The Ukrainian Parliament is set to ratify a landmark agreement that establishes the legal framework for the Polish Development Bank – the Bank Gospodarstwa Krajowego (BGK) – to operate fully in Ukraine. This move is designed to accelerate Ukraine’s recovery by providing a direct channel for financial and technical assistance to both public and private sector entities.
Key financial tools to be made available
BGK’s mandate will cover a broad range of instruments intended to reduce the friction of doing business in a wartime environment. These instruments include:
- Direct funding: Loans, grants, and export support available in EUR, USD, and other currencies.
- Bank guarantees: Unconditional, irrevocable, first-demand guarantees for banks operating in Ukraine.
- Technical assistance: Capacity building and institutional strengthening for both state and private companies.
- Broad operational power: BGK has the authority to negotiate contracts, issue financial instruments, and hire personnel directly to implement projects.
Wartime solutions: addressing business pain points
The agreement with BGK specifically targets the "bankability" of projects during martial law by addressing three critical hurdles:
De-risking for local banks
Local banks are often hesitant to take on performance or payment exposure during the war. The agreement will attempt to address bank de-risking in the following ways:
- Collateral recognition: BGK-issued guarantees (backed by the European Commission or Poland’s Ministry of Finance) are intended to be treated as high-quality eligible collateral for Ukrainian banks.
- Regulatory alignment: the National Bank of Ukraine (NBU) is expected to recognise BGK-backed exposures in its prudential calculations, aligning with EU-style frameworks.
- Benefits: the above policies will increase the willingness of local banks to finance transactions and can lead to better pricing and longer loan tenors for corporate borrowers.
Currency convertibility & transfers
One of the largest constraints in wartime is the ability to convert the Ukrainian Hryvnia (UAH) to hard currency and remit it abroad for debt service or supplier payments.
- Priority access: the agreement establishes a specific regime for BGK and its beneficiaries to purchase foreign currency and transfer it outside Ukraine.
- Cross-border servicing: transfers will be facilitated by servicing banks to BGK accounts outside Ukraine using prevailing market rates.
- Benefits: the above significantly reduces "convertibility risk" for international investors and suppliers.
Streamlined procurement
Although standard public procurement can be slow, projects supported by BGK will follow its procurement procedures.
- Speed and integrity: these procedures are aligned with international development finance practices, which are typically faster and more standardised.
- Benefit: using BGK procurement procedures will be critical for time-sensitive wartime reconstruction where speed is as important as transparency.
Business takeaways
For more information on Ukraine’s agreement with the BGK, contact your CMS client partner or the CMS experts who contributed to this article: Ihor Olekhov.
