Public trust in the banking system, or in any other system, is not eternal and above all depends on the quality of its work. This became crystal clear after several commercial banks recently went bankrupt.
Olbank, Garant, Kyiv Universal Bank, and Interkontynentbank started up at different times, but the public scandal erupted all at once, when defrauded depositors and creditors united a few weeks ago and marched to the Verkhovna Rada, the National Bank, and the Prosecutor-General’s Office of Ukraine. Interkontynentbank depositors took to the streets last October, but their protests hardly caused a ripple.
The depositors are putting all the blame on this country’s chief banking institution. According to Olbank strike committee chairman Bohdan Tsymeiko, the silence of National Bank executives helped bank owners to cheat the people who trusted them.
The banks were collapsing at breakneck speed. Volodymyr Maslov, representative of the Garant bank depositors, claims that according to the Association of Ukrainian Banks, Garant’s profits were UAH 1.3 million last October, but as early as January 1 this year they were 84 million in the red. The former depositors doubt that this can be called natural bankruptcy.
Meanwhile, schemes to remove money from the named banks also featured in the statements of the National Bank and prosecutors who are investigating these cases. The list of offenses includes: issuing credits at a low interest rate and without a sufficient risk guarantee, non-profitable investments in securities, estrangement, and other actions that run counter to banking ethics and the law.
Naturally, each of the banks chose its own way of declaring bankruptcy. For example, Interkontynentbank and the Kyiv Investment Bank were involved in funding civil construction, while Garant preferred buying exchange bills from bogus firms. A typical situation was that a small bank would provide a high interest rate on deposits, issue generous loans for risky projects or without collateral, and temporarily submit false financial reports.
Although both sides admit to the schemes to defraud, there is no agreement about who is to blame. Prosecutors say that the Kyiv municipal and oblast branches of the NBU investigated the activities of commercial banks on a number of occasions and informed their management of legal violations. But bank owners flouted the NBU’s demands, furnished false information and reports, and failed to take measures to improve the bank’s financial state.
Tsymeiko told The Day that the banks published incorrect information, while the National Bank’s management turned a blind eye to this and did nothing to resolve the problem. All the collapsed banks were in this situation. Declaring that “the National Bank’s flawed policies accelerated the collapse of these banks,” the chairman of the strike committee added that the central bank thereby contributed to unfair competition: the fall of small banks promoted the growth of large ones.
Depositors are also exasperated by the measures that the National Bank began adopting when the danger of bankruptcy became all too real. The administrators and liquidators sent by the NBU to solve problems continued to rob the banks. According to Tsymeiko, Yuriy Shkindel, the interim administrator sent to Olbank, absconded with UAH 15 million from the bank in the three months that he worked there. The bank’s liquidator Iryna Maliukova and the liquidator of Garant, Lisoval, did the same.
Whenever the NBU received signals from depositors, it would just replace the liquidators, like it did with the liquidator of Our Bank (Zaporizhia). Depositors are thus accusing the National Bank not only of conniving at but also promoting bankruptcy.
Among the protestors are many pensioners, who must have been losing the money they had deposited at the Oshchadbank. So it is only natural that they are trying to find the guilty parties. They are blaming not only the National Bank but also the prosecutors, who they say are dragging their feet, even though the managers of all the bankrupt banks are being prosecuted.
The only question is how fast the cases are being investigated. According to Anatoliy Andronovych, the representative of the Kyiv Universal Bank depositors, no bank executives have been brought to justice since 1992, when the banks were just starting to go bankrupt.
It would be wrong to delay an investigation: the loss of time may jeopardize the entire banking system and shake public confidence in it. There are 19 million depositors in Ukraine, and personal savings deposits account for 51 percent of the UAH 156 billion-worth of credits to the economy. But so far the NBU’s principal strategy boils down to selling “bad” banks to affluent investors so that the latter will solve the repayment problem.
This method is effective enough: for example, Interkontynentbank, purchased by some private individuals, has already repaid its depositors UAH 6 million, taken stock of its credit portfolio, and set up a task force to return problem credits. The bank is also looking for a receiver-manager. According to the NBU’s first deputy governor Anatoliy Shapovalov, this may be a certain Baltic bank. Also being sought is an investor for Kyiv Universal Bank. President Yushchenko has in turn instructed law-enforcement bodies to develop a more effective mechanism for preventing these kinds of shady deals.
Still, the depositors believe that these measures are not good enough. Tsymeiko says that the state should use its own money to help the defrauded depositors. This will be a good stimulus for a speedier investigation of the case. In addition, the depositors insist that a law be passed on bank bankruptcy, which must include risk insurance mechanisms.
Oleksandr Tkachenko, head of the Dnipropetrovsk civic association of Premierbank depositors, insists on establishing a kind of trade union to protect depositors’ rights in Ukraine. Naturally, the strikers are demanding that proceedings be instituted against the “unlawful actions of the National Bank and the Prosecutor-General’s Office.” Whether the latter measure speeds up or slows down the investigation remains to be seen.
