Editor's Note: The following is an English-language translation of a June 3 interview by Ukrainska Pravda editor-in-chief Sevgil Musaieva-Borovyk and journalist Pavel Sheremet with National Bank of Ukraine Governor Valeria Gontareva. It is being reprinted by the Kyiv Post with Ukrainska Pravda's permission.
The original interview can be found here.
Friday, June 3. Seven o’clock in the evening. The work day at the National Bank has already finished. Valeria Gontareva, as the woman in charge, decides to give Ukrainska Pravda a small tour.
Here, near the National Bank’s reception, we unexpectedly bump into a cheerful and noticeably thinner oligarch, Igor Kolomoisky, accompanied by the Chairman of the Board of the country’s largest Privatbank, Alexander Dubilet.
At the sight of us, Kolomoisky breaks into a smile. The head of the National Bank greets him, but does not hide her surprise; this meeting is as unexpected for her as it for us.
“Who are you here for?” she asks Kolomoisky.
“For you,” he replies.
” No, I don’t have a meeting with you in my schedule. You must be mistaken.”
After a few minutes, it turns out that the leadership of PrivatBank is scheduled to meet with the Director of the Department of Loan Management Tatyana Loychenko. Gontareva responds that she was not ready to see Kolomoisky and besides – she had already planned a family dinner in the evening.
“How do you like the work of the Head of the National Bank?” Ukrainska Pravda inquires, taking advantage of the momentary pause.
“It’s excellent! Valeriya Alekseevna cleans the market for us,” jokes Kolomoisky.
The response elicits laughter from everyone present, except Gontareva. She hastens to lead us away from the unexpected guest. After our conversation, she would give him her time. Part of our conversation with the head of the National Bank would be devoted to PrivatBank and the situation surrounding it.
Ukrainska Pravda’s sources in the president’s entourage claim that the issue of liquidity and the repayment of Privatbank’s loans, have, as of late, been often discussed on Bankova Street.
The president himself confirmed this during a press conference on June 3: “Kolomoisky and I discussed Privatbank’s implementation of NBU regulations,” he said.
Gontareva, however, denies that anyone, from any side, has indicated anything to her, as the head of the National Bank. “The president has not called me about PrivatBank. In fact, he does not seem to call me in general,” she said.
Gontareva, who has conducted a real revolution in the two years since she has become head of the bank, insists on the full independence of the Central Bank.
Since June 2014, 78 insolvent and captive banks have withdrawn from the bank market. Gontareva, who has been accused of devaluing the Ukrainian hryvnia, was given a shock by members of parliament during their parliamentary speeches and was obstructed by the prime minister at the time, Arseniy Yatsenyuk. Rumors regularly circulated about Gontareva’s resignation as head of the National Bank. Meanwhile, organized rallies of “offended contributors” demanded “junk lustration” in front the National Bank building.
The head of the National Bank was used to this reality. She admits that she developed complicated relationships with the owners of practically all of the large banks in Ukraine that were taken out of the market in the past two years.
She has been threatened several times and, last year, her house was robbed, and all of the valuables stolen. The perpetrators still have not been found.
On the eve of the interview, Ukrainska Pravda collected questions for Gontareva from market participants. Some of them appear during the conversation.
Ukrainska Pravda: Before this interview, we spoke with many players in the banking sector. You know – many of them are quite critical of your work; some have quite a negative opinion. How can you explain this?
Valeria Gontareva: I don’t know who you spoke with. We, apparently, run in different social circles, because I haven’t heard such praise of the National Bank and its head for the past six months. That includes the international community.
Yesterday, for example, we received the latest study, which was sent by Tim Ash. I was even embarrassed to read that, in his opinion, I am the best head of the central bank.
Not so long ago, I also won a nomination in the category of financial recognition for “government representatives.” For that, a survey was conducted of about 100 expert representatives of the banking community.
The National Bank took first, second, and third place: I took first place, my former deputy Oleksandr Pysaruk took second, and third was Kateryna Rozhkov. This is what the banking community is saying. So, sorry, I just don’t know who you were talking to.
UP: Good. Then we will quote a very respected banker: “If no one will be fired after the situation with Fidobank and Mikhailovsky, it will be very bad for the National Bank.”
VG: Let us then turn right to Fidobank. We did a stress test of the largest 20 banks, and Fidobank was one of the banks.
After a bank passes a stress test, it should develop a recapitalization program. The whole program is signed by the bank, approved by the NBU board, and is comprehensive. The program requires that the banks reduce their portfolios of connected individuals, make higher quality deposits, make up the missing capital in cash, and convert part of the debt in the bank into capital.
So, from the results of the stress test and our inspection of Fidobank, a rehabilitation program was drawn up, which involves a fairly large recapitalization that the bank was required to do. The bank was able to collect half of this amount, and it wanted to use half of this total amount to convert its largest deposits into capital.
When the bank realized that they wouldn’t be able to do this, because its largest investors declined, the bank had no other option than to simply leave the market. The bank’s shareholder behaved quite adequately, as did the management – it did not split up the deposits, erode the assets, or take out the assets.
Unfortunately, Adarich was unable to close a gap in the capital, which was absolutely necessary.
UP: And what about Mikhailovsky Bank?
VG: That’s a completely different situation.
For the prompt exit of Mikhailovsky Bank from the sector, I won’t fire anyone, but I will instead give our staff, if not cash prizes, because we don’t give those out, then at the very least, the gratitude of the head of the National Bank.
Now I’m going to explain how it all happened.
The bank was already classified as problematic last year. The bank had a program, which it was supposed to implement, in which everything was detailed.
