National Bank of Ukraine Governor Valeria Gontareva, who has strongly complained that the nation’s corrupt criminal justice system is hampering her ability to regulate banks, is on her way out.
Multiple sources say that Gontareva has decided to leave, but will wait until a successor is in place and International Monetary Fund negotiations for yet another installment of a $17.5 billion loan package are completed.
Kyiv newspaper Dzerkalo Tyzhnya reported in a Feb. 25 article that Gontareva told President Petro Poroshenko and IMF Chief Christine Lagarde that she wants out.
Gontareva did not reply to a request for comment or an interview. The central bank has denied that she is stepping down. But informed sources say she will leave this year.
The central bank regulates Ukraine’s financial sector and influences greatly the hryvnia’s value, the terms under which Ukraine’s banks can receive and make loans and the ability of businesses to transfer money abroad. She set macroeconomic stability, lower inflation, and greater transparency as her priorities as the central bank moved to close down half of the financial sector’s 180 banks over the last three years.
Three candidates
The top three candidates for the job include ex-Prime Minister Arseniy Yatsenyuk, former Economy Minister and longtime Alfa Bank executive Roman Shpek and Raiffeisen Bank-Aval CEO Volodymyr Lavrenchuk.
Bloomberg news reported on Feb. 27 that the 52-year-old banker is leaving out of frustration with the job. Another source close to the governor, who spoke on condition of anonymity because the person is not authorized to speak publicly, said that Gontareva lost interest in staying in the post after the December nationalization of PrivatBank, whose failure under billionaire oligarch Ihor Kolomoisky may cost Ukrainian taxpayers $6 billion.
PrivatBank failed because of massive insider lending — which some equate to embezzlement — which has not been punished in the spectacular $20 billion collapse of Ukraine’s failing banking sector.
‘Absolutely frustrated’
Gontareva told the Kyiv Post in a June interview that she was “absolutely frustrated” at the lack of prosecutions in the banking sector, saying that the NBU had provided the General Prosecutors’ Office with direct evidence of fraud.
See: Kyiv Post from July 4, 2015: “Governor Gontareva says that corrupt legal system is biggest obstacle to fighting bank fraud” https://archive.kyivpost.com/article/content/business/governor-gontareva-says-that-corrupt-legal-system-is-biggest-obstacle-to-fighting-bank-fraud-417793.html
“As you mentioned correctly: absolutely no prosecution, or any court hearings about all this fraud – everything is documented and sent to our police, to our prosecutor’s office,” Gontareva told the Kyiv Post in a June 21 interview. “We did our job properly. We sent these banks for liquidation. The Deposit Guarantee Fund sent more than 2,000 requests for our prosecutors and police.”
She scoffed at claims of prosecutors who, when asked to explain their inactivity, questioned the strength of the evidence of bank fraud supplied by the two major players: the central bank, which regulates the industry and declares banks insolvent, and the state-financed Deposit Guarantee Fund, which liquidates insolvent banks and repays individual depositors up to Hr 200,000 in state-insured losses.
“Everything is documented; 70 percent or 80 percent of cases are just simple fraud or money laundering. You do not need any high-quality forensic professionals. We’ve already documented all this fraud and money laundering. We could not send banks to the Deposit Guarantee Fund for liquidation or for resolution without any proof of wrongdoing,” Gontareva told the Kyiv Post, noting that at least 90 percent of loan portfolios in many failed banks simply involved insider lending schemes.
Who’s next?
Out of the three top replacement candidates – Yatsenyuk, Shpek, and Lavrenchuk – only Lavrenchuk has direct experience as a banker.
Lavrenchuk has been in charge of Austrian Raiffeisen’s Ukraine presence since 2006, after working as CEO of Bank Aval. That bank was bought out by the Austrian lender in 2006. He has not commented on whether he will take the job.
Yatsenyuk was floated for the position after his April 2016 resignation from his post as prime minister.
Yatsenyuk said in a Feb. 27 appearance on ICTV that he did not want the job.
Gontareva is among the government’s least popular officials, according to polls. The central bank governor is frequently the target of protests, some paid and others unpaid, alleging that she is corrupt.
Shpek is politically well-connected from his time as economy minister under former President Leonid Kuchma and his stint as ambassador to the EU under former President Viktor Yushchenko.
The former government official has worked for Alfa Bank for more than 10 years. His appointment would require parliamentary approval, a potentially tough fight given the hostile attitude in Ukraine towards banks perceived to be owned by Russians.
Gontareva’s tenure has also not been without controversy.
One of her chief subordinates, banking supervision chief Kateryna Rozhkova, has denied allegations of high-level corruption. Recordings leaked in October appeared to show Rozhkova running the now defunct Platinum Bank on the side while working in the NBU as well as changing data on bank capitalization.
IMF in the balance
Gontareva, who started a seven-year term as NBU governor in June 2014, would have to have her resignation approved by parliament before actually leaving the government.
With an IMF meeting scheduled for March that could decide the fate of Ukraine’s next tranche, many doubt that parliament will confirm Gontareva’s resignation in the coming weeks.
“The possible rotation of the NBU head ahead of a possible signing of the latest IMF memorandum in coming weeks does not look optimal for Ukraine since it would cause instability and delays,” wrote Concorde Capital analyst Oleksandr Paraschiy in a research note. “It’s possible that Gontareva be will allowed to leave, but in exchange for remaining for the next three months.”
Timothy Ash, an analyst at Bluebay Asset Management pointed out that Ukraine still has not met all the IMF conditions to qualify for more lending. The IMF has loaned Ukraine $7.7 billion out of a possible $17.5 billion in a four-year lending package that ends in 2019.
Ash wrote “there are a few more impediments” in place, including “issues/foot-dragging over the anti-corruption agenda.”
Establishing anti-corruption courts and giving the National Anti-Corruption Bureau of Ukraine the power to conduct wiretaps are reportedly holding back deliverance of the next cash infusion. “Institutions are now in place – no excuses for wrongdoers not being brought to account,” Ash added.
