Ten greatest successes and failures of Ukraine's National Bank in 2015

Author : Oleksandr Okhrymenko

Source : 112 Ukraine

From reforms of Hontaryeva to closing the banks: finding the real changes in state's central bank policy
09:45, 7 January 2016

Financial DaiLy eXpress

If we asked ordinary Ukrainian or a businessperson about his attitude towards National Bank of Ukraine (NBU), the answer would be censored by the editors for the ethical reasons. But this is just a view of ordinary people, who do not always understand the whole complexity of the work of NBU. It is much more important to understand what really the Bank, headed by Valeria Hontaryeva, has made during the last year. Accordingly, it is necessary to evaluate the true successes and challenges. 

1. Strengthening of the institutional and financial independence of NBU

Ukraine has adopted a number of laws to strengthen the independence of the National Bank and change the rules for the distribution of profits. It was a reasonable decision to limit the formation of a profitable part of the state budget of Ukraine for the profit of the NBU. In 2016 the National Bank will be able to print only 1471 mln USD in order to pay the taxes. Previously, the amount was twice higher. Perhaps the laws Ukraine has are good and correct, but the problem is that the current leadership of the NBU could be hardly called independent. The head of the NBU repeatedly stated that her main landmark for her is the IMF and most of the Bank’s actions are actually the implementation of directives of the IMF, even the most absurd and harmful. Do not forget about the "telephone law", when the hryvnia issue or closure of certain banks was carried out on the instructions of the Cabinet and presidential administration.

Related: World Bank approved $560 mln loan for road reconditioning in Ukraine

2. Changing the organizational structure of the National Bank of Ukraine

There is a tradition that after every change of the National Bank’s leadership, the "transformation of the organizational structure" takes place. And Valeria Hontaryeva followed this informal rule. She dismissed the people from the previous times and recruited new people who are not always competent. It's not a secret that the work of NBU is now extremely inefficient. A lot of chaos and confusion, meaningless meetings, and imitation of hard work. The only achievement of Hontaryeva was expanding the information flow of data on the banking system. Now it is easier to find the information - all the mistakes and failures of the NBU are clearly visible.

3. Level of cash circulation has reduced, and the number of non-cash payments has increased

For 9 months of 2015, about 31% of all payments by bank cards were performed by the Ukraine’s trading network. In 2014 this figure was 25%. It is a really positive factor, which is necessary for the development of the banking system. Well, it happened largely due to the fact that Ukrainians were just not able to withdraw money from ATMs, and so we had to move to cashless payments.

During 11 months of 2015 the total number of cashed hryvnia has decreased by 400 mln USD, or 3.4%, compared with last year. The trouble is that the total amount of cash currency has increased by more than 4.5 bln USD. Now the process of replacing the hryvnia cash with foreign currency is visible.

Related: The most profitable and most unprofitable banks: results of three quarters of 2015

4. The stabilization of the macroeconomic situation (monetary and foreign exchange markets)

In early 2015 dollar has reached a critical level of 30 hryvnia per one dollar, and the NBU leadership finally began to act more decisively and effectively. It abandoned the IMF's advice and returned to the "manual control" of the currency exchange. Now the dollar rate in Ukraine is formed by NBU in a "manual" way, and dollar became more stable.  According to the results of 2015, the devaluation of the hryvnia was only 52%, while in 2014 the devaluation was 93%. Why the leadership of the NBU did not act this way when the dollar was at UAH 10, and let the collapse to the level of UAH 24?

5. The new monetary policy: inflation targeting

Inflation in 2015 at the level of 45% was not the purpose of inflation targeting. And it means that NBU suffered a complete defeat. Last time such a high inflation was only in 1995. It is clear that Bank’s leaders are not even trying to exercise targeting inflation, because the banking system is completely disorganized by the "reforms of Hontaryeva", and it is impossible to use such sophisticated monetary instruments as targeting. In the future, it might work though.

6. Cooperation with the IMF

Despite the fact that the leadership of the NBU recklessly fulfilled all the nonsensical advice of the IMF, everything has failed as a result. In 2015, the IMF pledged Ukraine four tranches in the amount of 10 bln USD, but gave only two tranches in the amount of 6.7 bln USD. Afterwards, IMF refused to give credits to Ukraine, partly because of failures in the work of the National Bank.

7. Cleaning up the banking system: dismissing the insolvent banks from the market

This kind of “cleaning” shows the inefficiency of the NBU. There is no difficulties with closing a bank or a business, much more important for Ukraine's economy is to save the bank from bankruptcy. If the leadership of the NBU helps restore the solvency of banks and revive them for life, it could be called a victory. Closure of the big banks means a large number of customers of these banks go broke.

Related: Why the IMF recommendations to Ukraine appeared to be wrong

8. Ensuring the transparency of the banks’ owners.

In previous years, the leadership of the NBU always knew the real owners of the banks. Now, this information is public, but it does not help the banking system. Moreover, there are more gossips and all sorts of rumors about who is the real owner of a bank. For depositors, actually, it does not matter who the owner is, the main thing that the deposits are given in time.

9. Strengthened responsibility of  banks’ owners and managers.

A number of laws were adopted to increase the responsibility of the owners and managers who bring the bank into bankruptcy. The only pity is that the responsibility of management and the curators of the NBU has not been strengthen, which, as a rule, are the main culprits of bringing banks to bankruptcy. In many respects, National Bank’s leaders and their staff must be blamed in closing more than 60 banks.

10. The recapitalization of the largest banks.

Indeed, some of the major banks were partly recapitalized. However, it does not help the banking system of Ukraine. Lending does not work, the foreign exchange market has completely collapsed, the outflow of the deposits from banks continues. Therefore, even large Ukrainian banks cannot operate normally.

Related: IMF will come to Ukraine

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