Five necessary reforms to restore the banking sector of Ukraine

Пять необходимых реформ, чтобы восстановить банковский сектор Украины

Now the banking sector of Ukraine is experiencing not the best times. Rather, the worst, but this does not mean that nothing can be corrected. Even the most critical situation, you can find out if you do the right thing and smart. But it must be done now, tomorrow may be too late.

In order to fix all the mistakes made by the leadership of the NBU in recent years, you must:

To restore licenses to banks that were illegally closed by the NBU. The question here is not in the whims and grievances, you just need to admit their mistakes and time to correct them. We have a mechanism of transition banks. And experience Bank “Crystal” (the former Bank “Terra”) has shown that it is efficient. Therefore, the leadership of the NBU need to run the recovery process of the banks that were closed in error or for political reasons. This is, firstly, would provide an opportunity to reassure the population, and secondly, created conditions for a refund to the business that had accounts in the closed banks, and natural persons who had deposits of more than 200 thousand UAH. This means that you need to restore all the banks that have been closed over the years. But some banks, which today is really possible to revive, we need to recover and never to violate the laws. The banking system does not like chaos and the leadership of the NBU, first of all requires stability and conservatism in the observance of laws, not emotions and political games.

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Lending in Ukraine is not working and it is a sad fact. The data on the website of the NBU show that the volume of loans to business and individuals decrease and decrease. The number of problem loans is already about 30% of the total number of loans. And the economy can not do without normal lending. But to recover the loans can and need to do this, simply enable the banks to operate normally. Ukraine’s economy is not the US economy or the EU. You can’t just not notice the “shadow economy” or to think that the Ukrainian companies can work in this mode as a European company. In order for Ukrainian companies to work in the EU need more than a dozen years, and now we need to alter the regulations that reglamentary lending in Ukraine, taking into account the Ukrainian specificity. Also it is pointless to require banks to evaluated by potential borrowers in the EU, if Ukraine is not EU. Banks know how to protect their credit risks, but don’t want to disturb them and create more problems. This primarily applies to captively and solvency assessment, and collateral evaluation. Need more to really look into our market, not to fantasize.

The foreign exchange market is now being criticized from all sides. And with good reason. Prohibitions on the foreign exchange market can work only when they are short. In Ukraine foreign exchange restrictions, the NBU has already turned into “an old wound that cannot heal”. The volume of purchase-sale of foreign currency on the interbank currency market fell to a critical level. And if we do not take measures to ease foreign exchange restrictions, the “wound” will only rot. You will need to enter the “currency corridor”. This practice was in the mid 90-ies and have shown positive results. “Currency corridor” will significantly calm the appetites of currency speculators. And most importantly – it will be an incentive for the population to change the currency on the hryvnia. It is the currency uncertainty and encouraging the public to buy dollars. Should this uncertainty be removed. How to remove restrictions on the foreign exchange market that do not work.

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The fact that now banks actively invest money in the NBU Deposit certificates and government bonds, this is both good and bad. Operations with NBU Deposit certificates and bonds is a good monetary tool which allows you to adjust the amount of money in the banking sector. But one should not be overly involved in these transactions to the detriment of the lending business. And that is what is happening now in the banking sector. So on one hand it would be necessary to limit the volume of Bank operations with this kind of financial instruments, on the other hand it would be nice to extend the use of these tools, so that individuals could easily invest the money in certificates of Deposit, Bank and government bonds as an alternative to Bank deposits. This would give greater effect in the financial market than the one that is right now.

The development of the market of payment cards is a thing that really could be a driver for the Ukrainian banking system. Moreover, traditional and e-Commerce increasingly use payment cards for payments for goods and services. It is the development of new and modernization of existing payment systems and should encourage the NBU. Incentives can be in different areas – from improving the regulatory framework and expand new payment systems to technology support of processing centres and clearing banks. It is very important to make it clear to the Ukrainians that there will be no more Bank closures. Ukrainians will always be afraid of credit cards, yet there are endless bankomaty. Money likes silence. And the banking system stability.

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As you can see, all you can do. It is clear that the banking system of Ukraine after such a collapse will not be able to recover very quickly. But if current or new management of the NBU will start these reforms, we can expect that in two to three years the banking system will earn in a normal mode, without the erroneous advice of the IMF and the “reform of the NBU”.

Alexander Okhrimenko

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