The crisis of 2014 became a real survival game for the banking system of Ukraine. Liquidation of banks and the introduction of temporary administration, huge outflows and losses, increase in portfolios of low-quality assets - the banks completed last year and continue to operate in 2015 experiencing these and other problems. But for how long will the banks last? For the financial sector being on the edge of survival the thesis "change or die" is important more than ever: if they do not decide on the reform of the system today, it may be too late tomorrow.
Therefore, already in March of this year, the National Bank published the "Comprehensive program for the development of the financial market of Ukraine for the years 2015-2020", authored by a team of representatives of regulators of the financial and banking markets, and specialized organizations. The program was amended and changed repeatedly, besides it has a lot of critics already. That is clear: On the one hand, there is the task of ensuring sustainable development of the financial market, including by bringing it in line with the requirements of the European Union on development of the financial market. As is known, Ukraine has signed the relevant obligations in the Association Agreement with the EU.
On the other hand, there are dynamic external factors that have influence here and now: foreign threats (military actions in the east of Ukraine), budget imbalances, outdated and incredibly energy-intensive infrastructure of the country. As a result, this set of negative factors led to macroeconomic instability and the devaluation of the national currency, which became a severe blow to the banking system.
Of course, the task of carrying out the reform in the current environment is much more complicated.
That is why one of the first priorities in the reform of the banking system is ensuring financial stability, which is possible only under a number of conditions, such as: raising the level of capitalization of the banking system, protection of consumers' rights, strengthening the protection of the creditors' rights and the problem of poor quality of banks' assets, raising standards of banks' corporate management, increasing financial literacy and many more.
It is clear that it is necessary to take concrete measures to achieve these objectives. The list of such actions came at the beginning of 2015, when Ukraine signed the Memorandum of Economic and Financial Policies within the framework of the regular program of cooperation with the IMF. Then also came out the National Bank of Ukraine calendar plan of activities for 2015 on a comprehensive program of development of the banking system of Ukraine for 2015-2020, which has the following goals:
- to reduce the dollarization of loans and deposits to levels not exceeding 25% and 20%, respectively;
- to reduce the proportion of cash in the money supply to the projected level - not more than 15% in 2020;
- to increase banks' capital to at least 350 billion UAH and the assets up to 2,500 billion UAH over 2015-2020;
- to reduce the share of overdue loans in the loan portfolio of banks to not more than 4% (currently - 16.8%);
- to bring the annual growth of the loan portfolio of banks to at least 10% starting with 2015;
- to bring the annual growth of the deposit portfolio of banks to at least 15% starting with 2015;
- to reduce the average rates on new loans in the national currency up to not more than 6-8% per annum.
How will it be implemented in practice? "Are you familiar with the Memorandum of Ukraine on Economic and Financial Policies (signed by Ukraine within the framework of the IMF loan - editor)? There are the steps of banking reform provided", commented Hans Rekers, a former board member of the Bundesbank (German central bank), which now advises the NBU. Transparency of bank owners, disclosure of information on loans to related parties, bringing the relevant indicators to the standards of the NBU, capital increase in accordance with the realistic stress tests, work with "bad assets" - according to Mr. Rekers, these make the minimum program, awaiting the banking sector in the next two years.
Experts believe that NBU will have to take a very proactive position on the implementation of the steps above, as well as to take responsibility for restoring confidence in the banking system.
Thus, the ex head of the Board of the Bank "Aval" and now a prominent businessman Oleksandr Derkach highlights two sets of problems in the banking sector. The first problem is the one of liquidity and capital. In other words, it is the solvency of the banks and their willingness to meet their obligations. The second one is a psychological problem of confidence in the banking system. According to Derkach, the banking system has undergone a significant transformation and now it can be divided into three groups. "The first one incluedes "dead" ones who cannot be saved. The second one incluedes the living ones that can be still saved. The third group consists of the normal healthy banks. However, each group must get an individual approach from the National Bank. This applies to the assessment of capital adequacy, reserves, refinancing, supervision, the rights of clients and much more", Derkach says.
Mykhailo Kukhar, Head of the Independent Group for Macroeconomic Analysis and Forecasting, believes that the National Bank will have to take a number of measures, of which some can be called unpopular, some can be unusual for Ukraine (although they were successfully tested in developed markets), but this should be done very quickly and actively. "Of course, we need a package of measures, but if I need to name two, I would single out the following: first is a moratorium on the return of deposits (optionally - a partial moratorium, the terms of which may vary); the second is the state program of redemption of "bad loans" or a program of nationalization of problem banks, something like the Emergency Economic Stabilization Act by Paulson implemented in 2007-08 in America", Kuhar said.
By the way, the first of the measures named by Mykhailo Kukhar is already being implemented - on April 9, the Verkhovna Rada passed a law about a moratorium on the return of pre-term deposits in the first reading.Experts agree that most of these measures are largely "hotshots", but they and the ones like them need to trigger the process of recovery of the banking system.
In the issue of reforming of the banking system, I would single out four main focuses. The first one is to develop a clear mechanism for the recovery of capital that would give the banks four years to absorb those losses that the banking system has suffered as a result of a sharp devaluation, the annexation of the Crimea and the military operations in the east of Ukraine. I would say that today it is one of the key measures aimed at stabilizing the system to be adopted. The second direction, one should focus on, is the alignment of the system work aimed at the dedollarization of the economy. The basis of the stability of the banking system is as large as possible proportion of the national currency in the country's economy and maximum independence from the dollar.
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