Make Your Game, NBU Says to Foreigners, but Not All Agree to Play

It is too early to open foreign bank branches in Ukraine. This is the main idea of the address of Oleksandr Suhoniako, president of the Association of Ukrainian Banks (AUB), to people’s deputies of Ukraine based on the AUB’s analysis of the bill moved by the National Bank Of Ukraine (NBU) giving foreign banks the green light to open branches in Ukraine. Up to now, foreign banks were allowed to open their representations and subsidiaries.

The AUB president notes that many countries enforce quite strict regulations on the opening and functioning of foreign banks’ branches on their territory because they are not self-sufficient legal entities and are considered as foreign-based artificial persons guided, accordingly, by the law of their home countries. Mr. Suhoniako particularly cites the experience of Russia which, in his words, has embarked on a tough course to ban foreign branches and allow subsidiaries only. According to the association’s experts, granting foreign banks the right to freely open their branches will make Ukraine receive the branches of banks with a low sovereign credit rating and insufficient level of banking supervision. Financially strong banks from countries with a high investment rating find it unprofitable to open their branches in low-rated countries because this would require creating 100% reserves for all active operations. In these conditions, only the branches of banks with a low or a slightly higher rating can be expected to come to Ukraine, the AUB president points out. In Mr. Suhoniako’s opinion, they will be used for smuggling capital out of this country or money laundering.

The National Bank of Ukraine does not share these fears because it is convinced that allowing foreign banks to open their branches in Ukraine does not in itself harbor any danger for the banking system. This is an inevitable step to liberalize the movement of capital at a time when this country is preparing to join the WTO. Although nobody denies that there may be some risk (the NBU’s research center has made a special study on this), there is no way back: NBU First Deputy Governor Arseny Yatseniuk says Ukraine no longer faces the dilemma whether or not to join the WTO because “the world has decided this for us.” Is spite of AUB objections, NBU governor Serhiy Tyhypko again confirmed last Thursday that the National Bank still favors allowing foreign banks to open their branches. The NBU governor emphasized that the coming of foreign banks’ branches to Ukraine would boost competition in this country’s banking system — a positive factor in Mr. Tyhypko’s view.

According to Borys Tymonkin, chairman of the Ukrsotsbank board of governors, the experience of some post-Soviet countries makes it possible to predict that foreign banks will come to the Ukrainian market chiefly by means of purchasing existing banks, rather than by opening branches. The infusion of foreign capital into the banking system will give a new impetus to the development of this sector of the economy and increase the quality of the services rendered, says the banker.