Experts are not unanimous in determining the responsibility of the National Bank for the current situation in the banking sector, or in defining the positive and negative results of the NBU activities. These were the results of a discussion held at Ukraine Crisis Media Center. However, the experts unanimously agreed that confidence in the banking system can be restored through stabilization. The first signal for this should be a complete cleansing of the banking system.
Evaluation of the National Bank activities: there is no consensus
According to Ruslan Chornyi, Chief Editor of the news agency “Finklub”, NBU could hardly predict the collapse of banks and mitigate the impact of their bankruptcy. The greatest achievement of the NBU, despite all the mistakes, is cleaning the banking system and increasing transparency. “NBU was awfully corrupt, from bottom to top; any attempts at inspecting banks were closed by means of cash and expensive cars. Hontareva’s team destroyed this corrupt model. This, in my opinion, is the greatest achievement, though there were a lot of mistakes, too,” he stated. The second most important achievement, according to the expert, is free access to information about bank owners and refinancing loans. He considers it necessary to further reveal the real percentage of loans to insiders. This is particularly true of Privatbank.
According to Yuriy Prozorov, President of the Society of Financial Analysts, NBU is most responsible for deregulation of the banking system. He said the reform of 2015, which gave overly broad powers to the National Bank, was a mistake. Law draft 5257 will, probably, correct the situation – it does not diminish the NBU’s independence but provides its greater accountability and increases its transparency to the public.
Yuriy Prozorov also criticized the way the National Bank had cleansed the system. He said that instead of removing unhealthy elements, the cleansing was more like a purge, and so far it has not produced any positive results – no currency restrictions have been lifted, there is no growth of lending and deposits. The expert noted that the body of the banking system has almost no large medium Ukrainian banks – there are a few banks with foreign capital and two state-owned banks. “In my opinion, it is not just cleansing but clearing so that the cleared place could be filled with new players, who are not in the banking system of Ukraine now,” he said.
Ruslan Chornyi disagreed with this assumption. “The law on banking activity will come into force in a year and Western banks will be able to open their branches here,” he explained. In addition, he said, foreign banks are now more interested in getting out rather than entering: Russian – because of sanctions, western – because of the generally unfavorable situation.
The main rule of the client is to know the owner
“My advice to the client – see with which bank you are dealing: who the owner of the bank is, who its shareholders are. These data are available on the National Bank website and to be published on the website of each credit institution,” noted Ruslan Chornyi.
Though most of the banks that have survived are trying to find their niche in the market (mortgage lending, retail banking, etc.), according to experts, the universal banks have the best chances of surviving because in the event of a crisis in some sector they can shift their focuses and compensate for losses.
To restore confidence stability is needed
According to the experts, an official statement of the NBU that system cleansing is over should become the first signs of stabilization. “As long as cleansing persists people cannot trust the system as a whole because they do not know which of the banks will be “put down” by the National Bank next. That is why cash under mattresses is a natural phenomenon,” noted Ruslan Chornyi. “All state’s leaders should declare that from tomorrow on no bank will fail, and all the remaining banks can be trusted. On “Day T” currency restrictions and restrictions on withdrawal of deposits should be removed. The banks should work so that in 3-5 days the clients who withdraw their deposits see that money is available, and they can easily exchange currency. Then after a short period the money will return to the banking system,” explained Yuriy Prozorov. He recalled a positive precedent of 2004. A positive example, in his opinion, could be officials’ demonstration of confidence in the banking system by personal example.
Stabilization will begin not earlier than next autumn
According Ruslan Chornyi, if in the nearest future the banking system does not face the new shocks, the stabilization can be expected in autumn next year – regardless of who is to head the NBU. “Now small banks undergo stress tests, and then will continue to defend their business plans. This will be finished in the 1st quarter of next year. Then it will be clear how matters stand in each bank. In summer we will have a clear picture. […] It will take some months for people to understand that shocks will not occur, and in September of next year confidence will be restored,” he detailed.
Yuriy Prozorov said that in the future the unification of supervision function will help the better protection of bank clients. “We should have a very effective central bank and powerful supervision that will ensure protection of users of financial services no matter in which market segment they work,” he noted.