The long-term consequences of corruption are clear everywhere in Ukraine. The Kyiv Post’s March 31 Kyiv Post Legal Talks webinar on the banking sector zeroed in on how much Ukraine suffers because privileged elite were allowed to steal billions of dollars and get away with it.
The talk, available on the Kyiv Post’s YouTube channel, was headlined “Ukraine’s Mountain of Bad Debt: How To Collect?” The experts talked about what to do with the sector’s bad hangover of bad loans — $15 billion lent to customers who refused or were unable to repay. That’s nearly 1/3 of the state budget. That’s 41% of all loans issued.
Because of the high volume, mainly held by four large state-owned banks, bankers aren’t able to lend as much money as they would normally. This credit would help fuel the economy and productivity. Instead, banks need to keep capital reserves high enough to cover these bad loans — basically sticking the taxpayers with the losses.
The state Deposit Guarantee Fund is responsible for liquidating the assets of nearly 100 banks declared insolvent by the National Bank of Ukraine, which did a poor job of regulating banks before 2014. By its own estimate, seven years later, the fund has recovered only $1.4 billion of the $20 billion in banking sector losses covered by taxpayers. That money could have paid for a lot of roads, schools, and health care.
Instead, a lot of that money went to lawmakers (one of whom borrowed $800 million that he didn’t repay), bank owners, and their cronies. But the identities of most of the deadbeats are shielded by banking secrecy laws. So who knows what luxuries the loot was squandered on and by whom? The biggest losses, of course, were the $5.5 billion allegedly embezzled by the ex-owners of PrivatBank, billionaires Ihor Kolomoisky and Hennady Boholyubov. But at least they face civil lawsuits.
How did it happen?
Well, while people like ex-President Petro Poroshenko were serving on the supervisory board of the central bank, no one was minding the store. People could open banks without disclosing who owned them. Banks lured depositors with ridiculously high-interest rates. The owners then lent the money to themselves or their friends or their companies, often with no intention or ability to repay. Credit and asset valuation standards were poor and remain faulty.
These schemes collapsed in 2014 after Kremlin-backed President Viktor Yanukovych fled the EuroMaidan Revolution to Russia. It was left to ex-central bank governor Valeria Gontareva and others to clean up. She told the Kyiv Post that she wasn’t surprised by today’s events. “The quantity of NPL is 100% correlated with the rule of law in the country. Unfortunately, Ukraine is a country of complete lawlessness, so the high NPL loan level is not surprising for me. The main achievement of our reforms is that NPL in Ukrainian banks are 100% reserved and all banks are properly capitalized! But NPL resolution is located on the territory of rotten law enforcement agencies and courts, which require a complete transformation.”
And there we have it: Regulation has improved, but this could happen again — especially when no one has been convicted of bank fraud.
America had its bank-robbing gangsters in the 1930s, including John Dillinger, Bonnie & Clyde, Alvin Karpis and Pretty Boy Floyd. They held up banks with guns. But Ukraine’s 21st-century counterparts were much slicker. They knew that owning a bank was the best way to empty it. The roster of ex-bank owners who stuck taxpayers with gargantuan losses from their failed institutions and got away with it, besides the PrivatBank pair of Kolomoisky and Boholyubov, includes: Andriy & Serhiy Klyuyev, Oleg Bakhmatyuk, Dmytro Firtash, Viktor Polishchuk, Mykola Lagun, Kostyantyn Zhevago, Sergii Kurchenko and Leonid Klimov.
