Valeriya Gontareva, head of Ukraine's central bank, has all the reasons to reiterate her popular saying that the country's financial system is like a terribly sick person who's got an open wound and is bleeding.
The national currency, hryvnia, has declined in value by 47 percent since January, reaching 15.5 to the U.S. dollar
during the Nov. 10 trading session on the interbank market. This reflects
banks’ high demand for hard currency as people prefer it as the best savings
option. Hryvnia deposit
rates have reached 28 percent in some banks, though many still feel it’s better to
invest in U.S. currency in times of economic crisis caused by war in the east.
Banks
agreed they would not allow the hryvnia slip below 16 per dollar during the Nov. 10 emergency meeting at the National Bank headquarters on Instytutska street in Kyiv,
according to Interfax-Ukraine, a news agency.
The nation’s
economy is expected to shrink by 6.5 percent this year, according to the International
Monetary Fund, while Gontareva’s agency thinks it’s going to be a
7-percent contraction.
Central
bank reserves fell by 23 percent in October, all the way to $12.6
billion, mostly due to covering the debt
obligations of state-owned oil and gas company Naftogaz. This means the
regulator will have less capacity to calm down the banks starving for dollar
cash. “The National Bank doesn’t plan to leave the interbank market (and
will keep injecting dollars into it),” Gontareva said during the Nov. 3
news conference.
The
central bank plans to sell dollars daily through the auctions. Since January,
it has sold $6 billion to cover the demand from commercial banks and their clients.
However,
Gontareva is trying hard to persuade everyone that the hryvnia’ll do fine. “I
wouldn’t put anything into the state budget project for 2015 but a hryvnia
rate of 12.95 against the dollar,” she said in an interview with TSN, a
television news program. She said the regulator is pushing forward a ban on
early deposit withdrawals to secure the banking system’s liquidity. Meanwhile, it’s
not planning any new restriction regarding the foreign exchange market.
At the moment, a bank client cannot withdraw more than Hr 150,000 per day.
“In
October, the behavior of our clients was better,” says Volodymyr
Lavrenchuk, head of Ukrainian unit of Austria’s Raiffeisen bank. People felt
less panicky, which is why their demand for U.S dollars dropped.
Andriy
Pyshny, chief executive officer of state-run banking giant Oshchadbank, adds
that as much as $8 billion in cash are stuffed under the pillows of average
Ukrainians, which keeps the capital-short economy from growing. “Right now, the market is seeking an equilibrium between the real economy and banking
system,” he says.
This
year, the central bank recognized as many as 26 commercial banks as insolvent,
while 11 of those “had nothing to do with banking at all,” according
to the central bank governor. An oligarch-dominated economy that bets on avoiding taxation, for instance through reporting profits in offshore zones, is the
key reason why so many banks were involved in fraudulent schemes.
Valeriya Gontareva talks to the TSN news program about the hryvnia rate and Ukraine’s banking system.
Overall,
Ukraine’s banking system consists of 166 banks with $85 billion in assets.
“There are too many banks in Ukraine, so the banking sector needs
consolidation,” said Suma Chakrabarti, president of the European Bank for
Reconstruction and Development, in an interview
with the Kyiv Post in May. “The central bank has not been close enough to
the banks.”
The IMF
mission will be checking Ukraine’s macroeconomic performance, that includes
analysis of the state of the things in the banking system, during its Nov. 11-25
visit to Kyiv.
Kyiv Post associate business editor Ivan Verstyuk can
be reached at [email protected].
