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What to expect from the banking market in the nearest future? Opinion of the Head of the National Bank of Ukraine, Valeria Gontareva

On the 8th of August, for the first time since she took the office, the Head of the National Bank of Ukraine (the NBU) Valeria Gontareva spoke to the press. They touched upon the year plans, banking stress-tests, cooperation with IMF and gryvna rate, administrative measures for the currency market and Russian banks in Ukraine, specifics of banking in the Anti-terroristic operation (ATO) area and the possible liquidation of the State financial services. Vector News Agency provides the most interesting and important statements of the briefing.

Action plan-365

The liquidation of insolvent banks. There should be no financial institutions that do not care at what rate to attract the investments. For these banks it is a one-way road. They are not planning on returning this money. Another vector of the NBU work is the liquidation of banks that fell under the monitoring of suspicious financial operations. In 2013, 294 billion UAH were converted into cash through this kind of banks. Today the legislation provides for the NBU to stop the work of these banks and declare them problematic.

«Stress-tests» and bank capitalization 

Fifteen largest banks successfully passed the “stress-tests”. The testing is ongoing with regards to 20 more banks. These 35 banks make 80% of the banking system assets of the country. These financial institutions stabilize the entire sector and remove the system risks. According to the preliminary results of the stress-tests, several banks with Russian shareholders require additional funds. It is necessary to realize that the NBU provides the market players with liquidity, but not with the assets. Therefore an authorized capital support program will be established within the framework of cooperation with IMF and the World Bank agreement. The World Bank confirmed its willingness to provide Ukraine $500 millions for financial stability and the Deposit Insurance Fund support. From now on, in part, due to the legislation amendments, there is no need to worry that the Deposit insurance Fund will run out of money.

Cooperation with the IMF

Ukraine has fulfilled all the preliminary requirements necessary to receive the first IMF loan tranche. The IMF has confirmed that “Ukrainian issue” has been put on agenda of its Executive Board meeting led by Christine Lagarde on August 29.

Ukrainian Hryvnia Rates

Linking to the “hard currency” no longer exists. Since April 2014 Ukraine switched to the flexible exchange rates. It is too early to speak about the free rates. The free rates means there are no limitations on import-export operations and capital flows. There are still such limitations in Ukraine. That is why Ukrainian Hryvnia is yet to become a freely convertible currency. The flexibility of exchange rates means that the NBU is not going to fix the rate within certain margins. That is a far cry from saying that the NBU will not be a member of the market; the bankers do not intent to cover up the realistic state of the market. Being an active member of the market, the NBU will calm down the panic spread amongst citizens. There will be no assets expenditure. 

Russian banks in Ukraine

The capital share of the banks with Russian shareholders is 18,5 billion UAH, which is 35% of the overall foreign authorized bank capital in Ukraine. Their active assets compose 13% of the system. The NBU tightened control over the banks with Russian state assets. The NBU does not make decisions about possible sanctions against Russian businesses; however, the bankers gave their recommendations on control enhancement.  With regards to the possible disinvestments on behalf of Russian banks, there is an opposite tendency - of liquidity inflow to Ukraine - at the moment. The outflow of personal deposits from the banks with Russian state capital went beyond the average market level and comprised up to 50%. Yet it did not touch upon the NBU refunding. 

The right of the banks to destroy paper money and documents in the ATO area

Initially, the NBU was skeptical about the destruction of cash and bank letters in force majeure situations. However, this is about choosing the lesser of two evils. “The greater evil” occur if the money and documents fall into the enemy's hands. At the moment, the technical procedure of destruction is made clear. The amounts of cash to be destroyed are very limited. Nothing can be destroyed without the NBU authorization.

The possible liquidation of the State financial services

It might be a practical yet premature initiative. There had been an extensive work in cooperation with international experts aimed at reducing the number of regulation and control services. The easiest solution would be to incorporate the State financial services into the NBU. In case of Committee liquidation, the NBU will take control over the lombard credits, credit unions, collection agencies and insurance companies. The National Securities and Stock Market Commission will incorporate the non-governmental pension funds.

 

What to expect from the banking market in the nearest future? Opinion of the Head of the National Bank of Ukraine, Valeria Gontareva
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