Operation “Liquidation”: Who stands to gain from liquidation of Ukrainian banks?

Over the last one and a half year, “bankfall” has destroyed one third of the financial organizations in Ukraine, but the National Bank of Ukraine (NBU) assures: everything is proceeding according to a plan!

They steal like mad!

Every third citizen of Ukraine prefers saving money at home, according to the latest survey conducted by Inmind. The public opinion poll revealed that only every ninth citizen of Ukraine keeps most his savings at bank.

Frankly speaking, it is not surprising, given the instability in the Ukrainian financial market. Quite lately, the Individual Deposit Guarantee Fund (IDGF) has suggested NBU to liquidate Delta Bank (one of the biggest banks in Ukraine!), though the term of the bank’s provisional administration had not expired yet.

Ukrainians are outraged: it turns out that there are simply no reliable banks in the country! “The Guarantee Fund must observe Ukraine’s laws and stop the clownery with Delta Bank!” writes a member of a financial forum with nickname bigzapp, complaining that he cannot receive the guaranteed repayment for already six months.

“Naïve people!” another user replies to him in a comment. “In the current situation, there is no bank able to guarantee that it will operate for a long period of time. There is an impression that the country’s leadership seeks to take money and dash away, blaming their predecessors for everything. Therefore, deposits with our banks are a Roulette Wheel: hope you will be lucky and manage to take your money!”

Economist Andrey Martynyuk has suspicions that Delta Bank was liquidated so hastily in order to guarantee that the bank’s money is not robbed.

“Banks are being liquidated with the only goal to rob its assets,” says Alexander Okhrimenko, the President of the Ukrainian Analytical Center. “Here is what they do. At first, the NBU appoints a curator who controls the bank’s activity for a period of six month. And within these six months, the bank goes down the tube and its assets are stolen. Afterwards, a provisional administration is appointed at the bank to rob what has not been robbed before. For instance, in the case of Delta Bank, assets shrank from 35 billion UAH to 17 billion UAH – they werestealing like mad! And when it is time to liquidate the bank, it turns out that there is nothing to sell - everything is ransacked! ” 

“Snouts and horse hooves”

As the old saying goes, “one person’s loss is another’s gain.” While curators and provisional administrations steal everything that is not nailed down – billions of hryvnias – ordinary Ukrainian lose those billions.

First, it is the depositors of more than 200,000 UAH who lose their money.

Second, legal entities lose money as they do not receive any repayment from the Guarantee Fund.

Third, all the Ukrainians lose, as the Guarantee Fund makes repayment by means of an issue, which leads to inflation and devaluation. What all this “charity” leads to is price hikes and soaring currency rate.

From bad to worse: S&P credit rating agency reduced the long-term and short-term credit ratings of PrivatBank. Although experts call it just a “technical procedure” connected with the agreement to prolong the term of the issue of the US$200 million Eurobonds, they admit, at the same time, that no one is safeguarded against “miracles” in the financial market.

“Reduction of PrivatBank’s rating is a procedural issue that followed the decision to restructure the foreign state debt,” says Andrey Shevchishin, leading analyst at FOREX CLUB news and analysis center. “It will bring no additional risks to depositors. Naturally, after the reduction of the country rating, the rating of the state companies, municipalities, and private companies decreased too. As for the rest, there are general risks for the entire banking system. As one of the biggest participants of the banking market, PrivatBank carries part of these risks.” Ukrainians are really shocked: if such a huge bank as Privat fails, there will be no one to rely upon. Economist Vsevolod Stepanyuk explains: there are simply no big banks in Ukraine.

“Our biggest banks would occur in the middle of the ratings, for instance, in the Czech Republic or Poland,” the expert says. “Our financial organizations are ‘snouts and horse hooves,’ small fry, by European standards.”

Great Purge continues

Meantime, ‘great purge’ continues in the Ukrainian financial system. The World Bank has already forecasted that only 100 banks will remain in the country in 2016.

 “Considering that in 2013 there were about 176 banks, now there are some 120, in a year, there will be only 100, it is nothing but destruction of the banking system,” says Alexander Okhrimenko.

Vsevolod Stepanyuk is not that categorical. Although the measures to weed out the weak banks are the requirements of the IMF, he says, there are at least three reasons for such global purge:

1. Ukraine’s economy keeps shrinking. As a result, the portfolios of NPLs at banks increase.

2. There is property redistribution and assets are transferred to foreign banks.

3. When bank suffer losses, their liquidation is in favor of the owners, as they actually get rid of the liabilities to legal entities and have liabilities to the Guarantee Fund only.  Sometimes, they even manage to earn from it.

“Business-plan” within the interests of the authorities

After almost one third of the banks were liquidated, people have lost their confidence in the banking system and will hardly have it in the near future, says Andrey Vigirinsky, the deputy head of Public Audit NGO.

 “There is almost no lending, and banks are turning into account managers increasing incomes through commission fees,” the expert says. “Actually, there is no need in such a big number of financial organizations now and there will be no need in them within the near future. Consequently, only the banks that serve the corporate sector will remain in the market along with the ones that have foreign capitals and the systemically important banks. As to the others, remember the NBU’s requirement to reduce the share of the insider lending. Eventually, a range of banks will simply fail to fulfill the NBU’s requirements due to the crisis that continues for already two years in the country or for lack of economic expediency, and will be removed from the market.”

In short, Vigirinsky says, the system has been destroyed, its restoration will require long years and the others will be affected by wave of the fight against the insider capital. 

“Of course, the banking system of Ukraine needed a ‘purge’ as many banks failed to fulfill their functions,” says Roman Shevchenko, a financial analyst.  “This issue has been raised repeatedly, but the corruption did not let settle that problem.  At the same time, I cannot say that all the 54 banks that were declared insolvent were subject to liquidation.  That list included not only the banks of the third and fourth categories, but also quite big ones with at least satisfactory level stability and reliability! Therefore, the main reason of the ‘purge’ in the banking sector was ‘business plan’ that looked to help the other market participants - the banks belonging to the authorities – grow. There is nothing surprising in it.”

Ruslan Vesnyanko, EADaily economic analyst (Kiev)