Is there a future for our banking system?

Author : Oleksandr Okhrimenko

Source : 112 Ukraine

The NBU published the Strategy of the National Bank of Ukraine, showing us what awaits our economy, business and our residents in this state of the banking system
11:30, 27 March 2018

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To understand the future of our banking system, it is very important to know what strategy the National Bank has set. Because all Ukrainians earlier had a bad experienced with banks while checking their wallets. In the future, I would like to see that our wallets suffer less from the ineffective work of the NBU and its superiors.

The first thing that catches your eye when reading the NBU Strategy is a biased or, rather, a deceitful description of the existing banking system and the economy of Ukraine as a whole. From the NBU text, Ukrainians can learn that in Ukraine under the conditions of galloping inflation, "price stability has been achieved", that a massive closure of banks is called "banking supervision conforms to EU standards." In conditions when business lending does not work at all, the NBU says "lending has revived." It is clear that everyone praises himself and his work, while no one wants to face the truth and admit that after the "reforms" the Ukrainian banking system is rather ruined and needs to be reborn because without a normal banking system Ukraine has no future.

How does the National Bank plan to revive the Ukrainian banking system from the ruins? First of all, the NBU promises that inflation will go down, and the price dynamics will stabilize. This is what the NBU wants to achieve by restraining empty hryvnia issue at the expense of monetary methods of managing the financial system of Ukraine and, of course, the flexible exchange rate of the hryvnia. In theory, everything is correct, and now the NBU uses monetary methods to regulate the value of money in the financial system of Ukraine. But it would be good if the NBU really appreciated the Ukrainian economy and did not forget that in Ukraine, 50% of the economy works in a "shadow" and on the hands of the population there is about 80 billion in cash. Those monetary methods are effective in a country where there is no mess in the market of energy resources and where a hidden hryvnia issue is made by a call from the presidential administration or the government. Therefore, in theory, these methods may be effective, but not in Ukraine. In 2017, despite the fact that all monetary indicators were generally normal, official inflation was almost 15% and more than 20% - the real one. Ukraine needs economic methods for regulating the financial market which it has, and this is at least a fixed exchange rate of hryvnia, a reduction in utility tariffs by at least two times and the cessation of "pseudo-reforms" in the economy and energy.

The NBU does not understand or does not want to understand that the Ukrainian economy is somewhat different from the EU economy. Therefore, it makes no sense to state that the NBU will control banks, as it is done in the EU. You cannot full steam ahead. If you want banks to work both in the EU, first make sure that the Ukrainian economy works, as in the EU. And while the Ukrainian economy is far from even the model of Turkey, you should not destroy Ukrainian banks and tell tales that these are "reforms."

You cannot encourage lending only by creating a Credit Register or making amendments to the laws of Ukraine. Now the Constitution does not work in Ukraine, and very few people pay attention to laws. The problem with lending in Ukraine was created by "reforms" in recent years, and therefore it can be solved only by eliminating the stupid and meaningless orders of the previous NBU leadership. Bankers know best on how and to whom give loans, they do not need the National Bank to interfere.

Regulation of the non-banking financial sector - it sounds beautiful, but why do we need it? At the current moment in many respects, because the NBU does not have the ability to regulate the non-banking financial sector, consumer lending is developing at the level of pawnshops and financial companies. Maybe you should not break what works normally? Moreover, non-banking financial structures have their own regulator.

Free circulation of capital is a good idea, taken in many respects from the text of the Association Agreement with the EU. It would be useful for the NBU to carefully read the section on free circulation of Ukraine-EU capital. Not everything is so simple there, but, more precisely, it's not easy to do this. In order to really make free circulation of capital, stability in the banking system is needed, and not constant "reforms" and a mess. And most importantly, the Association Agreement with the EU does not say that in order for Ukraine and the EU to have free circulation of capital, it is necessary to destroy all banks with private Ukrainian capital in Ukraine and leave only Ukrainian branches. On the contrary, no one likes and does not respect the countries in the EU, where the leadership does not know how to defend its national interests. Remember this.

If you look at the Strategy as a set of goals, in general, everything is right, and everything deserves respect and attention. Just it’s hard to understand the methods by which these goals will be achieved, they are largely bookish, and not real. The economy and banks in Ukraine are now in a difficult situation, and therefore they really need to be rebuilt from scratch, but not be lectured about what must be created, "as it is in the EU."

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Related: Credit Register of National Bank: Will debtors be afraid?

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