We had a conversation with the bank manager, Mr. (Igor) Doroshenko, and warned him that there was a chance of criminal liability if the bank did something illegal.
Now we can state the facts – the bank (and the bank’s management and the bank’s shareholders) became criminally liable. In this respect, we have already submitted all the documents to law enforcement agencies.
What did the bank do? Dismissed Mr. Doroshenko, which we became aware of the morning after. He didn’t even tell us anything the night before.
At this point, the bank was labeled problematic and underwent special monitoring by the National Bank. In addition, our representative was permanently installed there.
Starting in the morning, the representative was told that the bank’s operating system was not working for technical reasons. This means that the representative could not see anything in the system; he could not see what the bank is doing.
The representative immediately reported this, and then also found out that Doroshenko suddenly resigned. We realized that something strange was going on. We immediately disconnected the bank from the electronic payment system and made it impossible to transfer money abroad.
UP: What happened: was there an attempt to move money abroad?
VG: No, their correspondent account was disabled; they couldn’t have even taken hryvnias out.
What they were doing? They were making entries in the balance sheet. There was a company that was attracting deposits, taking advantage of the financial illiteracy of our people. The company attracted deposits outside of the bank because the investment ceiling was raised for Mikhailovsky. So they opened the company and began to attract deposits from people. We discovered that this company and all of its accounts existed in a completely different bank, and warned the management of that bank.
That day, when they completely cut off all of their systems in Mikhailovsky Bank, they illegally made an entry in the balance from the company to the bank. They made 5,000 entries on the balance sheet, they put down one billion hryvnia as a liability. The fund was guaranteed 1.6 billion hryvnia in deposits, and they, absolutely illegally, added another billion to this.
We immediately contested it and did not accept the balance with this data. What was being done on the other side, with respect to the assets? They reissued 111,000 loans, which had been given to individuals, to its own related company. It’s just an illegal posting in the balance sheet. No one accepted this balance, don’t worry.
UP: This was done with the intent that the Deposit Guarantee Fund would later pay this money?
VG: No one will pay anything. That’s nonsense, they just exposed themselves to criminal liability. That’s all they did. And after the fact, Mr. (Victor) Polishchuk, the villain, said that he sold the bank to someone …
Mr. Polishchuk will answer before the law. We sent the documents to law enforcement agencies. Moreover, when we learned that they had disabled the operating system and fired the management, we blocked their correspondent account, and also sent the Guarantee Fund there immediately.
UP: Who are you going to reward?
VG: Our supervision department. I believe that there has not yet been this kind of operational work In one day, we caught people attempting to commit fraud red-handed, and we rejected a fraudulent balance.
UP: How do you explain the appearance of information in the media on the liquidation of the bank, and then a denial of this information, and then an affirmation of the bank’s liquidation?
VG: I can only say that our press office gave this denial in the morning, when they did not know the bank was insolvent. In the morning, a resolution of the National Bank was being prepared. We had to have everything documented. We had a board meeting in the evening. The decision was already being prepared.
This tells you that, on the inside, we did not have information leaks, prior to the board decision. Most likely, the information that was leaked to the market came from the bank itself. The bank already knew that we were preparing to suspend its activities.
UP: It looked strange.
VG: It did to me too. This is precisely the question that I had for our press office. I asked: “Girls, Why did this happen? You could have at least called and asked our supervisor.”
UP: There is another version: a raid seizure on Mikhailovsky…
VG: The only evidence for this is that some negotiations took place between Doroshenko and “Platinum” – it’s that Doroshenko went to “Platinum.” This is the only level at which you can identify any relationship between these banks.
UP: At the same time, Kateryna Rozhkova, as you know, is a former employee of the bank Platinum. Is there a possible conflict of interest here?
VG: Kateryna Rozhkova has crossed paths with the “Platinum bank” only at a superficial level. She has never had a conflict of interest. This decision was of the board of the bank’s, which consists of six people. Have you read the absurd stream of words coming from one pseudo-journalist (this concerns Alexander Dubinsky – Editor, TV program “Money” 1 + 1 – NC)? He has written so much nonsense in his life that to continue to read his work…
UP: What can we expect will come from the criminal proceedings relating to Mikhailovsky?
VG: Up to 5 years in prison.
UP: For whom?
VG: In my opinion, for two of them– Doroshenko and Polishchuk– because everything was planned. Five for both.
UP: In Belarus, I watched as the heads of all major banks, even the most respected ones, were put behind bars. Here, for the second year now, we see constant scandals– they take licenses away, they take capital away, they’ll catch someone at the last moment. There is not a single criminal case. We understand that you are not an enforcement structure, but you have relations with security forces, so that, in those situations there are visible signs of fraud or theft, those bankers, regardless of the expensive cars they drive and how beautiful they might look, they are actually held accountable to criminal code?
VG: You know, they have long ceased to look beautiful. They look pitiful; it all catches up with you in the end. What has the National Bank done in particular?
We prepared amendments to the legislation, so today you and I can talk about the criminal responsibility of management and shareholders for bringing a bank into bankruptcy. These changes were set in the IMF program before we even received the first tranche.
These changes were voted on by the Verkhovna Rada in March of last year. So I have, believe me, many more questions for the law enforcement agencies. The Guarantee Fund alone submitted 355 statements about the management and shareholders. Therefore, talking about this – is pouring salt on a wound for us.
UP: But to you, a law is not always a decree. Take the Ukrainian Innovation Bank. A decision was made to revoke its license on grounds of insolvency. Then it was stopped by a court order on March 16, but you, knowing that the decision about the bank’s insolvency was overturned in court, made a new decision to revoke the license. Why did you do that?
