$2.2 billion market: who controls Ukrainian currency exchange market

The cash foreign exchange market is booming again: new cash desks are opening, pawnshops are engaged in exchange, so a queue is forming to get the relevant licenses from the National Bank. Customers’ numbers have also increased: the population has sharply reduced the demand for non-cash purchases of dollars/euros in bank accounts. The Minfin Media, a Ukrainian portal about finance and investments, looked into who serves those buying and selling freely convertible currency cash.

First pawnshops emerged on the exchange market: all about the newcomers

Ukrainian pawnshops obtaining currency licenses and launching cash currency exchange is a new phenomenon, they were not doing this business before. Upon official request, the National Bank informed the Minfin Media that currency licenses were issued to 4 pawnshops six months ago.

"In 2023, five new players entered the currency exchange market, four of which are pawn shops. Currently, there is an activation of potential players in the market of currency exchange transactions: that includes new companies and existing financial institutions, such as pawnshops, who intend to expand their business and provide cash foreign exchange trade services" states the NBU response.

In the "NBU Comprehensive Information System" you can find data on the amount of their authorized capital, the network of branches and directors, and the pawnshops` websites display official information about the owners. Accordingly, all 4 institutions have the same shareholders, these are three people: Andriy Hirsin, Yevhen Bilash, Oleksandr Tytarenko.

All institutions were registered in Kyiv, two pawnshops per each address— 16b Ernst St. and 17 Liniyna St. — both in the Solomyanskiy district of the capital.

Each pawnshop has an authorized capital of UAH 6.5 million, but different directors and networks expansion: 

• "I Lombard" — 101 offices, Director — Dmytro Morozov.
• "Dim Microfinance" — 69 offices, Director — Tetiana Vasylieva.
• "Credit Ukraine" — 75 offices, Director — Pavlo Nifantov.
• "E Groshi" — 101 offices, Director — Maksym Bubenchikov.

All institutions were licensed on the same day — October 30, 2023, and then reissued on February 20, 2024. Each pawnshop has two operating licenses: for granting loans in money and bank metals (in the form of pawnshop loans) and the above-mentioned trade in cash currency exchange.

Due to the newness of the pawnbrokers’ licenses, it is possible to assess their performance only as of January 1, 2024, the National Bank has not yet published more up-to-date data. But it is already clear that the leader in terms of activity is "I Lombard" with assets amounting to UAH 282.1 million and revenues of UAH 60.3 million, while the rest of the trio fall far behind it. The assets of "Dim Microfinance" amounted to UAH 6.8 million and revenues of UAH 19,000, while "Credit Ukraine" and "E Groshi" had UAH 6.1 million in assets and zero revenues each.

Financial indicators, UAH million

	Pawnshop	Assets (UAH million)	Equity (UAH million)	Liabilities (UAH million)	Income (UAH million)
1	I Lombard	282.1	7.5	274.6	60.3
2	Dim Microfinance	6.8	5.9	0.9	0.24
3	Credit Ukraine	6.1	6.1	0.04	0
4	E Groshi	6.1	6.1	0.05	0

Data of the National Bank

At the same time, we see that "I Lombard" has significant liabilities amounting to UAH 274.6 million, presumably to shareholders. It is possible that, as additional funds are attracted, the remaining three pawnshops will be able to increase their operations volume.

It is difficult to say whether other pawn shops will be interested in the currency exchange market. Out of 119 Ukrainian pawnshops operating as of January 1, 2024 (156 at the beginning of 2023), there are only 4 currency licenses so far. Although this market`s representatives received the right to foreign exchange activity back in 2022.

Who controls the market 

However, these are not the only newcomers to the currency market. As the National Bank informed the Minfin Media, in 2024 the regulator received 5 license applications for cash foreign currency trade.

"The NBU's approval of these applications will depend on the applicants fulfilling all the conditions of the law under which such licenses can be obtained," according to the National Bank response.

