Building a Partnership with Ukraine

Change to political priorities brings us to the issue of European leadership, one debated for years: which country or countries are setting the pace for events across the continent? What has war in Ukraine changed in this context?

First and foremost, this war has served to point to the United States’ intact position as leader of the Western world and guarantor of European security, in Central and Eastern Europe in particular. US President Joe Biden’s has made yet another visit to Poland, confirming that position. As United States ally, Europe is very much aware of the significance of the decades-old alliance. Concurrently, Europe is awash with debates concerning the correct magnitude of aid for Ukraine. We have been observing an increase in the number of countries realising how important it is to take a tough stance against Russia - as proven by French President Emmanuel Macron’s interventions at the Munich Security Conference. It goes without saying that in our part of Europe, Poland’s position is of key importance - in terms of her central political rank in the region combined with extraordinarily significant military power. Governmental plans to reinforce the army are an unquestionable contributing factor to our country’s strong international position.

Moreover, war has given rise to economic policy reviews, the exercise indubitably affecting the banking system as well. What are the key consequences of war in Ukraine from that particular perspective?

Cybersecurity is of pivotal significance here. Over the months preceding the war - and after it had broken out - we have been observing multiple activities targeting banking system security gaps. Banks realised they needed to get themselves organised, reviewing and bolstering their security systems. In general, it would be valid to claim that the Polish banking system passed with flying colours. Our clients did not have any sense of ratcheted cyberattacks, neither were they greatly affected by continual system testing and enhancement. We know it for a fact that Polish banks have been and are safe and secure.

Cybersecurity pressures apart, has the war changed anything in banking procedures or operational modes?

It goes without saying that the banks’ role has been expanded within the framework arising from regulations introduced as a direct outcome of warfare, sanctions against Russia. We are obliged to monitor all transactions in terms of respecting sanction duties, money laundering suspicions, etc. Yet there have been no principal changes to customer service. Just like every other bank, we observed a surge in cash withdrawals after the war had broken out - a symptom of a general sense of uncertainty in the client community. Banks with branches in Ukraine have been suffering their own issues. While Bank Pekao is not one of them, our clients are among those afflicted by warfare. Today, business life goes on, the economy is developing, our customers safely using our full range of banking services.

We have been exposed to recurrent warnings against letting the war become old. Poland has been subscribing to the appeal internationally while pointing to the need to provide Ukraine with regular aid. Here’s something of an anti-thesis: how can one run or plan a business with war going on beyond our eastern border?

Macroeconomic conditions are of pivotal importance to business conditions: interest rates, cost of credit, the inflation rate, remuneration pressure, price levels, cost of manufacturing resources. Our clients take all of the above into consideration when making or postponing investment decisions, when taking out or walking away from bank loans. This bears a direct influence over long-term risk assessment, and all related investment decisions in consequence. While supporting Ukraine, we continue analysing Poland’s internal situation as a priority, assuming that a decline in inflation will result in lower interest rates and thus lower cost of credit. Foreign companies considering the option of investing in Poland and other Central and Eastern European countries, on the other hand, most certainly see our part of the Old Continent as an elevated risk area because of war, which obviously translates into lower investment propensity. This is why - among others - our military security and shoring up the Polish army are so important, NATO-related security guarantees notwithstanding. This would serve as confirmation that Poland is safe military-wise as well, and thus a continuously worthwhile investment area of interest.

How important will the Polish banking sector be in terms of Ukraine’s recovery?

We as the Bank Pekao will always stand behind our clients. We have our own reliable mechanisms we can resort to when supporting any activities linked to commodities and services exports - such will be the exact activities required in terms of restoring destroyed Ukrainian infrastructure. Construction companies joining the recovery effort or selling infrastructure repair components will surely need banking assistance. One should also plan for unexpected eventualities, requiring banks to become somewhat more flexible. The most important thing of all is for our clients to be provided with firm banking financial assistance they can actually take advantage of during the recovery process. Solutions allowing the use of state funding for such purposes, European Union aid packages, for example - will certainly be an option as well; we hope to carve out a place for ourselves in the field. Discussions with representatives of the European Investment Bank and European Bank for Reconstruction and Development are now in progress, as pointed out in Davos by Vice-President of the EBRD Alain Pilloux. Moreover, we are already seeking partners in Ukraine’s banking sector to join forces with for recovery project purposes. While this is but a tentative phase of the process, we are letting the Polish government and international financial institutions know that we will be ready to back the process once the Polish approach to related activities has been manifested.

In reference to your experience as former governmental plenipotentiary for supporting reform in Ukraine, among other things, what is your take on the future of the Ukrainian economy once the country enters a firm path of close collaboration and relations with the European Union?

It seems that traditional sectors will remain the driving force behind Ukraine’s economic growth. The Ukrainian economy rests upon two pillars: natural resources and agriculture. In the case of the former, this translates into a strong position in the field of industrial resources, such as steel or titanium, for example, albeit one has to bear in mind that some of the industrial facilities in east Ukraine have been annihilated. In the case of the latter, one might expect the development of effective agricultural production, an unquestionable forte of the Ukraine’s economy. Other sectors will certainly evolve as well - IT services in particular, according to multiple expert forecasts. Yet tying growth to traditional sectors while abating corruption-associated risk - flagrant in the years immediately preceding war - will warrant sound economic dynamics for Ukraine, especially if boosted with aid packages. As a result, we will be witness to a robustly developing economy, its importance across Central Europe growing. Ukrainian partnership and association with the European Union, with a longer-term membership perspective, will surely become a boost for the country’s economic growth - and development across the sturdiest economic sectors.

What will Polish-Ukrainian relations be like after Ukraine wins the war?

I believe we are already in dire need of a debate regarding strategic partnership. Ukraine most definitely is and will remain a country with its own aspirations and assertiveness in terms of visions of the future, given the wartime costs it was forced to face. Nonetheless, it will be important for Poland to consistently build partnership relations with Ukraine - while not forgetting Belarus. Ukraine’s victory may bring political change to Belarus, with extraordinarily favourable outcomes for our region’s security - and economic growth across all of our countries.

MB

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