VG: Its shareholders did nothing to save the bank. There was zero liquidity and it was incapable of living. That’s all I can say. I know for sure that we did not do anything illegal. The bank was not going to make it; it was insolvent. Most likely, its liquidation occurred before this decision was made.
UP: Are your decisions often challenged in court?
VG: They’re challenged all the time. We had such a bank, which consisted entirely of money laundering operations, the bank Union, which, in the course of two weeks, managed to win the first decision and then an appeal, after which we simply resent it to the Fund.
UP: So, no matter how many court judgments you have against you, if you see an empty bank, you can block its activity every day?
VG: We don’t do it on purpose, not out of spite. It’s just–how can you give a license to an insolvent bank? Therefore, if the court does not want to consider anything, neither the legislation nor our arguments, and makes, as with this bank “Union,” a wholly illegal decision, we have no other choice.
The court may grant a license to a poor or empty bank. So we give it a license, and on the same day, on the grounds that is insolvent, we can adopt another decision on its withdrawal from the Fund. This is what we did with the bank “Union.” If it is insolvent, it cannot enter the system and we can not connect it to our accounts.
UP: And at the second court hearing, these banks don’t have enough for bribes?
VG: They just understand that, if they do this a second time, we will still send the bank to the Fund.
UP: You have already had two years as head of the National Bank. Regarding these two years, many speak of a fairly aggressive cleansing of the banking sector and wonder whether it was possible to act otherwise, to go some other route, so the investors would not suffer, so the banks would not suffer? Looking back at these two years, do you think National Bank chose the right path of purifying the banking system from insolvent, captive banks?
VG: It simply could have happened much faster if the procedures had been there.
UP: That is, even more aggressive?
VG: The total numbers would not have changed, but it would have occurred more rapidly, and therefore less painfully. Like any surgery to remove a cancerous tumor – it can be done completed in months, or it can be completed in one day.
UP: Why it could not have been done quickly?
VG: Because you have to be institutionally prepared for this work. The fund’s institutions were not prepared to handle that many banks and manage them all. When I came two years ago, I had to completely rebuild our institution from within and form a team that could work quickly and efficiently.
UP: There is a feeling that the liquidation of the banks comes in waves. Now, another wave is here — several banks at once: Fido, Mikhailovsky, Unison.
VG: Unison is a completely different story. The bank Unison was a working model, it was liquidated, but we had announced two years ago that opaque ownership would not cut it.
UP: And by the way, are there many banks like Unison?
VG: To date, we only have two banks left with opaque ownership, and they just announced self-liquidation. All that’s left is to hold the shareholders’ meeting and to self-liquidate.
These are small banks and they have neither assets nor liabilities. That’s the last of it – we have no more opaque ownership structures; 100 percent of the banks have their own open, publicly available list of shareholders.
We explained all of this a long time ago: if you are self-liquidating, pay all your investors so you no longer owe anyone anything, and simply leave the market, because you have opaque ownership.
UP: Still, on the timing question – when will the purge of the banking sector finally be finished?
VG: We have no more banks whose ownership is unknown. We have to date 88.6 percent of the banking system – that’s 20 banks. They actually just all passed the stress tests and signed for recapitalization programs. The next 40 banks – we are only now doing the inspection and stress tests. But all the other banks, except these 20 large ones, do not pose any systemic risk for the banking system.
UP: You talked about the major banks. We can’t help but ask about PrivatBank. Explain the situation at the moment. Because we know that the question of Privat is certainly of concern to the country’s leaders and to international investors.
VG: It’s first on this list of 20 banks, because it is the biggest.
However, the stress test used the same methodology for all the banks. The same process has been conducted on the associated loans in the same way for all the banks. And after this it became necessary to recapitalize the banks.
Recapitalization – it is not just a question of creating additional capital. It is a comprehensive program designed to last three years. For example, the bank debt restructuring that lies ahead for the National Bank. Every bank that has refinancing debt to the National Bank is granted a five-year period to restructure its loans, which allows them to have a one-year-long grace period and then start to pay us 25 percent per year.
This happened along with improvements in the quality of the loan portfolio and investments. It is not only the additional funds of shareholders, but also the conversion of subordinated debt in Tier I capital.
UP: But we are asking specifically about PrivatBank.
VG: You want to single out PrivatBank, as if it was under some other regulation.
UP: Because in every meeting off the record with Ukrainian officials, this is the No. 1 question – the question of Privat and its fate.
VG: It is part of exactly the same program as the other banks.
This restructuring of its credit refinancing. It is paying them off. As you can see, it is showing a monthly repayment of Hr 650 million. We have not strayed once from the plan. The total debt was Hr 26 billion, and that number diminishes by the 650 million paid to us each month, plus interest – to the order of Hr 500 million, that makes Hr 1.1 billion it is paying off.
UP: And in the beginning, were there problems with the payments on the part of PrivatBank?
VG: Our programs for all the banks are built in such a way that all payments are made, since March. Before then, the program was being signed. At the end of March, he paid; in late April, it paid, and now we are again expecting a payment (a payment of 650 million hryvnia was made at the end of May).
After that, they need to improve their securities, and they are actively working on it now.
They are strengthening their securities, and we check these deposits so they are priced fairly. This is no different from other banks. Therefore, so far so good, all is going according to plan.
UP: Do you alone make the decisions regarding Privatbank?
VG: Not just on my own. We approved a program that came into effect in March.
UP: You want to say that on Bankova Street, this issue is not discussed with the shareholder Igor Kolomoisky?
