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Gontareva resigns as head of Ukraine’s National Bank: Key results of her work

Author : 112.ua

20:17, 4 April 2017
Gontareva resigns as head of Ukraine’s National Bank: Key results of her work

Author : 112.ua

The banking system lost almost 90 banks, rate of the hryvnia and prices have more than doubled, gold reserves have decreased during 2.5 years

20:17, 4 April 2017

Read the original text at 112.ua.

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Before joining the National Bank, Gontareva has been Chairwoman of "Investment Capital Ukraine" (ICU). In June 2014, newly elected president Poroshenko unexpectedly offered her candidacy for the post of head of the National Bank of Ukraine (NBU). At that time, Verkhovna Rada used to unanimously vote on personnel decisions, and on June 19 Gontareva was supported by 349 deputies. "This is something incredible, because none of you, frankly, knows me," Gontareva commented on her appointment. In connection with the appointment to the NBU, she left the post and sold her stake in the ICU group.

From the very beginning, Gontareva announced her intention to reform the National Bank. Now she says that all the planned reforms have been implemented - the banking system has been cleared. However, she was expected not to reform the system, but to fill the economy with money - activating financial markets, reviving credit, suppressing schemes with refinance, stabilizing hryvnia exchange rate (which was then still around UAH 12 / USD), and many other useful things. But this did not happen - the exchange rate has more than doubled, some problems with refinancing emerged, no crediting as such, markets almost half dead, no investments. At the same time, state's burden is estimated at 80 billion hryvnia due to the liquidation of nine dozen banks. In fact, the last three years for the country's economy have been lost. This is not only the fault of the head of the NBU. The three governments of Yatseniuk-Groisman, the parliament and the president, also made a hand in this.

Related: Petro Poroshenko Bloc denied allegations about Gontareva’s resignation

But we remember the legacy of Valeria Gontareva at the NBU.

Cleaning the banking system

At the beginning of 2014, there were 180 banks in Ukraine. Now, according to fresh data from the NBU, there are 92 working financial institutions. That is, in three years 88 banks were withdrawn from the market (initially 91, but 3 have regained their work), in which about 30% of all assets of the banking system were concentrated. Not all of them (but an absolute majority, 80 institutions) were liquidated by the team of Gontareva. It all began with "RealBank" and "Brokbusinessbank" back in the days of Stepan Kubiv.

According to the NBU, 15 of these 88 banks were closed solely for reasons of financial monitoring or fraud, 7 were deployed and worked in the war zone and in occupied Crimea, 5 left the market by decision of the owners, 6 - due to the non-transparent ownership structure. In general, 32 banks left for reasons not related to the crisis financial and economic problems. And only 56 banks went for reasons of insolvency and loss of liquidity, the NBU says.

In National Bank called it a "big bank cleaning". As a result of such cleansing, well-known banks like Platinum, Finance and Credit, Eurobank, Mykhailivsky, Fidobank, Khreshchatyk, Kievan Rus, Nadra, Delta, VAB, and others have disappeared. PrivatBank was supposed to share their fate, but was nationalized and capitalized at the expense of the state. Interestingly, the banks of some businessmen (the same Akhmetov, Granovsky, Tigipko) and banks with foreign capital have not suffered and are now breaking out into the leaders in the market.

Related: Blockade will increase payments deficit to $4.3 billion, — Gontareva

In order to understand how the purge affected the economy, it should be remembered that almost all private banks were created by big business to finance projects at the expense of the population's money. NBU calls them "vacuum cleaners" (there are also "washers" for laundering circuit money). The biggest "vacuum cleaner" was just the state-saved PrivatBank. So, with the liquidation of the bank, the funds previously collected by it and issued as loans to business are almost always lost. Realist portal estimated that the banks withdrawn from the market had 135.2 billion UAH of deposits of citizens. About 80 billion fall under the reimbursement of the Deposit Guarantee Fund, while another 55 billion are deposits over 200 thousand UAH, and they will not be returned. Also, according to the publication, 73 bn. UAH of the funds of legal entities that potentially could be invested in the economy have irretrievably "stuck" in the accounts of the bursting banks.

Another thing surprises: NBU allowed some banks to collect money, knowing about the problems, and it subsequently eliminated them. Vivid examples are "Mykhailivsky" and "PrivatBank." Two years after the change of power, these banks feverishly "vacuumed" the money of depositors, offering beneficial interest, and then one went bankrupt, and the second became state entity. The nationalization of PrivatBank cost UAH 117 billion, which, obviously, was provided by the printing press of the NBU. In order not to provoke the "banking Maidan," the president asked the Rada to pass a special law on reimbursement of money to defrauded depositors of Mykhailivsky. The owner of Mykhailivsky Victor Polischuk sold the bank before its liquidation to Platinum Bank and fled abroad. At the same time, he accused the deputy head of the NBU Kateryna Rozhkova and the new owners of fraud, as a result of which, the money of depositors disappeared forever.

"The banking system was not just sick, the banks were outlawed," Gontareva said. According to the NBU, at the beginning of this year, 1641 cases were opened on facts of financial fraud, but only 15 cases were sent to the court. Until now, there is not a single conviction of the owners and top managers of insolvent banks.

