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What National Bank Head Ukrainian banking system needs?

Author : Oleksandr Okhrimenko

22:17, 11 April 2017
What National Bank Head Ukrainian banking system needs?

Author : Oleksandr Okhrimenko

What we can confidently say - new NBU Head will have a lot of urgent and important tasks

22:17, 11 April 2017

Read the original article at 112.ua

National Bank of Ukraine

Today we have no task to to simply dismiss the acting NBU head Valeriya Gontareva. Therefore, all charges against her regarding corruption or "business ties" with Russian banks - this is just a PR. If indeed the head of the NBU violated the law, then there must be a court decision. If there is no court decision - you should not invent charges against Gontareva. Moreover, the problem is not in Gontareva herself, but in the post of head of the NBU. Even the US ambassador to Ukraine has started saying that it is necessary to nominate a professional at the head of the National Bank of Ukraine post. But what is a "professional", and what the NBU head Ukrainian banking system really needs in order to revive itself at least for five years and make it the way it was before 2014?

It is clear that we need a professional, and we need a person who has extensive experience working in senior positions in the old NBU. Who knows how the banking system of Ukraine really works, about all its "skeletons in the closet," and understands that not all advices of the IMF, and especially of the curators from the US and the EU, need to be executed unconditionally.

The first thing the new head of the NBU should do is to revive the legality in the banking business and return the licenses to all banks that have been illegally closed in recent years. There is a whole pile of court decisions, where it is proved that the actions of the NBU leadership were illegal. NBU should be, first of all, a standard of legality, which itself does not violate laws, and strictly demands from banks not to violate them. But to achieve this, at least, the new leadership of the NBU should not violate the Constitution and laws of Ukraine. As people say, you need to be an example.

The second big problem, which the new head of the NBU should solve, is the revival of crediting. This process would be difficult, hard and long. Maybe that's why the current leadership of the NBU does not want to do this? In Ukraine, we have now about 290 billion UAH of problem loans. It is meaningless to hope to restructure them. There can be only one way out: we should start to write off all these debts on problem loans at the expense of the banks’ profits. But, realizing that banks cannot do this abruptly, we may prolong the process for ten years. This will allow banks to start lending from a "clean slate". But this is not enough. To start lending, we need to bring the system of assessing borrowers according to the realities of our economy. It is pointless to demand from banks to evaluate borrowers and issue loans on the principles of the EU, if the model of the Ukrainian economy is far from the model of the EU economy. The crediting process should not be a dilettantism and show-off, it is necessary for the NBU to help banks with refinancing and less interfere in the work of the banks themselves. Banks’ management knows better who to lend to, and whom to refuse.

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NBU partially lifted restrictions on the foreign exchange market, and this can only be welcomed, but it is necessary to remove administrative restrictions sooner. Without this, the currency market of Ukraine will remain under the control of the "black" foreign exchange market for a long time. In Ukraine, there is quite a lot of cash currency, and for the new head of the NBU it is very important to create such conditions that Ukrainians would actively change cash dollars to the hryvnia. And for this he need to make a relatively fixed exchange rate of the hryvnia for a long time. As soon as the NBU in early 2015 refused to play with the hryvnia rate, and actually returned to the policy of controlling it in "manual mode," the situation in the currency market began to improve. This once again showed that the flexible exchange rate of hryvnia does not suit Ukraine, we only need it to be as stable as possible. Then in the banking sphere and most importantly, in the economy of Ukraine a process of dedollarization surely will start.

And, finally, the new head of the NBU will need to think about the future of the banking system taking into account the world trends. A process of transforming the methods of service is taking place now in the world. The bank branches are replaced by Internet banking and virtual offices. Therefore, it is important for Ukraine, first of all, to develop Internet banking services. To do this, NBU should adopt all the necessary documents that would remove restrictions and barriers for banks to develop Internet banking. And most importantly, the NBU needs to integrate the banking and stock market through the Internet banking in order to integrate the banking and stock market through Internet banking, so that Ukrainians, as EU residents, could place deposits and take loans via Internet, and buy and sell shares and bonds.

There are many tasks. But, if we implement them, we can expect success. Then it really can be said that the Ukrainian banking system survived the crisis of 2014-2017 and took the path of rebirth and recovery. I would like to see that in 2027 we will forget about the horrors that the banking system of Ukraine is currently experiencing. We need to strive for the best.

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