VG: The president not only does not call me about Privat, he does not call me in general. You’d like for him to call me, but he has not called me.
UP: … They say that the issue of PrivatBank – it’s still a question that is decided on Bankova, that specifically the negotiators here are Makar Pasenyuk and Boris Lozhkin.
VG: I especially like the mention of Makar Pasenyuk (partner of the investment company ICU, which previously belonged to Gontareva – UP), it’s just absolutely ridiculous. If they are the negotiators – maybe they were talking to each other, but I know nothing about this.
UP: That is, you are not given guidance?
VG: This topic is not even discussed with me.
Moreover, you have to understand, we have the whole program of the recapitalization of the banking system registered in our memorandum with the IMF down to the last point, so it is well understood that you can talk about anything you like, and then you can go read the memorandum. Since we not only read it, but also write it, and then follow it.
UP: So what did the Finance Minister Oleksandr Danylyuk mean when he said that PrivatBank has systemic problems and the National Bank knows this, and cunning Kolomoisky invents clever schemes but he won’t be able to get out of this one?
VG: You understand that any shareholder is not very willing to part with money, but he does it. He gave his personal guarantee, he signed all of his obligations and fulfills them.
UP: Do you personally communicate with Kolomoisky?
VG: Yes, I personally talk with Igor Kolomoisky.
UP: To the extent he is willing to make compromise, he fulfills the conditions?
VG: The negotiations on the recapitalization of the bank lasted six months, but they ended at the end of last year – at the beginning of this year, the recapitalization program was signed and the guarantee that the shareholder would implement it was also signed.
And this is called the “guarantee certificate.” Further, the shareholder gives his personal guarantee with regard to the restructuring of the debt of the National Bank. We demand that it is a personal guarantee.
UP: What are the personal guarantees Kolomoisky gave?
VG: He has given personal guarantees on almost all of our refinancing.
UP: What is the warranty?
VG: Aside from mortgages, this is a personal guarantee by him personally. He will answers it with all his possessions. We just won the court case against (Oleh) Bakhmatyuk based on his personal guarantee. We’re suing (Kostyantyn) Zhevago right now on the basis of his personal guarantee. This goes beyond your business; it’s your personal guarantee.
UP: After Danylyuk made a statement, the very next day, the National Bank made a statement on Privat. Did you get scared that it could have caused some panic in the market?
VG: We were not afraid. The National Bank considered it necessary to give this message because we have a program of recapitalization and it is going according to plan. We cannot guarantee how the next three years will go. Today, everything is going according to plan.
UP: Danylyuk’s criticism of PrivatBank may have had something to do with the fact that the Ministry of Finance wants to withdraw from the bank the account of some business, some kind of card projects?
VG: I would not call comment from our finance minister criticism. He needs to get a little used to the fact that journalists might ask him questions that he’s not exactly ready for.
UP: Did Natalie Jaresko leaving the government greatly complicate the negotiations with the IMF?
VG: It did not complicate the negotiations with the IMF in any way. When people from the IMF came, as you saw, they did not stay for one additional day and left, having said that we reached a staff-level agreement. That is, we agreed.
You can only say: “Why did everything go so well?” Because in fact, Jaresko and the old government prepared everything and the new government simply accepted it.
I remember, after Davos, we came back and made an announcement that everything was agreed upon. But then a political crisis began in the country, and it was delayed. They wanted to check out the new government and be sure that the new government could be trusted.
UP: So, in July, most likely, the next tranche will come?
VG: Yes, we anticipate that.
UP: Right now, there’s a sense that all is calm. The National Bank is buying dollars on the market, though just a month or two ago, everything was fluctuating, the hryvnia was even approaching 27 to the dollar. It was unclear, then, why the hryvnia was falling, and it is unclear why everything is so calm now. What is the main factor influencing the stability of the events?
VG: What’s not clear? The number of announcements made by the National Bank very often surpasses all reasonable standards. I don’t want us to constantly prevail on all the markets with our economic announcements. The only question is, who wants to read them, and who wants to hear them.
UP: The trade balance improved, more foreign currency appeared?
VG: The trade balance improved and there became more foreign currency. This is due to the fact that the prices of almost all commodities have grown, while Ukrainian metals increased by 46 percent, our foreign exchange earnings increased from Hr 170 million in January to Hr 227 million per day in the last month.
Therefore, in the past two months, the National Bank bought a billion dollars. From the beginning of the year, the bank also bought from the population $1 billion, $100 million.
UP: Your numbers and your mood somehow don’t match the government’s figures and the government’s estimates.
VG: They’re fully aligned. We share a macroeconomic forecast because it coincides with IMF’s, and we use it together. We are completely aligned with them. You want to find that it does not align, but it does.
UP: It’s just that there’s a lot of talk about a real crisis.
VG: That’s what the alarmists say. On the contrary, the situation has drastically improved in the markets for us. At the start of this year, prices were continuing to fall. Since the beginning of the year, steel prices rose by 46 percent, iron ore – by 17 percent. The price of grain is growing. On the international markets, oil prices have nearly doubled, increasing from 30 to 50. And oil – it is a commodity that drags everything else along with it. It is like the equivalent of other commodities. We are a very small open economy, unfortunately, and so much depends on the price of commodities.
UP: We would like to hear an explanation of Russian banks from you. They announce that they are leaving. It is politically justified, they go, “because they can not work in an enemy country,” or they leave because it is not economically justified for them to be here?
VG: I, as a regulator, deal not with political questions, but with the regulation of the banking system.
