President Demands Oversight And Investments in Real Sector
Addressing the international workshop, The Solutions of the Problems of Mortgage Market Development, on December 7, President Leonid Kuchma said that the system of banking supervision needs fresh blood.
UNIAN reports that the president was surprised that the people “implicated in the Ukrayina Bank bankruptcy should work as National Bank top executives” and noted, “It is clear who led Ukrayina to this.” In his opinion, “nobody has ever seriously dealt with the banking system of Ukraine either earlier or today.”
The President seems to have already taken sides in the ongoing dispute between the NBU and the government. “The government thinks this is within the National Bank’s competence, but the National Bank fails to address this problem,” Pres. Kuchma announced, saying that the banking supervision system is “weak” and that “the Ukrayina bankruptcy is ample proof of this.” Calling this bankruptcy a “tragic event,” the President noted this could have been avoided “if there were a system of banking oversight.”
Meanwhile, this system does not at first glance seem to be implicated in the Ukrayina affair, for the people who head it (chief of the general department for banking supervision Oleksandr Kyreyev and chief of the banking inspection and monitoring department Viktor Zinchenko), although they had something to do with Ukrayina during the time of the late Vadym Hetman and even put their signatures on that bank’s founding documents, have not been working there since 1992 and are no longer its shareholders. Former Chairman of the Ukrayina Board Viktor Kravets is now in charge of payment systems at the National Bank and has nothing to do with banking supervision. Mr. Zinchenko told The Day, among other things, “My heart bleeds, of course, for what occurred in that bank because... everything crumbled after we quit. We warned about this in 1998 when we inspected the bank together with foreign experts... and saw the results of the non-professional decisions foisted on the bank.”
The president also thinks that one of the ways to revive and boost Ukraine’s banking system is to develop mortgage lending and hopes that parliament “will rectify the mortgage market development situation” in this country. The chief executive considers it necessary to “bring into play” economic and legal mechanisms so that such lending could be as effective as possible. The mortgage market is also important because this issue “touches on the banking sphere and the budget,” Mr. Kuchma noted. According to him, private capital should be the main funding source in mortgage lending. The president pointed out that, although 82% of banking funds belong today to private businesses, enterprises “still have very limited” investment opportunities.
Ukrainian commercial banks have repeatedly requested the National Bank to increase long-term funding and expand the range of instruments that can be used as collateral, for they hoped that changing the rules of refinancing could activate the banks’ lending operations. The ice was broken after a conference with the president on November 26. The government and the National Bank were instructed to take into account the proposals put forward at the conference. Following the conference, the National Bank took measures to raise money supply and encourage economic monetarization (as opposed to barter — Ed.), which the government thinks is still insufficient and is an obstacle to the recovery of the real sector.
Commenting on the National Bank decision to cut refinancing and reserve rates for commercial banks, Valery Lytvytsky, head of the NBU consulting group, noted that, when setting the new standards for mandatory reserves, the National Bank gave preference to long-term commercial bank funds. The NBU head’s advisor said that further delays in state budget adoption and public attempts to worsen the ratio of revenues and expenditures is the main danger to price stability. He stressed that the National Bank would keep a watchful eye on the situation, recalling that the NBU has some experience in and special instruments for managing the banks’ liquid assets.
Association of Ukrainian Banks experts also consider that the reduction of mandatory reserve rates by the National Bank will make it possible to earmark cheaper funds, made available after reserve, for economic credit. For example, Ukrinbank will channel its freed up funds into the portfolios of active, and above all lending, operations, the bank’s border of governors deputy chairman Oleksandr Khmelevsky told Interfax- Ukraine.
