“Things will not go well. The good times are over.” This seemed an apt, albeit unspoken, slogan for the extraordinary convention of the Association of Ukrainian Banks which started last week.
Those present, representing banks that have actually stopped active transactions, registering a staggering outflow of legal entities’ and natural persons’ deposits, are determined to work on the most pressing issues of maintaining the national banking system’s liquidity and the convertibility of domestic government bonds.
The hryvnia’s decline — which Oleksandr Khmelevsky, Director of the Ukrinbank Treasury, believes to be the National Bank’s working, aimed at cheapening the state’s debt service expense — has added to the banks’ problems, and not only in their relationships with clients. “The thirty percent devaluation resulted in reductions in the banks’ authorized capital stocks in terms of the hard currency equivalent,” AUB President Oleksandr Suhoniako told Interfax-Ukraine. “Because of this 46 Ukrainian banks are threatened with the loss of licenses to conduct certain lines of business, particularly operations with natural persons and on the currency exchange market.”
Some experts believe that under the circumstances the national banks will inevitably collapse, which will primarily benefit those who have long dreamed of carte blanche for banks with 100% foreign capital.”
The Day polled a group of bankers who, referring to the “unstable situation,” asked to remain unidentified and indicated that the Cabinet has failed to convince nonresidents to convert their bonds, meaning that payments will have to be made under the old terms, depleting the NBU’s hard currency reserves — precisely as predicted by monetary market operators (NBU Governor Viktor Yushchenko says these reserves currently amount to some one billion USD, although different sources point to slightly over $400,000,000) and the currency corridor’s ceiling (Hr 3.5 to the dollar) will be reached “ahead of term,” in November. “Despite the dollar’s steady rise, demand for it shows no decline, since the banks have accumulated a lot of pending dollar purchase requests since August,” Interfax-Ukraine was told by Olha Bondarenko, currency trader at Ukraine Bank. In other words, the National Bank can keep the hryvnia rate within the currency corridor only by administrative means, the latter boiling down to all kinds of restrictions on dollar demand. In fact, Mr. Yushchenko makes no secret of the fact that the hryvnia is sustained by curbing stock exchange operations, as well as by closing the interbank market. The Day’s experts (particularly one, a large-caliber importer) complain that they have not been able to purchase the quantity of dollars they need on the market for several weeks, causing them huge losses.
In addition, most experts tend to expect bad bank loans to appear en masse, primarily in terms of imports. There is a sure way for the populace to guess the peak of such nonpayments: the government’s next boisterous campaign in support of the domestic producer and exporter. Once small and medium banks start going down and foreign investors appear (if they muster the nerve, of course), wishing to buy Ukrainian bank stocks cheap, it will be safe to assume that the banking system is falling apart (experts say that the banking system’s redivision is inevitable anyway, yet discussing it is premature). Remarkably, this collapse will be caused not so much by the plummeting hryvnia or depletion of statutory funds as by the struggle against their “inveterate friend,” the National Bank, demanding “voluntary” bond conversion from the banks.
As a result, large banks will turn into medium ones, and medium and small ones will fall in battle, to the accompaniment of NBU assurances about IGB redemption three years or so from now. “Those playing games will have to lose in the end,” Mr. Yushchenko summed up the situation at a Cabinet meeting. Premier Valery Pustovoitenko once again amazed those present by his soliloquy about the importance of preserving the national banking system. The Ukrainian bankers have long realized that such phrases from the head of the government bode no good. There is an anecdote. Two bankers meet and one says, “Did you have a good sleep?” The other replies, “I slept like a baby.” The first one is surprised, “You mean you slept so well?” And the other says, “Oh, no, I mean I woke up every hour and cried.”
PS: At press time UNIAN reported that Premier Pustovoitenko voiced his disappointment with the conduct of some banks in this critical situation. He promised to look into the matter personally and see whether those banks were making loans or playing games with government bonds, adding that only banks that were seriously providing credit would get help. Commenting on AUB President Suhoniako’s letter reading that the Finance Ministry’s and National Bank’s wrong decisions will cause a number of commercial banks to go bankrupt, Mr. Pustovoitenko stated: “We must preserve the entire banking system, not individual banks.” Mr. Yushchenko made it clear that the interbank market had “calmed down” and that he had “a feeling that certain positive indicators will soon appear, pointing to the stabilization of the situation.”