Once they have passed the stress test, they had very large capital gaps. And they have already fully capitalized, which makes us very happy. Moreover, if you have noticed, the Russian banks do not grow their own business, and it is slowly being shut down. And if they decide to sell their subsidiary banks, let them sell.
UP: Who could they sell to?
VG: It’s their choice, I do not trade banks.
UP: But you monitor their movements.
VG: You have to come to us, so that before the deal takes place we can confirm that the owner is trustworthy. So far, no one has addressed us with this.
The only deal we confirmed, (but we don’t really consider this a Russian bank (at the very least, it’s not a Russian bank with state capital), so it does not concern us) It’s Alfa-Bank’s purchase of Ukrsotsbank. We are not against this deal.
UP: How would you feel if the customers of the Russian bank were people from the president’s entourage?
VG: I cannot say how we would react. This person would have come and, as a minimum, confirm his income and spotless reputation.
UP: But is this a normal situation?
VG: I do not understand what the president’s inner circle means. Let this man come, show, at least, his income, where he earned it. I would not be against it if, for example, Mr. (Rinat) Akhmetov were to come today and would want to buy a bank. How would he not be suitable as the owner of a bank?
UP: On the topic of Akhmetov. Is it true that the ICU wants to buy out PUMB’s (the bank owned by Akhmetov) debt?.
VG: First of all, with everything that has to do with the ICU, ask the ICU. Secondly, I think that you overestimate the financial capacity of the group… I do not know how the situation developed further, but from what I remember, the volumes the ICU had, PUMB debt being redeemed by ICU – is nonsense.
UP: But DTEK bonds were redeemed by ICU.
VG: What do you mean they bought DTEK bonds? What are you asking me? There are two partners – Makar Pasenyuk and Konstantin Stetsenko.
UP: You do not know what is going on in the company that you created and were a shareholder of?
VG: I do not take part in the life of the company for two years already and I am not going to do this. But you keep in touch with (Makar) Panasyuk? I talk to Makar Panasyuk, at best, during picnics at our friend’s place. This is nonsense. You saw Makar Panasyuk here? Have anyone seen him here even once?
UP: Do you like the development of ICU?
VG: ICU is not a public company. I really want them to develop well. They are still repaying me.
For what? For the package I sold them, they have to pay me in installments. Two tranches have been paid, and I am waiting for another three. That is why I do not mind them developing well. But it is not a public company, there is no place to see their statements.
UP: What do you know about Makar Panasyuk’s role with regard to the president’s affairs?
VG: I am serious, this is not a joke, you are trolling me: I see Makar, maybe twice a year on the birthdays of our mutual friends. We do not run a joint business… During the first nine months at National Bank, I slept for 5 hours, and the rest of time I worked. Now I have a little more time, but, for example, yesterday my husband was very upset with me because it was his birthday, and I went to dinner with the head of the Swedish Central Bank and came back at half past 10. This is why I would like to not spend more of my free time with Makar Panasyuk. This I can tell you for sure. So do not look for Makar Panasyuk there. Moreover, Makar Panasyuk is alive and well, so ask him for an interview.
UP: The interest in his personality is understandable – he was the main communicator in the offshore scandal, and besides, our interlocutors in AP talk about his special role in the affairs of the president. So that is why we ask you. You worked for a long time with this person.
VG: I did not just work, I started to organize the whole company 10 years ago, I chose the partners for the company. But it was very hard for me to decide on the present situation. I had been negotiating with the president for a long time, because it was difficult to leave my own business. But I did it! The professional challenge that I faced made me accept the President’s proposal, as, probably, any other professional banker would have.
UP: Offshore scandals — this is a sore subject of the recent weeks and months. A long list of Ukrainians appear in the “Panama Papers,” including the president and other important figures. Some of them claim that they have received permission from the National Bank to withdraw money for these offshore companies. How are you involved in this situation? Do you work with it, examine it or wait until someone contacts you? What is the role of the National Bank in this story with offshore companies?
VG: I would not call this problem the offshore issue, exactly. The problem our country has did not originate yesterday. This is the story of 25-year development of the whole country. On the same day, when we had the so-called Panama scandal, the media published a list of the owners. The owners of the companies were disclosed. Do you not you think this is a bigger scandal – an open list of the ownership, rather than the Panama scandal? As for me, all ownership of our Ukrainian business are disclosed there and it is all in the offshore.
UP: And then the question arises – what are you fighting with? With the fact that for 25 years all the corporate rights of the Ukrainian large and medium-sized businesses have migrated to foreign jurisdiction? The SCM holding company in the Netherlands – is offshore? It is not offshore, it is Holland. Cyprus – it is offshore? No – it is the European Union. Well, then we have the whole world is offshore, Ukraine itself is an “offshore.” Therefore I would say that the problem is more a question of on-shore-ritization companies.
VG: We have a very big problem of transfer pricing, because a lot of money was withdrawn through the transfer pricing mechanism, but this problem is not very relevant right now, because transfer pricing can only occur when you have a margin. And during the last six months (before the price of commodities increased in the past two months), there was no margin, they began to return the money to support the decaying business. We still must create normal transfer pricing, because it will not always be the same, the margin will appear again soon. I raised the question of de-offshore-itization in the Rada in October 2015 and said that the major issue – is that corporate rights of the business are there – medium, large, super-large.
UP: When we can expect the currency liberalization? When will the remaining restrictions on citizens and businesses be removed?
VG: We are talking about this all the time – if we did not freeze the IMF program and received the next tranche in October 2015 and continued the program, then most of the administrative constraints, which we introduced during the crisis, would have already been removed. Since we have a road map agreed upon with the IMF, we are not concerned with times or dates, but with the achievement of goals for the reserves. Therefore, the first major liberalization we conducted after the completed restructuring of the public debt. After that, excuse me, August of the previous year was the last IMF tranche we received. Everyone should understand this. We will celebrate the first anniversary of the last tranche of the IMF quite soon.
