S&P Global Rating (S&P) has assessed the banking system of Ukraine as highest-risk system under its Banking Industry Country Risk Assessment (BICRA), S&P has said in its report.

"The economic risk in the Ukrainian banking system remains one of the highest in a global comparison, as reflected in our score of '10' [the highest-risk systems], despite some improvements in the macroeconomic environment in 2016 and expected further improvements in 2017," S&P said.

The major factors of high financial and operational risks for Ukrainian banks are negative impact of unpredictable security situation in eastern Ukraine on GDP growth and political infighting.

The sovereign government remains under credit stress because of significant foreign debt repayments in 2018. The corporate sector is highly leveraged with about 80% of debt in foreign currency.

"We expect the industry risk for banks in Ukraine to remain extremely high in global terms, in line with our score of '10'," S&P said.

S&P expects Ukrainian banks to show very high credit losses and problem loans in 2017. Systemwide funding remains prone to deposit outflows and narrow and shallow debt capital markets.

"We view the institutional framework and governance and transparency in Ukraine as weak. In late December 2016, Ukraine's largest bank, PrivatBank, was nationalized to safeguard the savings of the population and ensure the stability of the banking sector," S&P said.