Bank owners, managers and connected parties can now be held responsible for the insolvency of financial institutions. Apart from personal financial liability, deliberately driving a bank to bankruptcy could be a crime punishable by up to five years in prison, according to a law passed by the Verkhovna Rada on March 2.
The law also adds transparency to the sector by making information on major shareholders public as well as ultimate beneficiaries.
“This legislation aims to challenge the longstanding tradition of opaque banking – when the main purpose of a bank is to collect deposits and finance businesses related to the owners,” said Mykhaylo Demkiv, banking sector analyst at ICU investment house.
Speaking in Verkhovna Rada on March 6, National Bank of Ukraine Governor Valeriya Gontareva said adopting the law is a prerequisite for further cooperation with the International Monetary Fund.
“Total losses caused by the illicit actions of banks’ shareholders and managers currently amount to Hr 58 billion ($2.7 billion),” she said. By Feb. 25, depositors of insolvent banks got Hr 18.5 billion ($860 million) reimbursed by the state.
“If we had had such an instrument (like the new law) before, this sum would have been much smaller,” emphasized Gontareva. “Every shareholder or manager planning to divest the assets and attribute it to the crisis would have thought thrice before taking such a decision.”
Currently the owners and managers may also be called to account if creditors’ charges on the insolvent bank exceed its asset value at liquidation. But the procedure is long and complicated and rarely enforced.
ICU’s Demkiv believes the new legislation is set to succeed as similar measures worked well in other countries like Turkey during the banking crisis of 2001. Weak law enforcement in Ukraine is likely to become an obstacle though.
Bankers are also reacting positively to the change.
“This is how it should be,” Andriy Onistrat, head of National Credit bank, told the Kyiv Post. “I don’t like when our profession is equated to swindlers who do something wrong and then the consequences are born by the rest of the stakeholders.”
However, Onistrat believes that not only banks, but all other companies should be obliged to disclose their owners.
“Those processes that are ongoing now in the central bank are quite positive. Everything that was long discussed is now being implemented every day, so fast, faster than in all other sectors,” he added.
According to Yevhen Pentsak, an expert on finance with Kyiv Mohyla Business School, the new law does not have severe enough punishment to prevent corrupt practices.
“For many years we observe that the National Bank is not able to prevent some banks from money laundering and speculative behavior with foreign currencies. We need definitely more general law on banking regulation which includes best foreign practices,” he said.
Oleh Zahnitko, attorney at Gide Loyrette Nouel law firm, said the new law will not necessarily be successful.
“The most controversial point of the law is that banks should act in a good faith, however this is difficult to evaluate,” he said.
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected].