UP: What are the complaints you hear the most often from the IMF?
VG: I don’t receive complaints from the IMF, just compliments. Probably, we organized the processes so well that Central Bank managed to achieve financial independence. Therefore, I am not asked about other ministries, as it is not my responsibility.
UP: There is a lot of talk surrounding Oschadbank. It kind of rebranded itself as a European bank. On the other hand, people always say it has problems too. We have several systemically important banks, like Privat and Oschadbank. Any word about Privat can destabilize the situation. Just as any negative words can destabilize Oschadbank.
VG: I’m going only to praise Oshadbank now. So why do you worry and preface your own question?
First of all, they are profitable this year. Secondly, it is clear that the country’s history – is a history of oligarchic rule … But, unlike Russia, in our state banks, there were not so many oligarchic problems. Oligarchic banking in Ukraine was built on the private banking level. Unfortunately, within the state-owned banks, we see the history of the Ukrainian government of the past 20 years. It is very visible when looking at the loan portfolios of these institutions, when the money was distributed irretrievably. Fortunately, this came to an end a long time ago, these banks are not engaged in anything like this anymore. We have two large state banks – Oshadbank and Ukreksimbank. There is already a complete strategy for the development of these banks, we came up with it together with the Finance Ministry after long discussions.
Again, a short description of this strategy, which describes what we will do in the near future, is written in our memorandum with the IMF. The banks are now sufficiently capitalized, there is a recapitalization program for these banks for the next three years. I am 100 percent sure that the state will recapitalize these banks, there is no doubt.
The banks have a task before them now to actively work with their problem loans, because all private banks work well with these problems, while state-owned banks never knew how to deal with them. Therefore, they began to work very actively. You can look at the number of court cases that they are currently winning and at the number of assets that they are taking away from all these historical Ukrainian personalities. Moreover, the bank reached a profitable plateau … It’s only since the beginning of this year, in my opinion, that the bank has repaid the refinancing of about 8 billion hryvnia. So that you understand, its liquidity, I think, is $35 billion today.
UP: What is the total of the refinancing debts?
VG: On the refinancing of all the banks, I have the exact figures. Hr 26 billion has been paid back; 18 billion hryvnia came this year. The total debt left to repay is Hr 81.5 billion, but among the solvent banks it is Hr 34.9 billion. The rest will be obtained through the sale of collateral. This year from the sale of collateral of insolvent banks, we are going to get 12.8 billion hryvnia, and we have already received two billion hryvnia. To make it clear to you about the insolvent banks, 90 percent of the refinancing which will not be returned was issued in the days when Yulia Tymoshenko was prime minister. The banks which were capitalized were then withdrawn from the market, and they issued refinancing totaling 77 billion hryvnia when it was five hryvnia to the dollar.
UP: “The criminal authorities” issued 12 billion hryvnia, so that you understand the difference. You somehow forget about your predecessor Stepan Kubiv, who also issued refinancing in large sums.
VG: I have not forgotten about Stepan Kubiv. I am talking about Hr 77 billion for the insolvent banks, that were issued when Tymoshenko was prime minister.
UP: Stepan Kubiv also distributed refinancing left and right.
VG: Stepan Kubiv only really issued a lot to the systemic banks, which are now repaying us.
UP: And he issued money to the problematic ones as well.
VG: I am not arguing that the NBU wasn’t refinancing at the time…
UP: Do you think that his activity in the National Bank should be investigated?
VG: I, at least, I think that in such a difficult time it was necessary to act quickly, even without having information of how under-capitalized banks were. Not helping the banks at the time when there was a huge outflow of individuals from the banks, was impossible.
UP: But do you think that his activities warrant an investigation?
VG: The banks which were issued the most of the refinancing did not go to the fund, and now are repaying their loans. Some of them, of course, went to the fund. But, believe me, it wasn’t Kubiv who issued (Kostyantyn) Zhevago six billion hryvnia. And he did not give seven billion hryvnia to (Dmytro) Firtash either. And they have both left the market.
UP: Regarding Zhevago, we can also tell the story uncensored. A decision concerning the restructurization was allegedly made. In particular, the mechanism for negotiations became a condition of the sale of KrAZ by Mr. Zhevago to the right investor. We have heard this story from the two market participants.
VG: I’ve already understood where you’re going. You are definitely headed in the wrong direction. Zhevago vowed to me personally that he really wants to sell KrAZ to Indian investors. But KrAZ’s debt is greater than the value of the enterprise. And he came to my office every day and talked about the Indian investors. He came to me and said: “Wait longer, I’m already selling KrAZ to the Indian investors, but they do not want to take it, since there is a huge debt.” After all, he was given almost half a year.
UP: Thus, the reason was that he could not sell KrAZ?
VG: No, the reason was at the time when I looked at the situation at the bank, and said that the bank was dead. Then there were endless negotiations. I told him from the very beginning that if he wanted to keep the bank – he would have to sell the assets, because 80 percent of the bank’s portfolio were loans related to the company’s shareholders, and only Ferrexpo could generate cash flow from dividends. But, excuse me, when you have nothing to generate and the bank is insolvent, then the National Bank cannot help the insolvent banks. We issued him 700 million secured with high-quality assets and under his personal guarantee twice, but under the payment of 200,000 to the guarantee fund. We gave him time to fully convert all of his major capital borrowers. There was an entire program, and I described it. Therefore, he took up a lot of time. But now, sorry, I warned him 25 times: “You have a personal guarantee, which you have issued us. You will be left with nothing at all.”
