Experienced by yogis during meditation, yoga-nidra leads to the achievement of transcendental consciousness by a dedicated practitioner. It is also an apt description of the state of the Ukrainian banking system today.  

Beat up and tired, Ukrainian banks have attained a new level of sensory withdrawal. A crisis stops being a crisis when it hits every two or three months, for four years in a row, with all the randomness of a Deutsche Bahn train.

So, having despaired in their ability to predict from which direction the next meteorite will strike, banks have wandered off to that happy place between wakefulness and slumber. 

The single-digit growth rates achieved so far in 2012 (9 percent deposits, 3 percent loans year-to-date as of November) mask a marginal contraction of banks’ balance sheets in real terms.

The incipient consumer finance “gold rush” that started last year was brought to an abrupt halt in the second quarter, when a number of inexperienced new entrants saw their credit risk results and rushed for the exit in dismay, with a few more expected to follow soon. Obsessive inward focus on cost-cutting now borders on navel-gazing. “The outside world is an illusion. True happiness can only be found inside. Ommm…”

Given the disappointing growth rates, Western banks have now realized that it will take them until the next ice age to make a return on their Ukrainian subsidiaries. Commerzbank notably exited Forum Bank in 2012, and many more exits can be expected in 2013. As usual, one man’s loss is another one’s gain.

Local business groups seem all too happy to snap up the Ukrainian subsidiaries of foreign banks at deeply discounted prices.

Now, what will it take for the banking system to break out of this meditative state back into a more normal busy-bee-beta-wave vibration? Will it be anything in the environment? Domestic or international?

Or does there indeed exist a magical caffeine-laden regulatory pill that could jolt the banks out of bed and straight onto a rapid growth path?

And most importantly, can any of these triggers be happening in the near future that we may be able to visualize them without reaching for military-grade binoculars?

Well, first things first. Banks deal in money. The price of money is an interest rate. And hryvnia deposit interest rates have now firmly passed the orbital acceleration phase and have happily departed for Pluto.

Normal borrowing-lending relationships can’t function at deposit rates that would be considered private equity-like returns in the rest of the world. In the eternal game between greed and fear, fear has won. Today’s rates reflect the going price for taking on the risks of the “Ukrainian roulette” of the hryvnia exchange rate.

And they will only come down when Ivan Ivanovich, the common citizen, stops engaging in the glorious national pastime of foreign exchange speculation. 

Does it take binoculars to see Ivan Ivanovich doing this? No, but it does take a consistent communication of intention of action on behalf of the regulator. 

Consistency builds credibility, and credibility breeds stability. Recent events demonstrate that, even in the context of Ukraine’s low-trust political environment, communication of intention by the regulator can be at least as powerful as the action itself. 

So, the more of this type of communication we see next year, the faster will Ivan Ivanovich reach his well-deserved state of utter microeconomic bliss and be able to accept a non-usury priced deposit interest rate. And the faster this will then allow the banks to consider flooding the economy with reasonably priced loans.

Then, assuming that devaluation fears go away, and the population runs back to the banks offering them money at ridiculously cheap rates, will banks increase lending? Do low interest rates in fact equal growth in lending to the real economy? 

Unfortunately, the answer is not so clear. 

Bank lending is being held back by the combination of negative gross domestic product growth, increasing regulatory pressure on business, weak legal protection of shareholder and creditor rights, the absence of long-term resources in the economy, weak consumer sentiment … and a very preoccupied

Ivan Ivanovich, whose salary payment has just been delayed. Again.  This puts him in no mood to take out a bank loan to renovate his Khrushevka flat or splash out on a vacation on the Turkish riviera. The unfortunate bit is that the constraints don’t have a quick fix, and seem unlikely to be resolved in the next nine months.

So, where does that leave the banks next year?

With very few exceptions, probably in the continued state of yoga-nidra, with more and cheaper money, but limited ideas of what can be profitably done with it. With more navel-gazing and cost focus.

With more exits by Westerners and acquisitions by locals. And most regrettably, with no growth for most. 

“Omm…” 

“Ommmm…”

Greg Krasnov is the CEO of Platinum Bank, co-owned by international investment funds Horizon Capital, East Capital, FPP Asset Management and International Finance Corporation.