Despite a nearly 60 percent slump in the value of the hryvna over the year, and a $30 million dollar fall in profits, experts say Ukraine’s banking industry held its own in 1999, and they expect the sector to see a turnaround in 2000.
One area in which improvements were noticed was in the banks’ adherence to financial regulations, according to Viktor Zinchenko, head of a department at the National Bank of Ukraine which supervises banking conduct.
The number of banking infringements recorded by the NBU shrank from 364 in January last year to 118 in November.
The fall in rule breaking could be due to the NBU’s crackdown on illegal banking activity.
Seventeen banks that were ruled by the courts in 1999 to have broken the law are to be closed, and 11 were struck off the central bank’s register in 1999. Another 77 banks had licenses for various banking activities revoked by the NBU, and 12 banks are currently undergoing ‘financial sanitation’ to put the shaky institutions on firmer financial footing.
Of Ukraine’s 164 currently registered banks, 24 have banking capital of less than 2 million euros – just 1 million euros more than the NBU’s lowest limit for banks’ capital.
At the other end of the scale, only nine banks had more than 10 million euros in banking capital in 1999.
Zinchenko had no regrets for the 11 banks that ceased operations in 1999. Some of the banks failed to accumulate the required capital reserves, while others had serious asset problems.
‘Such banks wouldn’t have survived anyway,’ said Zinchenko. ‘They were simply unattractive to clients.’
But Zinchenko said that on the whole, Ukraine’s banking system had managed to retain its solvency and liquidity in 1999, and most other banking insiders agreed.
‘Last year saw much less [financial] crises than 1998,’ said Ihor Rudenko of the Ukrainian Banking Association.
The banks themselves were much less willing to discuss 1999 results, and most refused to comment for this article.
‘Nobody wants to show off dirty laundry,’ said an employee of Ukrsotsbank who declined to reveal his name. ‘In general, there is nothing [for the banks] to be ashamed of, but there is nothing to be proud of either.’
According to the Ukrsotsbank employee, the banks’ crediting activity increased in 1999. Three times more money was lent in the form of short-term loans than in long-term ones, and the banks expect to write off twice as much money in bad loans as in 1998.
Despite the hryvna’s steady fal, most loans are now being made in the national currency. Bank experts said this was because of the growing use of the hryvna as the accepted form of payment in the economy.
The banks reported more success in drawing businesses’ and citizens’ cash into their vaults. Private citizens increased their deposits by Hr 500 million ($100 million) in 1999, according to InvestGazeta.
Businesses seem to be placing more trust in the banks as well, increasing their combined deposits to Hr 4 billion, twice as much as they entrusted in the banking system in 1998.
But with Ukraine still bumping along the bottom of a deep economic trough, banks’ profits suffered, falling by some $30 million compared to 1998.
As of Dec. 1, 1999, the banks recorded combined profits of Hr 342 million ($72.8 million).
The banks that service loss-making industries like agriculture naturally suffered the most, and ironically, the major source of banks profits in 1999 was currency speculation.
Foreign banks in Ukraine, despite widespread pessimism about the prospects of economic recovery, remain committed to the Ukrainian market, and expressed hopes for a more profitable 2000.
‘We’re expecting more serious measures from the NBU to improve the banking sector,’ said an employee of Bank Austria Creditanstalt Ukraine. ‘We are strongly committed to Ukraine and are going to broaden our client base.’
Developments on the political front are the foundation of the bankers’ optimism. One of their own, former central bank chief Viktor Yushchenko, now heads Ukraine’s government, which bodes well for reform in the banking sector, financiers said.
Still, ills remain to be cured: a lot of Ukrainian banks find the temptation to illegally dabble in the currency market or offer shady loans too much to resist, said one banker who asked not to be named. ‘This is a cancer that must be removed,’ the banker said.
Back at the NBU, Zinchenko said the central bank will be doing its best to cut out that cancer. The NBU will continue its policy of strictly regulating the banking sector and severely punishing misconduct, he said.
‘We have nothing against speculation, as long as it complies with our legislation,’ said Zinchenko. ‘What we’re looking from commercial banks in 2000 is transparency and real investments in the economy.’
