Out of 178 banks previously active in Ukraine, only 110 still remain. Over the past two years, 68 banks have been liquidated. There will be no more than 100 left by the end of this year.
One of the tools used to purge the banking industry is the central regulator’s insistence on an accelerated increase of the minimum capital level to 500 million hryvnias. Thus, the 300 million mark should be achieved in 2017, followed by 400 million in 2018, 450 million in 2019, and 500 million by July 2024.
Chairwoman of the National Bank of Ukraine (NBU) Valeria Hontareva said in an October 2015 interview: “Thirty banks account for 90 percent of assets now. Essentially, they make up the entire banking system. The rest do not get into anyone’s way, certainly, nor do they have a fundamental impact on the system... And we still have to purge them out.” Thus, the sole key reason for the banking purge is its victims’ insufficient financial assets. This, so to speak, “regulatory strategy” is dangerously primitivistic. Artificial consolidation of banks actually causes their reoligarchization. This trend is seen clearly in the current monetary policy of the nation’s central bank.
In fact, the chief, uncontestable reason for liquidation of a bank should be its participation in shadow money laundering and terrorism financing. It is Russian banks operating in Ukraine that present the greatest danger in this regard. Nonetheless, Hontareva believes that “we have no ‘Russian banks’ in Ukraine. We have Ukrainian banks with Russian capital.”
In my opinion, treating Sberbank of Russia (as well as other domestic banks), as “Ukrainian banks” is a flight of fancy and a case of unacceptable primitivism. In fact, these are purely Russian banks with Ukrainian capital. Deposits of Ukrainian clients, securities, access to the NBU’s foreign exchange interventions – all these create and replenish available capital of Russian banks. Having bought convertible currency in Ukraine, they transfer it to Russia. But so far, none of the Russian banks has fallen victim of the NBU’s purge.
Today, the whole point of the NBU’s monetary policy can be reduced to an unending contraction of the monetary base, and hence to emaciation of financial and credit system, which ultimately generates a chronic crisis in the nation’s production industries. Thus, the ceiling for increase in the money supply was set at 27 percent in 2015 (and this despite the nationwide demand for a five to six times larger hryvnia emission), but in fact it increased only by 0.8 percent. In 2016, the money supply should increase only by 11.5 percent. Meanwhile, the annual rate of monetization in the EU (whose standards we ostensibly strive to implement) is no less than 100 percent (Italy’s rate stands at 151 percent, France’s at 152 percent, Germany’s at 180 percent, Spain’s at 203 percent, the Netherlands’ at 224 percent), while the US has this rate reaching 104 percent, China 163 percent, and Japan 236 percent.
Let me remind my readers that the ECB provided three loans totaling a trillion euros to the national banks of the eurozone in 2012, with the refinancing rate set at 0.25 percent. Next, the ECB adopted a long-term program in March 2015 aiming to stimulate economic growth by monetary means. The interest rate has been reduced to zero. Simultaneously, it bought bank debt totaling 550 billion euros. It is thus clear that no developed country in the world allows a “monetary hunger” policy to be implemented. On the contrary, their pro-growth policies provide for money supply increase outstripping economic growth, which forms the basis for creating the monetary investment stock which is available to goods-producing business entities.
Despite this international practice, the NBU is conducting a purge, which effectively means destruction of the banking system. By strongly limiting the emission of the hryvnia while hiking the refinancing rate to 30 percent, the central bank’s leadership was cynically increasing its own capital and virtually destroying the real economy. Eventually, the pressure from the MPs forced them to lower this rate to 22 percent, which is no less destructive.
This ignores international experience which shows that central banks keep interest rates at a minimum to support the banking system and thus the economy. So, the discount rate in the EU has long stood at 0.25 percent per annum, with Britain’s rate at 0.5 percent, the US’ rate ranging from 0.25 percent to 0.5 percent, Japan’s 0-0.1 percent, and People’s Bank of China’s at 3.5 percent per annum.
Andrii Pyshny (Chairman of the Board of Oshchadbank) was forced to admit the bitter truth: “The need to recapitalize banks is a new reality in which all banks of Ukraine, regardless of ownership and without exception, have suddenly found themselves. More than half of the loan portfolio of the banking system was turned into distressed or bad assets in just a year.”
Therefore, we must recognize that the lion’s share of the blame for the failure of the banking system lies with the NBU. The current “emission nihilism” is not just an innocent escapade of the nation’s central bank’s leadership, but rather a policy that really condemns the national economy to the margins of the civilized world.
Despite these obvious truths, the NBU blindly implements guidelines and requirements of the IMF, thus turning the country into a quasi-sovereign territory. Domestic apologists of foreign influences do not pay even the slightest attention to this threat. For instance, Oleksandr Paskhaver stated: “I support the IMF’s recommendations for Ukraine and I think that they bring many benefits. We should heed the advice of the Fund, and there will be no conflicts or disputes with it then.” (Den’s issue from June 20, 2015).
Director of the Global Economic Governance Program at Oxford University Ngaire Woods admitted: “Historically, the IMF’s uselessness has been the greatest threat for it.” And I would add that the Fund is actively harmful for our civilization.
Tight dollar peg for the hryvnia is a clear and present danger for the monetary system of the nation. The so-called “stability” of the hryvnia is anchored on its exchange rate to the US dollar. Meanwhile, the hryvnia’s emission is tightly linked to the dollar inflows (liabilities) of the Ukrainian state. This has led to an unprecedented devaluation of the hryvnia, total loss of public confidence in it and ultimately an unacceptable dollarization of public transactions. According to former chairman of the NBU Board Professor Anatolii Halchynsky, “we deal with particularly significant issues here, I mean the effective privatization of the emission center and cash flow regulator. It is unacceptable.”