It is considered that interest in cash currency exchange was stimulated by the National Bank canceling all restrictions on the purchase of cash foreign currency via cash desks as of December 1, 2023. A person can buy any amount, albeit under one warning - for transactions over UAH 400.000 the financial institution will require documents and conduct mandatory financial monitoring. It will be required to explain the origin of the funds, and provide, for example, a tax declaration or documents for the sale of real estate, cars, or other assets for the appropriate amount. All this information is automatically transferred to the State Financial Monitoring.

The National Bank assures that postal operators and non-banking financial institutions can freely obtain currency trade licenses within 2 months by submitting a complete package of documents, and subject to compliance with four main conditions:

• Transparent ownership structure.
• Satisfactory financial condition.
• Immaculate business reputation.
• License to grant relevant licenses in UAH.

At the same time, you must be ready for the Regulator inspections. The NBU is quite scrupulous in terms of financial institutions meeting the requirements for cash currency exchange, and punishing for the smallest of offenses.

Financiers, on the other hand, complain from time to time about the excessive meticulousness of the Regulator in terms of the submitted documents.

In response to the Minfin Media’s request, the National Bank reported that 13 players had left the cash currency exchange market since the beginning of the war:

• 12 licenses were canceled by the NBU after discovering the violations of the terms of currency exchange operations and due to non-compliance with the regulator's requirements for the activities of non-banking financial institutions.
• 1 license was canceled at the request of a non-banking institution.

Most often, licenses were nulled in 2022 — 7 at once, in 2023 — 5, in 2024 — 1. The National Bank provided the following dynamics in terms of the number of non-banking institutions on the cash currency exchange market:

• 1 January 2022— 39;
• 1 January 2023— 32;
• 1 January 2024— 32;
• 1 June 2024— 31.

The 31 institutions currently doing business in currency exchange include: 26 financial companies, 4 pawnshops and 1 postal company — JSC "Ukrposhta".

These organizations control 51% of the market of public cash sales and 84% of the market of buying dollars, euros and other currencies. Banks fall behind compared to them in both market fields.

The National Bank provided the Minfin Media with the dynamics of the share of non-banking institutions in the market of foreign currency sales to individuals:

• 2021−2022— 70% of the market;
• 2023— 68% of the market;
• January-May 2024— 51%.

It is clear how the banks gradually regained their positions, increasing the import of cash dollars/euros into the country and sales through their cash desks. Law enforcement officers continued to fight against illegal exchanges that operated without licenses and paid no taxes.

At the same time, Ukrainians mostly exchanged foreign currency with non-banking institutions, which usually offered people more favorable rates, and this is also confirmed by the relevant data of the National Bank. Here is the share of non-banking institutions in the foreign currency purchase market:

• 2021— 66% of the market;
• 2022— 77%;
• 2023— 82%;
• January-May 2024— 84%.

Meanwhile, there is an increase in the total number of currency exchange offices in January-May 2024 — by 6.5% — up to 3.9 thousand cash desks. This includes bank and non-banking institutions` exchange desks.

Who owns currency exchange market in Ukraine 

The lion`s share of cash currency exchange in the non-banking sector is operated by 26 financial companies holding the appropriate license.

The National Bank listed to the Minfin Media the 6 currency exchange financial companies with the most expanded branches as of June 1, 2024, and we raised official data on their owners:

1. "Premium Finance" — 446 desks, 1 major shareholder (91%): Viktor Kysylov.
2. "Alfa-Invest Group" — 392 desks, 3 shareholders: Volodymyr Sichovyi (38,89%), Denys Dmytruk (33,89%), Svitlana Dmytruk (27,22%).
3. "Artem" — 327 desks, 2 shareholders: Yulia Lomova (99,05% акцій), Heorhiy Tiurin (0,95%).
4. "Tsentrofinance" — 313 desks, 2 shareholders: Liubomyr Kostiuk (50%), Vasyl Lutchak (50%).
5. "Oktava Finance" — 289 desks, 3 shareholders: Oksana Brodovska (91%), Liudmyla Bauman (8,99%), Oksana Honcharuk (0,01%).
6. "Magnat" — 273 desks, 1 shareholder: Oksana Brodovska (100%).

These structures prevail in terms of the number of branches, but not in terms of key financial indicators. Although they form a significant share.

