Jacques Mounier is president of the management board of Calyon Bank in Ukraine. On Feb. 23, Mounier was interviewed by the Kyiv Post about the increase in the volume of troubled loans in Ukraine. Here are the excerpts:
KP: How serious is the situation right now at banks in terms of non-performing loans, and what threat does it pose for Ukraine’s banking sector and country overall?
JM: Non-performing loans are significant mostly for the loans in hard currencies made to the population. Probably a third of those loans have payments incidents and/or are not performing … which means that there is a probability for a 15 percent loss on the capital of those hard currencies loans made to the population. The situation could become worse if the hryvnia devalues much further. For corporations, non-performing loans are not very significant so far … The banking sector is endangered obviously and needs capital, as well as liquidity. Capital requirements mentioned so far are in the $3 billion range, including probably more than two billion coming from abroad, some kind of a “forced foreign direct investment” for 2009. A failure of an average or “big” bank that could trigger other banks’ failures would be a significant issue for the country.
KP: Do you see any more serious risk during this economic downturn that could lead to a much more serious situation?
JM: A further and significant devaluation of the hryvnia would lead to a much more serious situation. It would be true for individuals first… but also for corporations and therefore for their banks. The incapacity of the stake owners/political class in Ukraine to work together, the short-term driven behavior of many could lead also to the refusal of the International Monetary Fund to continue to fund the country, but also if irresponsibility of the stake owners prevails, to a technical default, driven by political considerations … This would harm Ukraine.
KP: How manyUkrainian individuals are affected by this situation and what is at stake for them?How many families are on the verge of loosing their homes? How much worse it can get?
JM: This is the “middle class” in Ukraine that is being hit by this situation today, because those are the ones that borrowed in hard currencies for their cars, mostly, but also for some for their housing. We do not speak about more than a few percent of the Ukrainian population
KP: What rights and options do Ukrainians on the verge of loosing their homes have to protect themselves and what chances do they have to succeed in this?How can families that are not able to service their debt obligations due to various reasons (layoffs, salary cuts, etc), protect themselves from loosing their homes?
JM: In every country, rules exist. A debt is due to be repaid. It is not arguable. But nobody prevents someone indebted from trying to negotiate with the debt provider, here a bank, in order to obtain some suppleness, if faced with difficulties to repay. Banks in Ukraine do negotiate with their debtors/individuals in an “industrial” way today, to the best of my knowledge. But if the indebtedness is just too big, and thus unbearable, one has no choice but to sell the car financed and/or sometimes to leave the house or apartment occupied, and to have it sold. One should … institute rules preventing banks and individuals from indulging in such risky transactions and/ or in over-borrowing/over-lending. There should be also a central database that each lender to an individual should feed with loans made that individual, in order for the profession to be knowledgeable about the indebtedness of a person. The same set-up could be imagined for companies…
KP: How many companies are affected by this situation and what is at stake for them?
JM: Almost every company is affected by this crisis. Local producers, because their production, even if made at cheaper prices, can hardly be sold. Importers, because their sales are severely hit by the devaluation … and service companies because there is much less to service. Therefore, cost cutting and downsizing have been the rule so far at companies, but no significant damage so far. Have significant bankruptcies been announced: no!
KP: Do you see any threat of a meltdown that could have ramifications outside Ukraine?
JM: The meltdown is all over the world and many countries have devalued their own currency … which could force Ukraine to further devalue the hryvnia. The whole region is hit: Russia. Poland, Romania…all significantly down.
KP: What is the best strategy for the state, banks and Ukraine’s foreign lenders to adopt in order to deal with these challenges in Ukraine?
JM: The authorities/stake owners in Ukraine ought to clean their act together, and respect the rules they decided as well as respect the leader being chosen to implement those rules. There could be a formal opposition also. The IMF, the authorities and the banks should try to avoid any technical default, and recapitalize the banking system … step by step, if banks are able to lend, some activity will start again and demand will be created.
KP: If parliament adopts ‘populist’ legislation prohibiting banks from seizing homes to protect citizens, how will this affect the banking sector? Is it a viable solution, or will it lead to the collapse of Ukraine’s banking sector?
JM: Ukraine, being part of the world, can hardly [adopt] rules that would be non-professional, such as the ones that prohibit banks from foreclosing on homes, or the ones that would force banks to transform some of their hard currency loans into hryvnia ones at non-current exchange rates and at interest rates that are not relevant…But if the state and/or the parliament would behave in such a way, and would alienate the banks and thus the business world community, Ukraine would be out of the world [commerce system] for a decade or two.
