You're reading: Tougher EU regulations reduce foreign bank activity

The reduction in activity of foreign banks on the Ukrainian market is linked to the toughening of requirements on capital in the European Union (EU), Governor of the National Bank of Ukraine (NBU) Ihor Sorkin has said.

“Bank regulators in the EU over the past few years have considerably toughened the requirements on the adequacy of capital of European banking groups and are continuing to do so, including as a part of the implementation of the Basel III standard,” he said in an interview with Interfax-Ukraine.

“Banks can observe the requirements by increasing the level of their regulatory capital, or if they cannot do this, by cutting their assets,” he said.

He said that many European banks have revised their business models and now they are mainly oriented to operating on their domestic markets, narrowing their presence in many countries of central, Eastern and Southeast Europe.

He also said that the certain fall in the attractiveness of operation of European banks in Ukraine caused by the legal ban on crediting the public in foreign currency also influences the situation. The said transactions were one of the key types of activities of foreign banks in Ukraine.

He said that the shares of participation in the Ukrainian banking system between foreign investors were redistributed.

“Due to the impact of all the said factors, the share of foreign capital in the Ukrainian banking system over the past several years has slightly fallen: while as of early 2009 it was 36. percent, as of Oct. 1, 2013 it was 34.2 percent. The size of foreign capital over the said years more than doubled, from Hr 30 billion to Hr 62 billion,” Sorkin said.

He said that the given changes show that Ukrainian capital in the country’s banks grew quicker.

“This cannot but make us glad,” he said.

Sorkin also said that the improvement of the pace of the global economy would promote an increase in the presence of foreign capital in Ukraine.

“As soon as the economic situation in the world stabilizes and active economic growth resumes in investor countries, the trends of capital movement for Ukraine could change towards an increase in the presence of foreign capital, and not only in the banking system, but in the economy as a whole,” he said.

He also said that the central bank is working on further improving approaches to the assessment of credit risks and the formation of reserves for such risks.

In addition, the NBU is involved in improving laws as part of the provision for the full functioning of credit histories bureau: a draft law on this is being discussed in parliament.

“[The bill] foresees that the state register of credit histories will be created, and that the proper legal basis for the access of the credit histories bureau to the state registers and databases will be made,” he said.