It is the National Bank of Ukraine (NBU) as well as the bank owners and depositors who are to blame for the current situation in the banking sector. Trust in Ukrainian banks can be restored only through strengthening the system. This, in its turn, requires reforms at the legislation level. This was stated by financial analysts at a discussion held at Ukraine Crisis Media Center.
77% of Ukrainians do not trust banks
According to recent surveys conducted by the Center for Social Monitoring and the Institute of Sociological Studies, 70 percent of citizens do not trust banks now. Journalist Andriy Blinov reminded that 80 banks had collapsed over those two years. About 15 billion USD and over 50 billion UAH went out of banking system since the end of 2013.
Who is there to blame?
Expert opinions diverged whether the NBU could prevent the devaluation of the hryvnia and the bankruptcy of a number of banks through available mechanisms. “The previous National Bank leaders are 70 percent to blame for what happened,” stated Erik Naymann, managing partner of Capital Times. In his view, these key mistakes were, firstly, the withdrawal of almost USD 1 billion of foreign reserves. Secondly, in the spring of 2014, when panic was beginning, the National Bank did not prohibit early withdrawal of foreign currency deposits in time (this had shown its effectiveness in 2004). “Luhansk and Donetsk residents withdrew hryvnias and immediately exchanged them for dollars. This was a double blow: it meant losses for both foreign exchange reserves and for the banking system,” said the expert. Then NBU started to provide loans for refinancing of commercial banks and tried to keep the hryvnia. “The foreign reserves of National Bank lost nearly USD 11 billion. Of these, USD 5 billion went through Naftogaz, three – to purchase gas and to repay USD 1.7 billion of Eurobonds. There remains the question what happened to another USD 5.6 billion at the rate of USD 1/ UAH 13,” noted the expert. According to him, “it is possible that it was an attempt to make money”.
According to Erik Naymann, the methods of “cleansing” of the banking system were also wrong. “Cleaning the banking system turned into a” witch hunt”. […] Those punished turned out to be innocent,” he stated. According to him, “all that happens is like unconcealed stealing at the highest level”.
According to Dmytro Yablonovskyi, senior economist, Center for Economic Strategy, all stakeholders are equally to blame in this situation. These are the National Bank, bank owners who declared their intention to replenish capital and to continue business but still went bankrupt and, to some extent, the depositors themselves who rushed to withdraw their deposits. “The greater the panic in the banking sector, the worse it affects the banks and the depositors’ opportunity to recover their deposits,” explained the expert. However, the National Bank could have prevented the panic through competent communication. The negative factor was the National Bank’s attempt to ensure both price and banking stability simultaneously, to clean the system and fight the effects of the crisis. In addition, the question remains whether it was worth refinancing banks that extort money and put off the problem solution.
Protection of customers against illegal actions requires broader tools
Currently, the National Bank has no separate vertical that would deal with the protection of the rights of users of banking services. “The National Bank is to regulate the banking system so that it is stable, and therefore to protect the rights of depositors. But as to certain fraudulent actions – non-granting of deposits and so on – it is the question of how many tools it has and how quickly it can do this,” noted Dmytro Yablonovskyi. He added that the NBU development strategy provides for the possibility of instituting a financial ombudsman to address such issues.
Erik Naymann noted that the NBU should monitor banks more closely and react more strongly, if there is a suspicion of abuse.” If the NBU knows about the theft of money from controlled banks, they must open the cases,” he stated.
Restoration of confidence is possible, but it will take many years
According to the experts, an increase in the amount of guaranteed deposits will not help restore confidence in banks, because the funds of 90% of depositors are limited to 200 thousand UAH. Moreover, the Deposit Guarantee Fund had not enough money even to pay this amount of compensation. According to Erik Naymann, it is unlikely that the increased financial literacy of the population will help significantly. Even an expert draws conclusions from the certain figures from bank statements, but nobody can be sure that this information is true. Dmytro Yablonovskyi believes that the increased financial literacy will help users to defend their interests, provided that both the depositors and the NBU use the necessary algorithm, and the latter has a coercive leverage.
According to Dmytro Yablonovskyi, the feasibility of refinancing banks that get into difficulties is an ambiguous question, but to stabilize the market it is important to prevent further panic. To this end, we should achieve a more constructive discourse on the National Bank activities in the media space and avoid the new bankruptcies of major banks. “In my opinion, the NBU just should do their job – in secrete, but honestly. It should communicate with the owners of remaining banks and should not bring controversial issues to the public eye, at least for now, to avoid more panic,” noted the expert.
According to Erik Naymann, it is possible to restore confidence in banks only by strengthening the system. This, in its turn, requires the reforms at the legislative level, said Erik Naymann. “We need the new laws on the National Bank, banking system and currency regulation, and should ensure compliance with them. This should be part of a systemic reforming […] We should fundamentally change the approach to bank supervision and resolution. The system should be more transparent and provide more opportunities for NGOs to influence the National Bank and the banking system,” the expert believes. “Restoration of confidence is possible, but it will take many years,” concluded Dmytro Yablonovskyi.