Dumping the blame for all problems, including financial ones, on the war – what grew into a habit in the last two years – is now irrelevant. Banks have adapted to the situation. The basic risks are of another kind. And the intra-system risk is the major one.
The system has been going through a cleanup for the third year now. First it was being cleaned, then cleaned out and now judging by recent events it is being cleared for new players to enter. These will either come in next year like the Chinese, or will wait for 2018 when we finally push off the infamous bottom and proceed to an upwards trend. In other words, whether the players remaining in the market shall be willing to credit the growth which we approach is the risk here. And the question of who shall remain in the market.
Price stability. Our estimates indicate that the inflation will follow the route laid out by the National Bank in its targeting. Notwithstanding the fact that I have long been opposed to inflation targeting, de facto no complaints can be made about price stability, as the latest meeting of the National Bank Board showed. But this does not by any means alleviate the regulator’s fault for that insane devaluation inflation of 2014-2015. It is yet to be seen as the theme of discussions among experts and not only among them.
The next risk is possible nationalization of PrivatBank in 2017 and privatization of Oschadbank. The latter is flauntingly talked of as a practically accomplished fact, with very obvious involvement of the EBRD. At the same time the existence of dozens of millions of Ukrainians to whom Oschadbank has multi-billion commitments dating back to the USSR is persistently hushed up. These commitments were taken off the balance sheet but no one cancelled them. Ukrainians received “Yulia’s thousand” but no further progress was made. Many had lost their savings in 1991 but not a single decree or law was adopted to cancel these off-balance sheet obligations. The next logical question is whether a new foreign investor will take on the relevant portion of these commitments to the people of Ukraine upon Oschadbank’s privatization and sale of its shareholding. If not, will the new investor face legal action for repayment of these funds to depositors and their heirs, including the interest accrued thereon in the last 25 years?
A major risk not related to the intra-bank sector consists in the adoption of populist draft laws. For instance, the presidential bill on the protection of Mikhaylovskiy Bank depositors is followed by the bill of the Opposition Bloc requiring the Deposit Guarantee Fund to raise the amount of guaranteed deposits to 1 million hryvnias. As a representative of the oft-abused economic patriots I believe – and our estimates confirm it – that next year this amount may be raised to 500 thousand UAH, to 400 as a compromise, but the economy and budget will not manage 1 million UAH. So this is indeed pure populism.
Another variant of populist “development” might involve an extension of demands which will be imposed on the National Bank Board forcing the latter to act as a kind of a complaint management body in the banking system, instead of taking elaborate strategic expert decisions. I do not support this either.
Draft laws No.5256 and No.5257 concerning the National Bank and the Deposit Guarantee Fund which triggered a stormy reaction in the banking sector are quite a different matter. Most bankers signing affirmative petitions do not seem to have fully read what is proposed to do with the regulator’s mandate. In a similar fashion, it appears that the deputies did not think through the consequences when they voted in favor of amendments to the law “On the National Bank of Ukraine” in 2015, in the context of reinforcing its independence. As a result, the chief authority of our “bank animal” has gained so much independence that it is no longer the National Bank of Ukraine but de facto and to some extent de jure a full-fledged non-government Central Bank in Ukraine (CBU). World history knows precedents of private central banks, the US Federal Reserve most notably. But even the great Bank of England was ultimately nationalized by laborites following a sudden and unexpected departure of WWII’s winner Sir Winston Churchill from the political scene…
Therefore, failure to adopt bills on “NBU nationalization” and to divert it from being a “thing-in-itself” and only exercising the external mandate would be a very bad affair. This has already resulted in a situation where the National Bank not so much as touches the internal mandate – the fight against unemployment and the economic growth. If we do not change the regulator’s mandate, the stagnating trend and insignificant growth will persist, while what we need is an 8-10% growth, change of NBU functions as a truly trustworthy National Bank and restoration of the nation’s confidence in it. Speaking structurally, another priority is establishment of a non-commercial sector in our banking system represented by a state bank for reconstruction and development, launching of an export credit agency. And we are lobbying for an analogue of the US Small and Medium Business Administration to be set up in 2018 to promote actual cheapening of loans using civilized non-corruptive mechanisms.
US dollar. According to our estimates, the budgeted exchange rate of 27.2 UAH/1 USD is based on the expectation of great success in privatization. We have been expecting it for three years but things are not moving. Will something change next year? I am not so sure. The analysts who had talked about the US dollar going down to 25 UAH after the successful privatization and receipt of all tranches were mistaken. Obviously the National Bank and the Cabinet of Ministers lack efficiency in attracting overseas funds. We were told about 15-17 billion euros. Where are those? Where is the Marshall Plan for Ukraine? In the past year and a half we stopped discussing it for some reason, although it has been promised to us officially after the Revolution of Dignity. And now, if macro financial aid in a micro amount of 600 million euros is granted by the EU on the terms of repayable lending at a cost of non-repayable loss of our forests, we should probably negotiate better…Bank-less, forest-less – who’s next, gentlemen?