Ukrainian bankers have prepared a reply to the cabinet’s call for lowering loan interest rates for enterprises. The Ukrainian Association of Banks (UAB) plans to adopt a message to the cabinet, president, and parliament, relating the main conditions for such lower rates. UAB President Oleksandr Suhoniako familiarized journalists with the draft text. Everything points to the message being quite critical of the regime’s performance. Mr. Suhoniako singled out several factors currently affecting loan rates (27-30%) for industrial enterprises, including the cabinet policy.
DEPOSITOR INTERESTS. “Depositors refuse to deposit hryvnias in banks if offered less than 20-25% annually,” says the UAB president, adding that the credit offered debtors cannot be lower anyway. UAB statistics show that the average loan rate for legal entities has dropped from 37 to 27% and the trend continues. However, a sharp decrease cannot be expected because this would hamper depositor interests. In fact, Bank Ukrayina suffered precisely because of its carelessness when determining recipients and credit worth: now the depositors suffer.
DEBTOR QUALITY. Mr. Suhoniako insists that commercial banks have enough loan cash on hand but lack quality demand. About half the operating enterprises registered in Ukraine proved in the red, considering last year’s results. Bankers are hard put to perform in such an economy, meaning that the loan rate is formed proceeding from high risks. In addition, the debtor is entitled by Ukrainian law to have precedence before the creditor when it comes to a loan payment dispute. “They often take out loans intending to repay them, but then problems appear, they look up the law and discover that they can get away with not paying after all,” says the UAB president, stressing that solving this problem by the state would have a positive effect on interest rates.
FACTOR NUMBER THREE: SOCIAL PSYCHOLOGY. The Ukrainian bankers are not yet convinced that the trend toward economic stability is here to stay. Economic growth and low inflation in the last quarter was for them just a glimmer of hope. “This year the government plans a 9.8% inflation rate. Last year, it was 6.1%, compared to 25.8% the year before. The average is 17%. Do you really expect me to give loans at 15% and in hryvnias at that? I never will,” says Mr. Suhoniako, noting that residents agree to make dollar deposits at 8% and the banks issue foreign exchange loans at 10-12%. “This is precisely the difference between the kind of confidence the Ukrainians have in their government and that of the United States.” Premier Anatoly Kinakh believes that, unless the cost of bank loans is reduced, Ukrainian enterprises will find it extremely difficult to maintain a high economic growth rate. However, what is going on between the banks and the cabinet by way of talks on the cost of credit resources is more like an ultimatum on both sides and is not likely to help reach the desired objective. So far the cabinet has been content with lashing out at the National Bank. The later responded by sending scolding telegrams to commercial banks. The only logical way out is in open negotiations between the government and the bankers. A parade of memorandums addressing cooperation with key industries, started by Anatoly Kinakh, has extended to the metallurgists, sugar and grain producers, and oil traders. Now seems the time to set the rules of proper cooperation with the bankers, even if because without them there will be no growth in any other industries.
