But for all the justified praise, let’s be honest: It wasn’t a high bar and these central bankers still need to be more transparent about how they regulate the sector and clean up the mess they inherited — one that has caused at least $11.4 billion in losses since 2008.
The Gontareva group could also use a dose of humility and adopt a less defensive stance, although she and her team have been unfairly attacked in oligarch-owned media.
While people don’t blame this NBU for the collapse of the banking sector, the instititution still appears to be a group of insiders running the sector for insiders, rather than the public that always pays the price for fraud and mismanagement.
One simple fact shows what a den for thieves Ukraine’s banking sector had been: Before the post-revolution changes in 2014, not even the central bank – the supposed regulator – knew who owned most banks.
Regulation was weak under President Viktor Yushchenko, the former central bank chief, and became even weaker under President Viktor Yanukovych, whose decision to flee for Russia on Feb. 22, 2014, must have been motivated not only by the EuroMaidan Revolution but also because he knew the financial house of cards he created was collapsing. President Petro Poroshenko is no innocent here — he spent more than 10 years on the central bank’s governing board between 1999 and 2012.
Another simple fact shows that this fraud could happen again: Nobody has been punished in criminal or civil court despite $3 billion in taxpayer-insured losses and $5.2 billion in uninsured losses plus another $3.2 billion in unrepaid refinancing loans due the central bank.
Admirably, laws now require transparency in bank ownership, legal responsibility by bank owners for fraud and stronger regulations to prevent related-party – or insider – lending, the preferred method of stealing.
But these are not enough.
Criminal prosecutions are required – and don’t give us the excuse that more than 3,000 cases were sent to the General Prosecutor’s Office and nothing happened. Of course, nothing happened. The 18,000-member prosecution service protects corruption rather than punishes it. Gontareva should have used her clout to push lawmakers to create special teams of financial crime prosecutors, investigators and courts. She would have run into resistance, of course, because many of those with deadbeat loans are members of parliament.
The NBU is not the only party to blame. With the criminal avenue is blocked, authorities from the state-financed Deposit Guarantee Fund should have filed many more civil lawsuits seeking seizure of assets and civil judgments. If things keep going this way, the nation will be lucky to recover 5 percent of the lost or stolen loot.
The banking regulators are also hiding behind “banking secrecy” is a sacred commandment. The public’s right to know how this debacle happened and who is to blame outweighs secrecy claims.
Therefore, the central bank and Deposit Guarantee Fund should publish a public registry of deadbeat borrowers. It should also publish a public registry of all loans taken out by state-owned banks Oschadbank and UkrExImbank, historical piggy banks for politicians.
Additionally, the central bank should be more transparent about the refinancing conditions that existing banks are receiving. For instance, with billionaire Igor Kolomoisky’s PrivatBank accounting for 20 percent of the sector’s assets of more than $50 billion, we would imagine his portfolio of non-performing loans and related-party insider lending are quite high. The public deserves to know this – and also whether he or any other bank got favored treatment in refinancing.
Also, the tsunami of banking failures that took 77 out of 180 banks out of the market exposed critical flaws in the lengthy process of liquidating insolvent banks – gaps that allowed many insiders to fleece sinking banks because regulators acted too weakly, too slowly and not in unison. Such crimes only increased the public’s costs. Stronger, swifter action is needed to prevent looting in the future, even if it means stronger legal powers for regulators.
Unless those who commit bank fraud are convicted or have their stolen assets seized, this fraud can and will happen again.
In the meantime, we welcome NBU moves toward risk-based supervision and hope that the shakeout in the sector continues. It seems clear that the nation’s current economy cannot support much more than the top 20 banks which constitute 88 percent of the sector today.
