Lately, several distinguished experts have issued warnings that the Ukrainian economy may suffer serious losses if control over the banking sector is taken over by foreign capital. They are concerned that the government has agreed to give nonresident banks free access to the Ukrainian market. Many financiers, particularly Kyiv National Economic University professor Mykhailo Savluk, believe that in their current state Ukrainian banks will not be able to compete with foreign banks, and that the influx of foreign banks will bring more threats than benefits to the domestic commodity producer.
Two parliamentarians, Serhiy Chychkanov and Pylyp Buzhdyhan, responded to this threat by tabling a bill “On the Prohibition against Banks with Foreign Capital, the Acquisition by Nonresidents of Significant Participation in Banks, and the Opening of Nonresident Bank Branches on the Territory of Ukraine.”
It should be noted that the current activization of foreign banking capital in Ukraine is clearly apparent. There are 22 banks with foreign capital, including 9 with 100-percent foreign capital. Analysts estimate that after Raiffeisen International bought a 93.5-percent interest in Aval, Ukraine’s second largest bank, and Ukrsotsbank, the share of foreign capital in the Ukrainian banking system reached 25 percent. After the sale of another two or three large Ukrainian banks (unofficial sources say that such deals are being negotiated), this share will amount to 40 percent.
At the same time the National Bank of Ukraine intends to allow the creation in Ukraine of nonresident bank branches, which threaten to gradually crowd out Ukrainian banks, pushing them toward riskier markets, and in the long run eliminating them from the banking sector. The Association of Ukrainian Banks predicts that the uncontrollable influx of foreign capital to the national domestic sector will result in foreign banks gaining control over the most effective fields of business endeavors. It will also lead to the end of financing for competitive domestic production, small and medium businesses whose support, as a rule, does not belong to international banks’ spheres of interest. At the same time, there is a possibility that branches of banks with low ratings will appear in Ukraine, which may eventually be used for the outflow of capital and money laundering.
Finally, proof that an uncontrollable influx of foreign capital into the banking sector will have negative consequence is found in the experience of other countries. In Mexico the sale of state banks to foreigners resulted in a credit resource deficit. After Poland allowed foreign capital access to its banking sector, the Polish banking system ceased to exist as such.
The authors of the bill say their objective is to prevent the destruction of the national banking system and the loss of a financially independent Ukraine. They propose to ban the founding of new banks with foreign capital, prevent existing banks from acquiring the status of banks with foreign capital, and prohibit all nonresident banks from buying substantial interests in any national banks and setting up branches in Ukraine. To this end, appropriate amendments are being proposed in regard to the laws “On the National Bank of Ukraine” and “On Banks and Banking Activities.” The bill’s concluding provisions state that no changes may be introduced for five years from the date of enactment.
Chychkanov believes that “at the moment we’re faced with the threat of Ukraine being penetrated by banks that are not very respectable, ‘crooked banks’ that are not respected in their own countries.” There is little if any reason to expect that they will become a reliable source for providing loans for Ukrainian industries, first of all, because “our industry may become a competitor to theirs.” This Ukrainian parliamentarian is convinced that the real objective of foreign banks is to take over the crediting of the most competitive sectors of the Ukrainian economy, eventually to create intolerable crediting conditions, with the result that these sectors will become noncompetitive. Chychkanov thus regards the possibility of foreign capital conquering our country as a threat to our national security.
