Ukraine has always had a bewildering number of banks, many functioning as nothing more than giant piggybanks for the companies and tycoons that set them up. The National Bank of Ukraine’s tightening of regulations has already led to many of them closing, however.
More than 60 banks
are now in the process of liquidation and an additional five banks are under
temporary administration, according to the NBU’s website.
“Ukraine has made
(a lot of) progress. Since 2014, the country has seen the closure of over 50
banks with opaque ownership structures, excessive related party lending and
weak management and corporate governance,” reads the Transition 2015 report by the European Bank of Reconstruction
and Development, which was published on Nov. 10.
Empire State
Capital Partners, a Kyiv-based investment firm with Western roots, agreed with
the EBRD’s assessment: “We see the banking sector to have come to the forefront
of the country’s reforms, with support from international financial
institutions.”
More closures are
likely over the next year as the NBU continues its plan to root out banks that
fail to meet the new requirements, which are focused on building capital and
reducing insider lending.
The new measures
stipulate that a related party loan must not exceed 1 percent of a bank’s
regulatory capital per individual, 3 percent for legal entities and 25 percent
overall. The NBU has also said that all banks must reach a 5 percent
capitalization by the end of 2016, and 10 percent by 2018.
“The asset reviews
and stress tests being performed (by the NBU) on the country’s 20 largest
banks, which represent 81 percent of the sector’s assets, are likely to uncover
additional problem loans,” Fitch Ratings said in a statement on Oct. 31.
One of the reasons
for the problem loans, or loans that are delinquent by more than 90 days, is
the pervasiveness of insider lending. The danger of the practice being that the
bank’s owners or their partners can destroy a bank’s balance sheet – to the
detriment of any unconnected depositors.
Insider lending has
been a problem since independence. The Ukrainian banking sector was largely
founded to serve the needs of shady business people rather than the population.
And the central
bank has shown it is not afraid to take down some of Ukraine’s biggest banks if
they fail to meet the new requirements. In March, the NBU declared insolvent
Bank Delta, formerly one of the five largest banks in Ukraine, owned by banker
Mykola Lagun, because of the poor state of its assets.
PrivatBank,
Ukraine’s largest private bank and the country’s biggest lender co-owned by
oligarch Igor Kolomoisky, has also not escaped scrutiny.
Serhiy Rybalka, the
head of Ukraine’s parliamentary finance committee, told journalists on Nov. 11
that Privatbank could be nationalized if its shareholders fail to fulfill its
recapitalization plan.
On Nov. 16, Privatbank
extended its subordinated debt on international markets, which increased its
regulatory capital by $220 million. Its capitalization is now at just over 11
percent. Valeriya Gontareva, the governor of the NBU, says the bank has now
fulfilled the whole recapitalization program agreed with the NBU.
The NBU further
clarified in response to Rybalka’s statement that banks must also reduce
insider lending by the end of the first quarter in 2016, and the necessary
measures will be applied to those banks that fail to meet the standards.
Despite praise from
Western institutions for the NBU’s effort to clean up the sector, a few experts
are skeptical that the NBU’s efforts are free of political bias.
“In Ukraine there
is no economics, only politics,” Oleksandr Okhrimenko, an economist and
president of the Ukrainian Analytical Center, told the Kyiv Post by phone.
“The NBU should be
supporting banks, not destroying them. Look at the banks which were closed:
UkrBusinessBank, (which investigative journalists have linked to the son of the
disgraced former president Viktor Yanukovych), Bank Forum, owned by an oligarch
(Vadim Novinsky) linked to the former regime, Bank Delta, owned by a guy who
refused to sponsor Maidan,” said Okhrimenko.
But other banks
owned by oligarchs who are arguably more opposed to the current political
status quo, such as businessman Rinat Akhmetov’s PUMB bank and Viktor Pinchuk’s
Credit Dnipro, have accepted refinancing from the NBU and are not being
threatened with closure.
Rotislav Kravets,
a lawyer at Kravets and Partners,said the NBU’s desire to clean up the sector could
appear selective because their methadology lacks transparency.
“They have a
different approach with every bank,” Kravets told the Kyiv Post.“Some banks are
declared insolvent, while they shut their eyes to others who also don’t meet
the requirements for a year-and-a-half, and give them financing.”
Kravets told
the Kyiv Post that NBU’s lack of transparency is most acutely felt when it
comes to insider lending. The NBU has curators who can detect this problem in
every bank, he said, but they have not issued figures on its extent in the
banks that are still operating.
Other experts are not so certain.
“It’s really very
difficult to judge,” said Anastasia Tuyukova, senior analyst at Dragon Capital.
“I see some processes are not done perfectly. For instance, it might have been
possible to find investors for Delta bank’s good assets, but now it is very
difficult”.
“Although it’s not
perfect, it’s not political,” Tuyukova said.
The NBU’s focus
will shift in the next year away from the larger, systemic banks to the smaller
local banks, which according to Tuyukova, “will suffer the most.”
Foreign banks such
as Russia’s VTB and Austria’s Raiffeisen, on the other hand, have made
important steps towards recapitalizing their subsidiaries.
On Nov. 25, for
instance, the EBRD announced it was becoming a 30-percent shareholder in
Raiffeisen, the Ukrainian unit of Raiffeisen Bank International.The
EBRD also recently increased its 15 percent share in Ukrsibbank to 25 percent
and already had a 15 percent stake in Ukrainian Megabank.
“The EBRD won’t be
the solution for everyone,” Nick Tesseyman, managing director in charge of
financial institutions at EBRD told the Kyiv Post.
Moreover, the
Ukrainian banking system can’t expect much more help to come from abroad, said
Oleksandr Pavlov, the head of financial institutions at EBRD Ukraine
“There’s a limited
appetite for Ukrainian banks on the international markets,” Pavlov said. “It’s
impossible for most banks in the world to recapitalize. So recapitalization
will usually (only) come from the shareholder, or parties related to the
shareholder”.
Kyiv Post staff writer Isobel Koshiw can be
reached at [email protected]
