Anastasia, a 40-year-old information technology company employee, wants to save money, but life gets in the way.
Last month, her grandmother was unexpectedly hospitalized.
The granddaughter paid for two weeks of inpatient care and medication. It cost her over $700, more than double the average monthly salary in Ukraine. But when Anastasia has money, she doesn’t want to save it in Ukraine.
She has no faith in the country’s currency, the hryvnia, and questions the security of the Ukrainian banking system. “In the last 10 years, several large and well-known banks have collapsed and the depositors lost money,” she says. “So I have no reason to trust the banking system in Ukraine.”
Anastasia agreed to share personal financial details on the condition that her last name is not published for privacy reasons.
Experts say her distrust of Ukraine’s banks and currency is common. And without restoring consumer trust, Ukraine’s banking sector will struggle to reach its full potential.
In the wake of Russia’s 2014 invasion of Crimea and the eastern Donbas region, Ukraine’s economy went into a tailspin. The country’s gross domestic product declined by over 6.5 percent in 2014 and 9.7 percent in 2015, according to World Bank data. Furthermore, in 2014, Ukraine agreed to carry out a series of reforms in return for International Monetary Fund — or IMF — financing.
That year, to fulfill one of the conditions, the National Bank of Ukraine transitioned the hryvnia to free flotation instead of being artificially fixed. The currency rapidly lost 70 percent of its value against the dollar, decimating the population’s spending power and savings.
Another condition was to clean up the country’s undercapitalized and often corrupt banks. Starting in 2014, the Ukrainian government declared more than 90 banks insolvent.
Combined, these institutions accounted for roughly 30 percent of the banking sector’s total assets, according to Anna Parkhomenko, head of corporate finance at KPMG in Ukraine.
The government even nationalized PrivatBank — 20 percent of the Ukrainian banking sector — in December 2016. After seizing the bank, the authorities discovered a hole in its ledger of Hr 148 billion (roughly $5.3 billion).
In the wake of these events, “the level of trust (in) banks decreased significantly” and clients began to withdraw their deposits, Parkhomenko told the Kyiv Post in a message. Today, few in Ukraine can afford to put aside large sums of money.
As a result, people with smaller savings are often hiding them away at home, says Gabriel Aslanian, a lawyer and banking specialist at the Asters law firm in Kyiv.
But even those with more cash are inclined to avoid the bank. “You can’t store $50,000 to $100,000 under your mattress — you need to invest it somewhere,” he says.
That investment is frequently an apartment or an automobile. But this hesitancy to trust financial firms is not only a product of the country’s most recent recession.
Rather, it also reflects the widespread poverty and long-standing economic instability that Ukrainians have faced since independence.
“For Ukrainians, it’s strange to think about putting away (money) for 20 years,” says financial planner Lyubomyr Ostapiv. “They think that if they put money away…it will lose its value or be stolen.” Ostapiv is doing his part to change those attitudes.
He runs the popular “Family Budget” blog, which provides advice on saving and investing. And he also gives free lectures at universities and educational institutions to help young people better plan for their future.
Part of his work is simply helping people know their options and find approaches to saving and investing that suit them personally. “People are very cautious, and often they don’t have enough knowledge,” Ostapiv says. “Besides a savings account or an apartment, they don’t really know how (to invest).”
But if more people were to take his advice, it wouldn’t just help them. It would also likely benefit the banking system.
Broad public reticence to deposit money helps create a vicious cycle that undermines Ukrainian banking. For the banking sector to develop, the banks need more deposits. But to get more deposits they need more consumer confidence. “It’s about trusting the bank enough to bring your money to the bank,” says Asters’ Aslanian.
But not everything is bad. Over the last two years, the levels of deposits in banks have been rising, despite a decrease of the interest rates on deposits, according to KPMG’s Parkhomenko.
These could be signs that public trust is increasing. The banking sector is also showing good financial results, says Volodymyr Mudryi, a member of OTP Bank’s management board. And banks are increasingly ready to give loans both to businesses and individuals — albeit at Ukraine’s prohibitively high interest rates.
Still, consumer confidence remains one of the key problems, Mudryi says. But he believes the problem is more a lack of trust in the Ukrainian currency, than in the banking system.
To promote public trust, he believes that the banks must be transparent and honest about their savings account rates and other services they provide. Without greater transparency across the banking sector, “any consumer will think: okay, they’re ripping me off here…they may rip me off elsewhere,” he says.
OTP Bank has taken its own approach to increasing trust. If clients aren’t ready to entrust the bank with their money for a yearly deposit, they start with a shorter program.
That helps to demonstrate to clients that they can preserve and even grow their wealth by depositing it in the bank.
Mudryi notes that, according to research OTP Bank carried out several years ago, what people want from their bank is a straightforward and honest approach.
“We think that the client needs this: for (the banking service) to be maximally simple, convenient, and transparent (about) how much he is paying, how much he gets,” he says.
But Asters’ Aslanian believes the solution to the problem of distrust lies neither with the banks, nor the regulators. Rather, it’s a matter of time.
“What (the government) is doing right is keeping the (banking) market stable,” he says. “This is the main achievement.
These days we do not see any liquidation of banks or detrimental decisions for the banking sector. It has been stabilized.” But if the National Bank is conducting responsible financial policy, Anastasia, the IT employee, isn’t noticing a difference.
She says that she never felt the effects of the 2008 global financial crisis, when the hryvnia was still pegged to the dollar. But the 2014 crisis has hit her head on.
If she were to make some extra money, Anastasia would likely buy British pounds to protect her earnings. She would also like to purchase an apartment. Right now, however, that’s far out of reach.
“I don’t have those kinds of financial flows to invest in something,” she says. “I try to invest in myself.”
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