Related: Gontareva expects IMF to allocate next tranche in near future

The National Bank assures that the remaining banks meet the requirements of transparency. NBU says that they know the owners of all Ukrainian banks, and the financial sector is completely transparent. "Banks are liquid, transparent, ready to resume lending, this is the newest history of the banking system of Ukraine," says Kateryna Rozhkova.

The collapse of the hryvnia exchange rate and currency restrictions

Ukrainians would remember Gontareva's time as head of the NBU for the biggest devaluation of the hryvnia in the whole history. From June 19, 2014 to date, the hryvnia rate fell from 11.84 UAH / USD up to 27.02 UAH / USD, that is, fell by 128%. And on February 23, 2015, the rate on the interbank market reached a historic peak - 33 UAH / USD, the gap between selling and buying was as much as 5 UAH, and on the black market the currency was estimated at 40 UAH / USD.

Now the words Arseniy Yatsenyuk seem ridiculous, when he said at a meeting of his government on August 27, 2014 that the Ukrainian economy cannot withstand the exchange rate above UAH 12 per dollar.

But in 2015 the country entered, albeit with a record rate, 16,50 UAH / USD. However, since the end of January, it began to grow at an incredible rate. All this took place against the backdrop of fierce fighting for Donetsk airport and Debaltsevo, which threatened to grow into a big war. For a month, the rate jumped twice.

The war was used to explain the course's jumps, the drop in the economy, exports, foreign exchange earnings, the closure of enterprises, the decline of trade. "The catalyst for the current financial crisis was first the annexation of Crimea, and then a real bloody war in Donbas," said Gontareva in early 2015. However, many experts are sure that it was possible to smooth out the effect of the war.

 

Related: Gontareva: Ukraine’s National Bank met all conditions of EFF program

Back in 2013, the National Bank was struggling to keep the rate at 8 UAH / USD. Then foreign-exchange reserves were simply spent in order to meet the demand in the market. Gontareva said that the memorandum with the IMF provided for the rejection of the currency corridor and the transition to a flexible exchange rate. In fact, the NBU released the course in free navigation, refusing to support it due to foreign-exchange reserves.

"Our country cannot longer live at a fixed exchange rate of the dollar: first, there was leaps in rate: 1.7, then 5, then 8, then 12. All our previous history showed that this does not lead our country to either economic growth or stability of the financial system," said Gontareva.

The transition was painful. The course began to grow tirelessly during the days of Stepan Kubiw, and against the backdrop of military operations, it was even feverish.

Related: Mogherini: PrivatBank nationalization to stabilize banking sector

However, the foreign-exchange reserves regulator still spent it. In the autumn of 2014, when it became clear that the market is overvaluing the rate, the NBU threw out $ 50-100 million at the interbank market at a lower rate. It did not help to restrain the growth rate, but it satisfied the speculators.

The rate grew, the population also began to transfer its savings into currency, which only exacerbated its leaching from the market. "Anyone who resorts to panic, who buys the currency at an inflated rate and on the black market, will soon regret this," threatened Gontareva.

Related: NABU and SAP are conducting searches in National Bank

These measures have been reduced to the following. The exporters were demanded to sell to the National Bank not 50% of foreign exchange earnings, as before, but 100%. Many large companies just delayed the transfer of currency to Ukraine.

Banks were obliged to sell cash purchased at auctions from the National Bank of Ukraine to replenish their cash desks within 5 days or to return the unrealized currency to the regulator.

Ukrainian importers were banned from making settlements in foreign currency on operations without importing goods to the territory of Ukraine.

Investors were banned from exporting foreign currency funds received from the sale of securities of Ukrainian companies outside of stock exchanges, and the withdrawal of foreign exchange dividends abroad was limited. This has already hit foreign investors, because they could not physically return investments in securities and corporate rights abroad, and their funds remained on the accounts of Ukrainian banks.

Related: Russians from Russians: Who are buyers of Sberbank's subsidiary in Ukraine

And individuals were limited to buying foreign currency within one banking day in an amount not exceeding the amount equivalent to UAH 3,000, and were also prohibited the withdrawal of currency in the ATMs.

All this did not keep up the rate, did not calm the panic in the market. And in 2015, as already mentioned above, the rate "broke off the chain."

Recently, the National Bank has gradually relaxed the restrictions that it imposed in 2014.

The limit for withdrawing cash from a foreign currency account was raised from UAH 150,000 to UAH 250,000 per day. The mandatory sale of foreign exchange earnings has been reduced to 75%, now it is 65%. Currently there is a 120-day settlement period for operations on exports and imports of goods (previously there were 90 days). The one-day period of hryvnia reservation for purchase of foreign currency in the interbank foreign exchange market and the ban on early repayment of loans from non-residents continues to operate. So far, the restriction on the sale of currency to the population at the level of 12 thousand UAH / day in equivalent (previously there were 3 thousand UAH, then 6 thousand UAH) has been preserved.

In March, NBU authorized the purchase of foreign currency at the expense of loan funds in UAH, which were raised under state guarantees for programs to increase the country's defense capacity and security, and return of interest to investors abroad.