UP: You said that the negotiations were difficult. Which other bank owners do you have a complicated relationship and complex negotiations with?
VG: I have complex negotiations with everyone. I have not had a single bank owner, who came to me and said: “Oh, what a joy – a stress test!” We have lighthearted talks with the state banks, because they are capitalized by the state.
UP: Have you received threats during negotiations?
VG: Yes, I did.
UP: Who threatened you and for what reason?
VG: I’m not going to talk about it. We’re speaking professionally here.
UP: By the way, the valuables which were stolen from your house during the robbery, did the police or the Security Service find them?
VG: No, no one has found anything.
UP: We understand that any offended banker or oligarch can easily organize a black PR campaign against you. But if you are limited by the constraints of the law, what do people expect? Why do they put pressure on you, what do they want to get from you?
VG: It seems to me, that some people cannot fully understand that the times have changed. I can maybe understand them too. One oligarch recently told me: “I have seen five heads of the National Bank, five presidents, and countless finance ministers.” Some people do not understand that it is irreversible. However, in Washington we recently had dinner with George Soros and talked about it – whether it is possible to change things irreversibly? Of course, I made every effort during these two years, in order to make it as close to irreversible as possible. But by the end of the dinner with Soros we decided that nothing irreversible is possible. We in the NBU really reversed the tide but it is possible to return it. Even though it will be very difficult since we cut 6,000 people from the National Bank staff, we closed all the territorial departments, we got rid of non-core assets, and guided 78 banks out of the market.
UP: We could call it a bank genocide. How can confidence in the banking system be restored in such a difficult situation?
VG: You call it a “genocide,” while I think it is a feat. That’s the question. Finally, someone cleansed the banking system.
UP: This is a really an important thing that you have done, cleaned market. But how can you regain the trust? It seems that you are betting on the monopolization of the banking market by a few large banks, that you kill all the small ones, grow the banks, and this is your primary strategy.
VG: Listen, we created a very easy procedure to consolidate the smaller banks. If your shareholders do not know why they opened the bank, if they have no business strategy, if they do not have money for a capitalization of 200 million hryvnia, then our banking system and our society, do not need these banks. We created a fairly simple procedure for the consolidation of the sector or, as we call it, self-liquidation. Let’s talk about the actual working banking system. I told you that almost 20 banks today represent 88.6 percent of the bank capital, and 40 banks – 96 percent. It is our banking system, and we must take care of them very attentively.
UP: How do you plan to regain the trust of depositors?
VG: The most important thing we’ve done is that we’ve stabilized the macroeconomic situation in the country. For the first time we moved to flexible rate fixing, stabilized our balance of payments, moved to inflation targeting, and are now targeting inflation. We want to achieve 12 percent inflation this year, 8 percent next year, then 6 percent a year, and then – five percent, and then we will have hryvnia and loans. If we achieve this, we will have made a colossal breakthrough. We’ll have a clean banking system, which will be able to give loans. And what we have not returned…
UP: But you didn’t answer the question.
VG: I disagree with you, we have terrific indicators on the growth of deposits in the banking system. We still have administrative constraints, which we are going to gradually begin lifting, so that there will be a significant increase of depositors in the banks.
UP: Are you satisfied with (Kostyantyn) Vorushilin’s work in the Deposit Guarantee Fund?
VG: I always want everyone to move faster, therefore, I also really want to make our Deposit Guarantee Fund work faster, since it has become the biggest company which has a huge amount of various assets… We want assets that were sold in the most transparent possible way and for the highest possible price.
UP: How do you evaluate the transparency now?
VG: Well the consolidated sales office only started working on April 15. And now, I think, the work will really start. Our American colleagues from the U.S. Treasury helped us with that.
UP: And are there many applicants for these assets?
VG: The more foreign investors we invite, the greater the demand will be for those assets. But today, we have doubts that there is a large solvent demand within the country…The biggest assets still haven’t been put up for sale. First of all they need to own them. For example we want to sell an oil transshipment point in Kherson.
UP: The one that (Mykola) Zlochevsky sold to (Sergei) Kurchenko?
VG: I can’t say to whom it belongs. The transshipment point was a mortgaged property that we failed to get ownership over through the court for two years already. Because it’s a large property that is in demand. And we have other well-known assets. For example, Nadra Bank has a shopping mall near Okruzhnaya Street. We have guarantees from Imeksbank – a large shopping malls in the heart of Odesa city, stadiums, the training base of Chernomorets soccer team. Such large assets have to be sold through transparent auction.
UP: Do you expect the new wave of compromising material and black PR, when the sale starts?
VG: It’s already begun.
The transshipment point – it’s a guarantee of the third parties, and if we get it, we would be able to put it on sale right away. The rest of property will be sold through the Deposit Guarantee Fund. To sell creditors rights to properties is a normal worldwide practice. But it’s possible only in a country with effective rule of law, where you sell the rights on mortgages and in five minutes you own these mortgages.
In our country, the borrower is likely to get back the rights under the loan from auction at a lower price. That means, in our country of legal nihilism (trading rights under loans) – is selling tickets to the war. Therefore, reforming the court system has to be a priority. Not the police, not the prosecutor’s office or the SBU, but specifically courts. Because if justice in the judicial system is achieved, it will help achieve everything else.
UP: Are they already running to you about these property sales?
VG: You know, they used to, when (Igor) Yeremeev was still alive. I told everyone: “You will come to the most transparent trades in the world.”