For example, the mentioned 6 accounts for only 28.7% of the assets of all 26 companies, 34.3% of the equity, 34.7% of the net financial result (earnings) and 48% of the paid income tax. Although recently financial companies have increased official income and deductions to the state budget.

Although, the National Bank often pointed out two key claims against non-banking exchange institutions:

• Non-transparent currency exchange transactions (there were questions regarding the accounting of all transactions).
• Taxes are not paid in full.

Financial companies faulted with "stealthy" transactions, keeping those off the accounting, underrating the volume of transactions, which allowed not only to circulate large amounts of dollars/euros in the shadow sector, but also to undercount their real profit and, thus, deductions to the state budget. Therefore, the tax authorities and the regulator intensified their inspections.

It worked, which is confirmed not only by the NBU's forced withdrawal of currency licenses from those 12 companies mentioned above, but also by financial statements. According to the results of 2023 (compared with 2022), 26 financial companies holding currency licenses significantly increased all key indicators:

• assets — by 39% — up to UAH 2.9 billion;
• equity — by 76% — up to UAH 1.9 billion;
• net financial result — by 18 times— up to UAH 994.4 million;
• income tax — by 18 times — up to UAH 297.1 million.

Such statistics are explained not so much by a sharp increase in the volume of operations and profitability but by the legalization of the non-banking currency exchange market.

If, according to the results of 2022, 4 out of 26 companies had a negative financial result in the reports of the National Bank — "Europoshta" (UAH 24.9 million), "MSB Finance" (UAH 5.3 million), "Express Currency Exchange Group" (UAH 1.2 million) and "Premium Finance" (UAH 706 thousand), then in 2023 – there was just one ("Profinef"). All companies profited and increased earnings.

The Minfin Media has drawn up ten companies with the highest earnings.

Net financial result, UAH million

	Financial Company	2023 (UAH million)	2022 (UAH million)	Dynamics
1	Alfa-Invest Group	189.4	6.2	▲2964.7%
2	Liberty Finance	153.9	1.8	▲8402.8%
3	Ukrainian Financial Group	113.3	1.3	▲8483.3%
4	Avers	96.7	19.0	▲408.9%
5	Tiger Invest	89.7	0.4	▲21257.1%
6	Tsentrofinance	74.6	0.2	▲32334.8%
7	Magnat	57.2	7.2	▲696.7%
8	Oktava Finance	51.3	7.2	▲614.5%
9	Premium Finance	46.3	-0.7	▲6621.1%
10	Europoshta	28.7	-24.9	▲215.5%

Data of the National Bank

The largest growth rate in financial results in absolute numbers was achieved by the following three financial companies:

1. "Alfa-Invest Group" — by UAH 183.2 million (by 30,6 times) — up to UAH 189.4 million;
2. "Liberty Finance" — by UAH 152.1 million (by 85 times) — up to UAH 153.9 million;
3. "Ukrainian Financial Group" — by UAH 112 million (by 86 times) — up to UAH 113.3 million.

If we assess the percentage growth, then the following financial companies are worth mentioning:

• "Viktoria" — by 394 times (by UAH 12.1 million) — up to UAH 12.2 million;
• "Tsentrofinance" — by 321 times (by UAH 74.4 million) — up to UAH 74.6 million;
• "Tiger Invest" — by 213 times (by UAH 89.3 million) — up to UAH 89.7 million.

According to the results of 2023, only three financial companies displayed a decrease in financial results:

1. "Aksioma" — by UAH 8.8 million (by 63.9%) — up to UAH 4.9 million;
2. "Profinef" — by UAH 7.7 million (by 120.3%) — up to UAH -1.3 million;
3. "Partner" — by UAH 4.5 million (by 72.4%) — up to UAH 1.7 million.

The rest of the companies increased their earnings to a different extent.

So it's not surprising that almost all the top earners are among the top ten taxpayers in their sector.

