Inflow of foreign direct investment (FDI) to Ukraine dropped four-fold year-on-year to $711mn over the first six months of this year, according to the Ukrstat state statistics agency in Kyiv.

The plunge in capital inflow is the consequence of a waning recapitalisation process in the banking sector, which was almost entirely driven by Russian banks that have since been expelled, Alexander Paraschiy at Kyiv-based brokerage Concorde Capital wrote in a research note on August 30.

"The decline in this kind of investment was predictable but we anticipated a stabilised economy would draw more capital inflow to the real sector, the expert added. "So far those expectations have not come true and current numbers are far below our initial estimates. Net capital inflow was only $504mn for January-June, and so far we do not observe any sign of improvement." 

Paraschiy added that the recapitalisation of Ukrainian banks accounted for more than half of FDI in the first half of the year and ironically made Russia the biggest foreign investor into Ukraine last year - despite the war between the two countries. Specifically, VEB's Ukrainian subsidiary Prominvestbank was recapitalised by UAH10.5bn during this period.

The trend means Ukraine can expect nearly $1bn net FDI (excluding bank recapitalisation) in 2017, according to Concorde's forecast.

Earlier, the National Bank of Ukraine (NBU) refused to approve the acquisition of the local operations of Prominvestbank to local businessmen Maksym Mykytas and Pavlo Fuks. Russian state-owned banks are seeking to exit Ukraine due to Kyiv's sanctions on them, blockages and vandalism of the bank's property earlier in the year amid plummeting relations between Kyiv and Moscow.