Editor’s Note: The resignation of National Bank of Ukraine Governor Valeria Gontareva raises the issue not only of who will replace her, but of what approach and strategy the new governor’s team will follow. Obtaining loans, currency stability, price stability and many other things depend on NBU policies. Igor Umansky, the former acting minister of finance, is touted as one of the top candidates for the job of central bank governor to replace Gontareva, who leaves on May 10. The interview by Ukrainian journalist Alexey Minakov, a Kyiv Post contributor, has been edited for style and length.
Alexey Minakov: How do you rate Valeria Gontareva’s performance as head of the NBU?
Igor Umansky: She did both positive and negative things. Undoubtedly positive was the stabilization of the foreign exchange market, price stabilization (we achieved an inflation level close to 10 percent for the second year in a row), tightening regulations and removing most of the problem banks.
Most of the questions are not about what was done, but how it was done. In what period, how aggressively, and with what consequences. One of the most controversial things is the removal of about 90 banks from the market.
Everyone saw that most of the banks in our country were just used for the interests of their owners – the financial and industrial groups that created them for this purpose. Or banks were used to raise money from the market and lend it to their businesses.
Also, we need to understand another story. In addition to guaranteed deposits, there were also uncovered deposits of individuals and deposits of legal entities. There are not so many of them, but the prospect of their return is zero. Before they are returned, Hr 65 billion should be returned to the National Bank and Hr 60 billion to the Ministry of Finance.
Finally, Hr 480 billion in assets were arrested, so somebody specifically lost them. Hr 480 billion, think about it – that’s more than the budget of Ukraine two years ago. And today the assets that are sold by the Deposit Guarantee Fund at best are 10 percent of their face value. God grant, if out of Hr 480 billion we get about Hr 48 billion in “live” money.
AM: Because of the refinancing of banks, the budget incurred billions in losses, according to the head of the National Anti-Corruption Bureau of Ukraine Artem Sytnyk. For this reason, a criminal investigation into the leadership of the NBU has been opened. Did I understand correctly that you agree with Sytnyk?
IU: You have to view each case with each bank. In the case of PrivatBank, and in the case of all 90 of these banks, a simple and logical question is: what did banking supervision do all this time and why, in particular in the case of PrivatBank, was it allowed to increase the size of the gap from Hr 100 billion to Hr 180 billion. It’s the main question. Thus, changes in approaches and in banking supervision itself are very relevant.
And the refinancing tool itself is used all over the world. When we have real problems with the annexation of the Crimea, with the occupation of part of our territory on the east, you must understand that there were a large number of clients from many banks in that area and, of course, the quality of their loan portfolio was severely affected. It’s an actual situation, and in most cases, it didn’t depend on the correct or incorrect policy of the bank’s management. And, of course, the National Bank had to support the situation in the bank, but under a strict control of the use of both the bank’s funds and the funds that the bank received from the Central Bank.
As for the declared key policy of the National Bank (inflation targeting and the use of monetary, regulatory and administrative instruments utilized for the last three years), indeed, in the conditions of a peak of turbulence on the market, it’s necessary to take tough measures. In the short term, these tools must be used. But using these instruments in the medium and long term is extremely harmful and dangerous.
AM: What should the government do about PrivatBank, in your opinion?
IU: Specifically for PrivatBank, the first thing I would start with is cleaning up the bank. PrivatBank has a problem portfolio of Hr 180 billion, which is practically not serviced. The bank needs to be cleared of this problem portfolio.
PrivatBank is one of the most technologically advanced in the country. As of 2016, about 65 percent (if not more) of the income structure was non-interest income, that is, other commercial collateral services from which the bank earns. You can count on the fingers of one hand such world level banks. Accordingly, the potential for the growth and development of the bank is excellent.
Only after the clearing of the portfolio and getting positive indicators will the bank be ready for reviewing, kept as a single bank or selling off different divisions separately. It doesn’t make any sense for the state to remain the owner of PrivatBank after it’s left the zone of losses. The bank will need privatization. The question is when, and what is the most efficient privatization strategy.
AM: And what about Russian banks. What is their future in Ukraine?
IU: I think it will be interesting to see who will become the owners of these banks soon. It’s no secret that they are actively searching and negotiating their sale. And in this context, it will be very interesting to look at the “protest actions” that took place at these banks, who organized them, and who will buy these banks. Such actions are a good option for depreciating an asset.
AM: What is the main challenge for the next head of the NBU?
IU: First of all, you need to calm the market, you need to give a positive signal to the market, you need to show there are prospects and opportunities for growth and development. Before the crisis, the average banks, not the largest, were sold for a billion dollars, and today, if you don’t take into account state-owned banks, the entire banking system will be valued at such amount. That’s not normal. In my opinion, a new team will create opportunities for the development of both the banking system and the development of other segments.
AM: Who is the most worthy candidate for the post of head of the NBU, in your opinion?
IU: If I was making the decision, I believe that I’d consider Oleksandr Shlapak and Roman Shpek in this situation.
AM: And why are Shlapak and Shpek the most worthy candidates among all other candidates previously mentioned in the media? What qualities should have an “ideal” candidate in general?
IU: The National Bank in Ukraine initially has two main directions, as a monetary and issuing center, and as a banking regulator. Often these two functions conflict with each other. On the direction of supervision, I would take some “refined” banker from the market, who knows all the moves and outputs of a commercial bank. However, for the position at the National Bank, I believe, the best candidate should be a person who has a wider range of knowledge, in general in macroeconomics, in the administrative system, in the work of power institutions. The National Bank is still one of the state institutions that provides rules and control on a huge segment.
At the same time, it should be a respectable person who will be accepted by the market, society, and politics, because you need not forget that this person requires at least 226 votes (in parliament).
AM: Obviously, the candidacy of the head of the NBU will be agreed on Bankova Street. When was the last time you saw Petro Poroshenko?
IU: A few weeks ago.
AM: For what reason?
IU: I had an idea…At present, at the state level, there is no adequate investment infrastructure both within the country and for our external partners. The creation of a post-Soviet investment attraction agency, which is just like other bureaucratic structures, or the creation of investment companies…are pathetic attempts. We need to create an institution with the approaches and principles, both organizational and procedural, that you find in developed countries.