Income tax, UAH million

	Financial Company	2023 (UAH million)	2022 (UAH million)	Dynamics
1	Alfa-Invest Group	42.3	1.36	▲3010.3%
2	Oktava Finance	35.7	1.65	▲2063.6%
3	Liberty Finance	33.8	0.40	▲8350.0%
4	Magnat	32.7	1.61	▲1931.1%
5	Premium Finance	31.6	0.11	▲28627.3%
6	Tiger Invest	25.7	0.09	▲28456.5%
7	Ukrainian Financial Group	24.9	0.29	▲8486.2%
8	Avers	21.1	0.54	▲3807.4%
9	Tsentrofinance	16.5	0.05	▲32900.0%
10	Aksioma	10.0	3.20	▲212.5%

Data of the National Bank

According to the results of 2023, 1 company out of 26 showed zero numbers ​​in the tax item - "Inome Group", which worked at a "zero" rate a year earlier.

The leaders in asset growth last year were:

1. "Alfa-Invest Group" — by UAH 159.8 million (by 2.2 times) — up to UAH 296.5 million;
2. "Liberty Finance" — by UAH 152.2 million (by 3.1 times) — up to UAH 224.3 million;
3. "Tiger Invest" — by UAH 79.1 million (by 2.3 times) — up to UAH 138.1 million.

They hit top 10 of the largest financial companies by this indicator.

Assets, UAH million

	Financial Company	2023 (UAH million)	2022 (UAH million)	Dynamics
1	Ukrainian Financial Group	479.0	428.4	▲11.8%
2	Alfa-Invest Group	296.5	136.7	▲116.9%
3	Avers	265.3	195.0	▲36.1%
4	Tsentrofinance	229.7	171.3	▲34.1%
5	Liberty Finance	224.3	72.1	▲211.1%
6	Magnat	216.9	165.8	▲30.8%
7	Oktava Finance	212.8	157.6	▲35.0%
8	Europoshta	170.9	158.8	▲7.6%
9	Tiger Invest	138.1	59.1	▲133.7%
10	Finofis	80.1	37.8	▲111.9%

Data of the National bank

At the same time 6 out of 26 companies had a decrease in assets, most significant decrease was with these 3:

1. "Inome Group" — by UAH 17.2 million (by 32.2%) — down to UAH 36.1 million;
2. "Profinef" — by UAH 3.6 million (by 9.8%) — down to UAH 32.7 million;
3. "Obminochka" — by UAH 2.9 million (by 14%) — down to UAH 17.7 million.

Many financial companies increased their capitalization, most often at the expense of current profits. These were among the leaders:

• "Alfa-Invest Group" — by UAH  189 million (by 4.4 times) — up to UAH 243.7 million;
• "Liberty Finance" — by UAH 153.9 million (by 5.4 times) — up to UAH 188.7 million;
• "Ukrainian Financial Group" — by UAH 113.3 million (by 1.9 times) — up to UAH 244.9 million.

An increase in equity capital was achieved by 23 out of 26 financial companies, while only three decreased it.

Equity capital, UAH million

	Financial Company	2023 (UAH million)	2022 (UAH million)	Dynamics
1	Ukrainian Financial Group	244.9	131.5	▲86.2%
2	Alfa-Invest Group	243.7	54.6	▲346.3%
3	Liberty Finance	188.7	34.7	▲443.8%
4	Oktava Finance	174.5	123.2	▲41.6%
5	Magnat	158.8	110.4	▲43.8%
6	Avers	134.7	135.4	▼0.5%
7	Europoshta	133.7	105.0	▲27.3%
8	Tiger Invest	113.1	23.4	▲383.3%
9	Tsentrofinance	96.4	21.8	▲342.2%
10	Premium Finance	56.8	20.4	▲178.4%

Data of the National Bank

Perhaps such achievements will inspire other financial companies, who would like to get a currency license from the National Bank as well and enter the currency exchange. As of the beginning of 2024, there were 531 financial companies operating in Ukraine, and only 26 were engaged in currency business, which is less than 5%.

The $2.2 billion market and the role of banks

The NBU has always advocated the activation of banks in the cash currency exchange market. After all, banks conduct more transparent activities, constantly improve financial monitoring and much less evade taxes, although the issue here remains — the State Tax Service regularly transfers them reserves and other items, as well as adds taxes and fines, that is what the Minfin Media wrote about earlier.

