Whom do we trust with our money?

Standard & Poor’s views the Ukrainian banking system as high risk. The agency’s experts estimate the current share of problem loans, including restructured loans, at about 50 percent, and forecast a hard time dealing with them. At the same time, Ukrainian experts point out that major problems in this country’s banking sectors often arise when a conflict of interests occurs between the management and the owners.

According to National Bank of Ukraine Deputy Chairman Oleksandr Shlapak, all the problem banks continue to suffer losses because a considerable number of credit portfolios were distributed in favor of beneficiary banks. Once a crisis situation arises, the owner quickly withdraws good assets, leaving the toxic ones to the National Bank and depositors, and thus coming off clear and unscathed.

Shlapak recalls that in 2004, when he worked at the National Bank, a law was drawn up to solve this problem, only to be voted down by the Verkhovna Rada owing to a strong pro-banking lobby. Now, Shlapak says, this less-than-perfect law (No. 0884) has been passed, and “it describes in no uncertain terms all that concerns the problem of real owners.” The ex-banker notes that “the law opens up new opportunities for streamlining Ukraine’s banking system.” He also warns that this law should be complemented by the National Bank’s standard-setting instruments. According to Shlapak, here lies the first risk in the implementation of this law: this will require the adoption of a procedure to identify real owners, including natural persons, and a special document that defines such thing as business reputation of bank founders. The latter has long been part of the law, but the NBU has never hastened to assume responsibility and say what it is as well as to specify who can be allowed to own a bank. This kind of definition still does not exist. One must also formulate demands for the financial statements of bank owners and the ownership structure of the legal entity that intends to go into banking. The expert believes that the sooner and better these documents are drawn up, the more effective the new law will be.

Oshchadbank ex-chairman Anatolii Hulei was critical of the fact that lawmakers selectively used some provisions of the well-known European fundamental documents Basel 2 and Basel 3 while ignoring other clauses in the same documents, allowing bureaucrats to freely interpret the set standards due to discrepancies between the banking systems. Notably, Ukrainian banks were exclusively founded by means of “live money,” but nobody mentions this advantage of theirs, Hulei stresses. He sees a danger in that the adoption of new banking laws in Ukraine will prevent natural persons from being bank founders, whereas the functions of shareholders will be increasingly taken over by big capital owners.

Serhii Panov, acting chairman of the Ukrsibbank board of governors, says it is a “major step forward” to be able to have regular information “about key bank owners.” “The market itself should feel and see who attracts money from natural persons,” he says and emphasizes: “This information should be public and open to the users of financial services.”

Yurii Blashchuk, chairman of the Platinum Bank board of governors, emphasizes that beneficiary owners are now coming up throughout the world. He questions the propriety of applying an instruction to know the name of the owner of a certain international foundation that owns the bank. In his view, one must take a very flexible approach to this, with due account of world market practices.

National Bank of Ukraine Chairman Serhii Arbuzov is full of optimism. “We can already say that the National Bank and society will be able, for the first time in Ukraine, to come to know the end beneficiaries of banks,” he says. In his opinion, this will boost the reliability of the country’s banking system and is necessary to ward off the withdrawal of capital by means of operations with so-called affiliated persons. “It is a step towards greater transparency and reliability of the banking system,” the country’s main banker asserts.