Call for central bank shake-up seen as attack on President Viktor Yanukovych.
In most countries, banking associations tend to support the head of the central bank, with measured criticism leveled at a technocratic figure that is, in essence, one of their own.
In Ukraine, however, it appears the Association of Ukrainian Banks is calling for the resignation of National Bank of Ukraine chief Serhiy Arbuzov, who reportedly has personal ties to President Viktor Yanukovych’s family.
But the call should not be seen as a sign of unity among the banking community, into which politics and diverging interests have driven a wedge.
At a March 27 press conference, the bank association’s head Oleksandr Sugonyako blasted the NBU’s monetary policy and the government’s overall economic strategy, questioning their professional competence.
“We are headed down the same path as Belarus,” Sugonyako said, referring to the crisis that ravaged Ukraine’s northern neighbor last year producing a currency collapse and triple digit inflation.
“There they held, held, held until the presidential elections and finally collapsed,” he added.
According to the banking sector representative, the central bank’s monetary sins include maintaining a strict currency exchange rate and low inflation policy at any cost.
This has caused the country’s foreign currency reserves to fall by close to 20 percent since August last year.
Together with a tightening of bank liquidity, which saw interbank rates peak at 32 percent in November compared to 3-5 percent a year earlier, this has choked off economic growth, Sugonyako said.
He also criticized monetary authorities for failing to bring the current account deficit under control, or speaking out against the president’s “populist” social program that aims to provide mortgages at 10 percent below market rates.
The banking community now wants the president to dismiss Arbuzov, Sugonyako said.
“But they cannot say this out loud, like me, because they are in business and this could cause them and their shareholders problems,” he added. “The association is free to do this, though.”
Yet the association may not wield the clout it once did.
And while the central bank declined to comment on his words, several representatives of large banks instead criticized Sugonyako, describing him as marginal and out of order.
Oleksandr Sugonyako
Experts say large banks, particularly foreign-owned, have distanced themselves from Sugonyako in previous months, many quitting his association.
His increasingly caustic remarks about the government are increasingly viewed as unwanted political activism.
On March 27 Khreschatyk Bank announced it would leave the association, claiming the leadership’s amibitions had prevented the group from fulfilling its goals.
“This is populism expressed by Mr. Sugonyako, who lost the backing of the entire banking community as a whole,” said Alexander Valchyshen, head of research at the Kyiv-based investment bank ICU.
While Sugonyako raises important topics, Valchyshen said he fails to reflect their nuances, concentrating on convenient issues easily used to inflame the public.
“I would treat [Sugonyako’s statements] as a political assault on Yanukovych,” Valchyshen said.
But distancing themselves from opposition activities is not the only reason why banks are switching alliances.
Sugonyako’s association is “mainly” an advocacy for small banks, said Oleksandr Zholud, a senior analyst at Kyiv-based think tank International Center of Policy Studies.
That’s because the voting system gives one vote per bank, giving equal representation regardless of size, while the country’s top 10 banks represent roughly half of the system.
In most countries, banking associations tend to support the head of the central bank, with measured criticism leveled at a technocratic figure that is, in essence, one of their own. In Ukraine, however, it appears the Association of Ukrainian Banks is calling for the resignation of National Bank of Ukraine chief Serhiy Arbuzov, who reportedly has personal ties to President Viktor Yanukovych’s family.
Thus, it makes sense for them to lobby their positions through alternative organizations, like the Independent Banking Association of Ukraine.
Asked about how valid Sugonyako’s points were, Zholud said these were “real problems,” though the interpretations vary as to how grave they are.
Listing the main current economic risks, he mentioned prices for strategic imports and exports, the government’s ability to borrow abroad, and loose fiscal policy, notably the recently announced social program.
According to the analyst, by raising pensions and subsidizing mortgages the government could end up spending an additional $3 billion.
But dismissing the central bank head wouldn’t help much, Zholud said.
The market place needs the stability and predictability that come with a long-serving central bank head.
“The idea is to have a central banker as long as possible so others can get used to his policies,” he claimed.
Kyiv Post staff writer Jakub Parusinski can be reached at [email protected]