In recent years, two trends have become clear. On the one hand, banks are strengthening their influence on the market of foreign currency sales to the population — because they are the ones who import the banknote from abroad. The National Bank showed the Minfin Media the change in the share of banking operations in cash sales to the population in the total volume of sales of cash and non-cash currency:

• 2021— 59%;
• 2022— 54%;
• 2023— 60%;
• January-May 2024— 69%.

But on the other hand, banks are losing the market of buying cash dollars/euros and other currency from the public, people are still more actively handing them over to non-banking exchange institutions. This is also confirmed by the NBU data regarding the bank share in the segment of purchasing cash/non-cash foreign currency from individuals:

• 2021— 61%;
• 2022— 44%;
• 2023— 51%;
• January-May 2024— 39%.

Banks offer people by far not the most favorable exchange rates for buying the dollar/euro, and that is why Ukrainians turn to financial companies more often. The NBU calls to bankers to work more actively in this segment are not helping yet, bankers prefer purchasing foreign currency as cheaply as possible

At the same time, the cash currency exchange market is booming. In May, when the cash exchange rate soared above 41 UAH per 1 USD and people rushed to buy it, a new record was even set. According to the NBU, the volume of sales of cash currency reached $2.2 billion — the maximum since the beginning of the war. In April it was only $1.9 billion, in May 2023 it was $1.6 billion.

The volume of sales of cash foreign currency decreased slightly — from $1.28 billion in April to $1.27 billion in May. And a year earlier, in May 2023, it amounted to $1.4 billion.

At the same time, the National Bank underlines the major reduction of Ukrainians' interest in non-cash purchasing of dollars and euros via accounts. Individuals can transfer foreign currency to current accounts (with the right of instant withdrawal) in the amount of up to UAH 50,000 per month, as well as to deposit accounts for 3 months — up to UAH 200,000/month. At first, these opportunities were widely used, but now there is a decline.

According to the NBU response to the Minfin Media request, from the beginning of 2024, account balances for such investments decreased rapidly by 37% (by $209 million) — to the equivalent of UAH 14.1 billion. By the current official exchange rate, this is $347 million.

"This is due to objective reasons, in particular, a significant reduction in the difference between the cash and non-cash exchange rates, expansion of opportunities and simplification of the purchase of cash and non-cash currency for the population", explained the National Bank.

Meanwhile, the Regulator assures that the cashless purchase, at the proper time, made it possible to defuse the situation on the cash foreign exchange market. People were provided with dollars and euros during the shortage of banknotes in the challenging wartimes when there were difficulties in importing cash.

"Introducing the possibility of non-cash currency for deposit and non-cash currency on current accounts facilitated the exchange rate expectations and reduced the influence of the psychological factor on the cash rate. The pressure on the cash segment of the foreign exchange market has decreased, the difference between the cash and non-cash exchange rates has significantly decreased, the National Bank currency interventions have also declined, and, accordingly, decreased the expenditure of international reserves to support exchange rate stability," noted the NBU.

According to the Regulator, in January-May 2024, the difference between the cash and non-cash rates was less than 1.5%, which the NBU considers a low level.

For some time, it was expected that the National Bank would increase two cashless limits for the population — from the current 50,000 UAH and 200,000 UAH. However, officials do not promise this at the moment.

"The NBU sees a significant reduction in the population's demand for deposits with non-cash purchase of currency. Therefore, the relevant steps are not being considered yet," replied the National Bank to the Minfin Media.

They emphasized that each step to elevate currency restrictions will be taken only if there are sustainable prerequisites. The National Bank named us 5 specific indicators that will be taken into account:

• Consumer prices growth rates;
• Inflation expectations of citizens, businesses, financial institutions and nalysts;
• The level of the NBU international reserves (foreign exchange);
• Current interest rates;
• Financial sustainability indicators.

"Furthermore, the National Bank will thoroughly analyze the possible impact of elevating restrictions on the economy and macro-financial stability. This is required so that the revision of currency restrictions does not threaten the preservation of price and financial stability, which is the main mandate of the NBU," summed up the National Bank.

 

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