UP: Now let’s talk about the resignations. Rumors about your possible resignation continue.
VG: What do you want me to say? “Do not read Dubinsky” or what?
UP: When Arseniy Yatsenyuk was leaving, did they hint to you to free up space for (the former Prime Minister) Arseniy Yatsenyuk?
VG: I think that Arseniy Petrovich (Yatsenyuk) wasn’t interested. Not only did no one tell me anything, no one even hinted at this and no one spoke to me on this issue.
UP: How many resignation letters have you written to the president this year?
VG: I haven’t written a single resignation letter in the past two years.
UP: But you have the prepared resignation letter just in case?
VG: Look how many papers I’ve filled while I’ve been speaking with you. I can write. If I must, I’ll write a resignation letter in a second. It doesn’t have to be prepared in advance. How long can these insinuations last?
UP: Give us a sign. If we hear, according to some sources, that Valeria Gontareva has resigned – will you leave with a pink or red rose on your jacket?
VG: I don’t have a red one, only pink one… It’s very simple. Did you see how Pysaruk left us? We told everyone a month in advance that he is leaving. It’s called a scheduled resignation. It’s when you plan everything, announce everything and say, “I transmit everything to the person who will replace me. Bye, I quit.” If it is a scheduled resignation, you will find out about it from me.
It might be an unscheduled one. Unscheduled – is when president calls me into his office and says: “Why don’t you go to the garden?” I am the independent manager of the independent National Bank. In principle, I can answer: “No, I won’t go. Because I am at the independent National Bank and in the law of the National Bank there are specific reasons when a president can dismiss me, and it must be submitted to the Verkhovna Rada.
But I reckon that is the president said that to me, I probably wouldn’t resist.
UP: You always insist on your independence.
VG: Yes, I firmly insist on it and I have succeeded.
UP: Knowing Petro Oleksiyovych (Poroshenko) well and knowing that you have worked with him and with his personal business …
VG: Then you don’t know Valeria Oleksiyvna (Gontareva). You might know Petro Oleksiyovych well, but you don’t know Valeria Oleksiyvna well enough. You can ask any member of parliament. You can ask (Boris) Lozhkin, ask the president, ask his (the president’s) close circle, ask Arseniy Petrovich (Yatsenyuk). He can tell you about the independence of the National Bank.
UP: The question is: the head of the Deposit Guarantee Fund comes from the president’s circle. You also dealt with his business. You don’t see any kind of conflict of interest here?
VG: Poroshenko wasn’t the biggest client of ICU. Maybe that will make it clear for you. I think if another ICU client were to become president, there would be much more to talk about.
UP: But for some reason he offered you the position.
VG: I think Petro Oleksiyovych understands who is a professional, and what a person’s intellectual level is. I can tell you only one thing – that someone, maybe, could say that “she is hired by the president,” when he (Poroshenko) offered me a job. But being hired by the president and being his avatar or an executor of his will – are very different things, aren’t they? I think he chose me because of my professional skills. And, I hope, I am not mistaken.
UP: If you really made such progress, why don’t you keep Pysaryk?
VG: What do you mean, I did keep him. We agreed that he would come for a year. He worked for a year and a half, that is, I held him for another six months. I said: “Until the stress test is finished and until these programs are signed, I won’t let you go.”
UP: He looked more like a squeezed lemon when he left – as if he escaped the encircling under the Illovaisk – than like he just left the successful central bank.
VG: Sasha just returned with his family and he looks great. After such a frantic job with an insane rhythm, he went on sabbatical for half a year. And now he is starting a new job. I think you’ll see where he will be in June. As far as I remember, he starts his new job on June 6.
UP: In Ukraine?
VG: No, abroad, in a good company. You will see after he starts on June 6. We agreed that he would stay (in National Bank) for a year. The month before the expiring date he came to my office and told me: “Dear Valeria Oleksiyvna, in a month, on July 21, my term expires, the game is over.” I persuaded him to stay, because we were at the middle of the stress test. I told him: “We are going to finish all this.” In general, we finished everything before the New Year. In November, we announced (his resignation) and he left on New Year’s. It was scheduled.
UP: Can we expect some big Western banks on the Ukrainian market?
VG: When I meet with the heads of central banks, I always have one main message: come to Ukraine. I said to our American colleges: “Citibank in Ukraine is so small, let’s, at the very least, build it up. Let’s develop it more actively. Why don’t you look at other banks.” When we were in China, they talked about the possibility of opening a branch of their banks here (in Ukraine). We said: “Let’s do it, we agree.” Of course, we prefer when the subsidiary banks open, but we are ready for branches as well.” Yakov Vasilyevich Smoliy came back from Iran recently where he was with a large government delegation. Iranian banks are very eager to start working on our market. We welcome this, of course.
Unfortunately, we don’t expect active growth among European banks in Ukraine. Many of them have problems with private recapitalization.
UP: That means you are satisfied with your two years of work?
VG: First of all, “I’m grateful that I’m alive.” I think that I am satisfied. Now international experts advise other central banks of developing nations to consider us as an example – as the target model. We went through a terrible destructive storm and survived: cleansed the banking system, switched over to flexible rate fixing and to a new monetary policy of inflation targeting. We have transformed the central bank from a medieval monster into a modern central bank.
Personally speaking, I can say that it did a lot for me professionally. On the other hand, of course, it was very difficult. Sleepless nights, unjustified criticism, a stream of made-up mud.
But when you have rebuilt an entire system, when you have a working team, then everything becomes easier. I put a lot of energy into this. So when I finish this job, as Pysaruk did, I will certainly go on sabbatical.
