Ukraine will implement a procedure for conducting performance assessments for all state-owned banks (SOBs) in 2024: the first such performance assessment will be conducted for each of the banks in early 2025 (based on 2024 performance) and the key findings of the first annual assessment will be published by the Ministry of Finance, together with Cabinet's proposed actions to address the findings, according to a Memorandum of Economic and Financial Policies under the Extended Fund Facility EFF arrangement with the International Monetary Fund (IMF), updated as part of its second review.

"We will continue to strengthen the governance of SOBs. We remain committed to upholding the spirit of corporate governance reforms in SOBs and ensuring their operation on a professional and commercial basis, without political interference on operational matters," the Ukrainian government said in the document published by the IMF.

A fresh slate of independent supervisory board members to the SOBs in the first half of 2023 was appointed.

The National Bank of Ukraine (NBU) is currently applying its fit and proper assessment framework to selected candidates. Upon completion of the selection process in this cycle, we have assessed the effectiveness of the new procedures and will make some minor adjustments to procedures in consultation with IFI stakeholders.

According to the memorandum, a draft law (No. 5593-D) bringing the SOE corporate governance framework broadly in line with Guidelines on Corporate Governance of SOEs of the Organisation for Economic Co-operation and Development (OECD) and to mitigate fiscal risks, will be adopted by early 2024.

This reform, inter alia, aims to establish a regular independent evaluation procedure of SOE supervisory boards and clear criteria for early supervisory board dismissal. Overall, it will strengthen the accountability and broaden the powers of supervisory boards, so they have the ultimate authority to appoint and dismiss CEOs and set CEO remuneration (based on the state’s remuneration policy).

Ukraine will ensure a strong gatekeeper role of the Ministry of Finance in its relationship with SOEs on financial predictability, reporting, transparency, and accountability, including approving the key financial metrics.

During the time of Martial Law and 12 months thereafter, but not for a period of more than 3 years, a minimum level of dividends of state-owned enterprises (SOE) will be set in No. 5593-D. Once the draft Law No. 5593-D is adopted, we will follow up with a new secondary legislation that will implement this law such as the operationalization of SOEs' financial planning process. This will also include a revamped nomination process and effective independent evaluation procedure for SOE supervisory boards, consistent with OECD standards.

The legal framework established by No. 5593-D shall not be applicable to state-owned banks.

In addition, Ukraine is exploring options to strengthen SOE management through the existing SOE corporate governance reform agenda in close consultation with international partners, according to the memorandum.

"Drawing on best practices and putting it into the context of the ongoing SOE corporate governance reforms, we will clearly define the scope and mandate of options for strengthening SOE management, such as centralized modes, including defining the roles and mandates of key government institutions engaged in management of SOEs, such as the MOF, MOE, CMU, and SPFU," the document says.

To start with, we will follow the following SOE reform agenda and policy sequencing in close consultation with international partners, including: passing the SOE corporate governance law; implementing related secondary legislation, including establishing a methodology for and subsequently conducting regular independent evaluations of SOE supervisory boards; as an interim step, assessing the financial conditions and fiscal risks of the SOEs in the state ownership policy by end-March 2024; and producing a comprehensive state ownership, dividend policy and privatization strategy (proposed structural benchmark, end-August 2024).

According to the memorandum, more broadly, Ukraine will also assess the financial viability of key SOEs as an input to developing a framework to deal with quasi-fiscal costs, including legacy Public Service Obligations (PSOs).