In the days of Gontareva, NBU allowed buying currency without presenting a passport. Also, the military charge for operations with foreign currency was abolished.

At the same time, in January 2017 the National Bank reduced the limit of cash payments from 150 thousand UAH to 50 thousand UAH for individuals.

Related: Sberbank new owner to change bank’s name

Inflation, discount rate and foreign-exchange reserves

If we talk about inflation, Gontareva came to where she started. In June 2014, the rate was 12%, now it is the same. However, over the past three years, consumer prices have increased by 80%. And industrial - by 90%. NBU does not hesitate to say that the growth of tariffs reduces inflation, because the purchasing power of the population is falling. It is interesting that at the same time industrial prices grow faster than consumer prices.

NBU on the advice of the IMF decided to introduce inflation targeting in Ukraine. The main thing is not the hryvnia rate, but inflation. At the beginning of the new year, the goal was set - the level of inflation, which should be ensured at the end of the year, and the NBU assumes the obligation to ensure the inflation target level in the country, using monetary methods for this. The NBU wants to reach 5% by 2019. According to the experience of other countries, the most important monetary instrument that affects the level of inflation in the country is the discount rate. NBU now focuses on the fact that the rate in Ukraine began to play a significant role, although previously it was not so important. Although if you look at the rates of bank lending in the hryvnia equivalent in 2016, they kept at 22%, and the discount rate of the NBU fell from 22 to 14%.

Bank lending in the past three years almost died. The heavy economic situation, the devaluation of the hryvnia, the cleaning of the banking system - all this forced bankers to raise lending rates. NBU did not lag behind with the discount rate. At the time of Gontareva's arrival to the NBU, the rate was at the level of 9.5%. The new team in the National Bank raised it to 12.5%, in six months to 14%, and in March 2015 - to 30%. It was a record of the last 12 years. Half a year the discount rate stayed at this mark, then the regulator began to lower it. Now it is 14% - more than at the time of Gontareva’s appointment.

Related: National Bank of Ukraine confirms 9.1% inflation for 2017

At the same time, Gontareva herself complained that banks do not want to lend the population and business not because of the high discount rate. According to her, for the third consecutive year in the banking system there is a surplus of hryvnia, and commercial banks need not apply to the NBU. Also, until recently Gontareva was very skeptical about the impact of the discount rate on the cost of lending in Ukraine. According to her, until 2016 the discount rate played a symbolic role in Ukraine's monetary policy and did not have a significant impact on the development of the economy.

Gontareva headed the Central Bank, when Ukraine's gold and currency reserves amounted to 17 billion 83 million US dollars. In the next 8 months, they fell to 5.6 billion dollars.

The NBU explained that such a sharp decrease is due to the repayment of the national debt. Then the government paid 3.54 billion dollars on foreign liabilities. In addition, the NBU paid in favor of the IMF 2.41 billion dollars, and Naftogaz repaid the 2009 Eurobonds in the amount of 1.67 billion dollars. Government debt payments, taking into account both external and internal obligations, as well as individual payments amounted to 11.15 billion dollars. According to the estimates of the Ministry of Finance, in 2014, 5.5% of the existing state debt was repaid. However, the national debt itself has only grown. In addition, a record pace.

Related: Russia’s VTB bank intends to leave Ukraine

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With the resumption of lending from the IMF and the restructuring of the national debt, the NBU managed to increase its gold reserves. As of March 1, the gold and foreign exchange reserves were $ 15.46 billion, or 9.6% less than in June 2014. However, there is a decrease in their share of the dollar - the IMF does not issue a new tranche.

Let us note one more important parameter. Over the past three years, the M3 aggregate (money supply) increased by 23% - from 893 billion to 1 trillion 60 billion UAH, but the M3 / GDP ratio, that is, the monetization of the economy, decreased from 61 to 48%. At the same time, GDP began to grow, according to the Cabinet. Probably, the sector of the shadow economy has become even larger.

* * *

When draw some conclusions, we would have the following picture of the outcome of Valeria Gontareva's stay at the head of the NBU. The banking system lost almost 90 banks, in which tens of billions of hryvnias were lost. The rate of the hryvnia has more than doubled, and the National Bank has refused to maintain it. However, now the rate has stabilized. Prices for three years has almost doubled, although now there is still a tendency to slow inflation, not least because of the decline in the purchasing power of the population. Gold reserves have decreased, even taking into account IMF tranches. The current account deficit exceeds the benchmarks. The discount rate, which grew to 30%, and then fell to 14%, did not affect the banking rates, showing their incapacity. Lending practically does not work. NBU itself boasts with the stabilization of the situation in the banking system, the stabilization of inflation and the rate.

Related: Prominvestbank painted by activists in Odesa

Gontareva is leaving, and she might be replaced with the former President Viktor Yushchenko, who has already headed NBU, and even former Prime Minister Arseniy Yatsenyuk, who is on good terms with the West. Appointment of  a new head of the National Bank must be approved by the IMF, which is the main donor of the Ukrainian authorities.

Related: Ex-Director of Mykhailivskyi bank released under house arrest

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