Clients of a number of liquidate Ukrainian banks are getting ready to pitch a row of tents in front of the National Bank of Ukraine in protest against financial settlement delays.
“I am 100 percent sure they will do their best to tear down our protest camp by hook or by crook,” says Bohdan Tsymeiko, the representative of the depositors’ pressure group. He insists that the Kyiv authorities have sanctioned the protest rally. According to Tsymeiko, the participants of the permanent picket are demanding a law that calls for speedy compensations to the clientele of the bankrupt banks, launching criminal cases against the owners and managers of such banks, and dismissing and prosecuting some National Bank executives responsible for the liquidation of the bankrupt banks. The protesters claim that even the current mayor of Kyiv, Leonid Chernovetsky, an ex-banker, will support them.
What does the National Bank think of this? Queried by The Day, Valerii Lytvytsky, the head of the NBU’s advisory group, did not confirm the bank clients’ fears and said that the National Bank is very aware of this problem. Measures are now in place to tighten control over the activities of commercial banks. The NBU and the Deposit Guarantee Fund have drafted a law that will enable the fund to compensate at least 50,000 hryvnias to aggrieved depositors (compared to the current sum of 15,000).
The bill is now being studied by government bodies and will be submitted to parliament. “Even if an individual has 300,000 hryvnias that he wants to protect against inflation, he can place them in six banks and be absolutely sure that the money will not be lost,” Lytvytsky says. “But to do this, the depositor will have to knock on many doors, which will be impossible for some.” He also noted that clients should have taken a more cautious approach to choosing a bank, which could boost competition among these financial institutions in terms of service quality and factors that attest to their reliability.
Lytvytsky also noted that nowhere in the world do depositors have their savings fully compensated when a bank declares bankruptcy. Today, 50,000 hryvnias is an optimal sum in Ukraine, whereas a larger amount may prove to be an unbearable burden on the banking system and even increase the risk of fraudulent bank operations, since this will provide miscreants with a certain moral indulgence because the state will return everything to depositors in any case.
Meanwhile, the NBU is adopting other measures aimed at increasing the stability of the banking system and, in particular, ensuring the safety of bank deposits. As early as November Ukraine’s central bank will be able to support the liquidity of commercial banks with so-called swap operations. The National Bank has approved a new version of the provision on bank liquidity regulation. From now on, the bank will be using such instruments as refunding and deposit operations as well as swap operations that involve exchanging foreign currency for the hryvnia. The revised provision will come into force on Nov. 16.
In keeping with this provision, the NBU will be authorized to conduct swap operations with foreign currency (dollars, euros, British pounds sterling, Swiss francs, and Japanese yens) for a period of up to 15 days. The price of a swap operation equals the interest rate for using the national currency at the level of the interest rate set by the results of the latest bank liquidity tender for a period of 14 days, and the foreign currency interest rate set by the NBU as a percentage to the weighted average rate of inter-banking crediting. This provision has also expanded the list of deposits that the NBU accepts as security from other banks for refunding: it now includes bank guarantees and bonds issued by the State Mortgage Institution.
The provision also authorizes the NBU to conduct direct repo (buyback) operations (a credit operation in which the NBU buys the resources of a commercial bank and the bank is liable to buy them back at a prearranged price and on a fixed date) with bank metals. Until recently this operation was only conducted with state securities and foreign currencies.
It should be recalled that in order to support the banking system’s liquidity, in September alone the central bank refunded other banks to the tune of UAH 394.8 million, and since the beginning of this year total refunding has reached UAH 7.4 billion.
