The National Bank of Ukraine has spoken out against the plans of Party of Regions lawmaker Evgeniy Sigal, who on Feb. 26 registered draft laws banning foreign currency accounts for individuals and introducing a 25 percent tax on interest earned on deposits.
While arguing this proposal could harm
Ukraine’s fragile banking system, though, the central bank
continues to push for greater oversight of the nation’s finances.
“As the regulator of Ukraine’s
banking system, the National Bank of Ukraine does not support the
initiative to ban accounts in foreign currency and taxing interest
earned on deposits,” the bank’s press service informed on March 6.
The central bank’s statement pointed to
an increase in individual’s deposits of Hr 15 billion ($1.85
billion) in the first two months of the year, suggesting that a
fragile recovery of Ukraine’s banking system was the central bank’s
main concern.
Ever since the 2008-9 crisis, which
brought a 15 percent drop in gross domestic product and a 40 percent
devaluation, Ukraine’s banks have steadily been reducing debt. The
loan-to-deposit ratio notably fell from around 2.3 to around 1.6, but
remains the highest in the region.
A recent report by Raiffeisen Bank
warns that “the price for excesses during the boom has not yet been
fully paid.” In particular, the report noted that Ukraine’s bank’s
continue to suffer from a large level of non-performing loans and is
exposed to large foreign currency risks.
The one bright spot has been an
increase in household deposits, which grew 22 percent in foreign
currency in 2012, while hryvnia ones saw a softer expansion at 16.5
percent.
This influx of liquidity is one of the
reason why exorbitant interest rates for corporate credits, often
exceeding 20 percent in hryvnia (loans in foreign coin are still
banned), have edged down somewhat. It also helped fund the lucrative
retail loans to households, which increased 19.3 percent in 2012.
Together with lower loan loss
provisions, this helped Ukraine’s banking system see its first
profit in three years.
Thus, it appears that the NBU is mainly
motivated by avoiding a decision that would prevent it from nursing
the banks back to health and increase the risk stemming from a
possible devaluation risk.
“The management of the NBU is
concerned about the politicization of economic issues. Unfortunately,
(the proposed changes) are the result of insufficient work on the
those issues for which legal innovations are being proposed,” the
central bank statement read.
Meanwhile, the push for greater
oversight of Ukraine’s financial system continues. Earlier this
month the central bank declared its intentions to push forward with a
ban on cash transactions exceeding Hr 150,000.
The NBU gained the right to impose such
a limit owing to a law passed in the second reading by parliament on
Sept. 18 last year. While no precise figures were mentioned, the
central argued that this would help pull money out of the shadows and
contribute to economic growth.
Cash currently accounts for a quarter
of Ukraine’s money supply, a high figure that is nonetheless
falling and is currently at a 10-year low. Meanwhile, cashless
transactions doubled from 2011 to 2012, from Hr 46 billion to Hr 92
billion. This is encouraging news for an NBU pet project of setting
up a controversial national payment system – essentially a
competitor to the electronic payment system dominated by US-based
Visa.
With much bigger fish to fry, it seems
the NBU doesn’t want to be sidetracked.
Kyiv Post editor Jakub Parusinski
can be reached at [email protected]
