like the International Finance Corporation in guaranteeing transactions has been key. The European Bank for Reconstruction and Development (EBRD) has firmly committed to supporting Ukraine (suspending activities in Russia and Belarus) with the country now receiving, after Turkey, more investments than any other: some 1.5 billion euros (about $1.6 billion) this year with the same level expected next, to be invested in such sectors as food and energy security and energy infrastructure, all severely damaged by Russia.

But guaranteeing trade through EBRD’s Trade Facilitation Program (TFP), backing local banks, has been vital. According to Rudolf Putz, head of the TFP, the bank supports around 40 trade finance transactions a month with 10 partner banks in Ukraine (mainly cross-border with the Black Sea deemed too insecure).

“Priority is given to transactions that are transparent, where we know the end users, and what best helps the country,” says Putz. “This often means the agricultural sector, but also other critical sectors to support private companies’ livelihoods.” Continuity is built on a solid foundation. “Our advantage is we’ve been working with these banks for 20 years,” he adds. “We have trust and established lines of communication.”

EBRD echoes the view that Ukrainian banks have been extremely resilient—especially those that have continued lending with EBRD acting as guarantor—while correspondent and foreign subsidiary banks that remain also play a key role. “These tend to be the banks that know the region and want to be involved for the long term,” says Putz. “They know their expertise and support will be needed after the war, when Ukraine starts to rebuild.”

Banks say they are ready. “In the medium term, we believe agriculture, imports of equipment for the energy sector, alternative energy and construction materials will be top priorities,” says RB Ukraine’s Kostogryz. “Long term economic recovery will require long-term imports of equipment for rebuilt and newly created industrial companies.”

Ukrexim’s Shchur echoes this, “At such a fateful time, we really want to encourage prominent foreign banks and ECAs to become more actively involved in trade finance operations here. Right now, a friend in need is a friend indeed.”

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