OTTO-VON-GUERICKE-UNIVERSITY MAGDEBURG
Faculty of Economics & Management
DONETSK NATIONAL TECHNICAL UNIVERSITY
Faculty of Management
Department of International Business Activity
Bank system of Ukraine in conditions of world crisis
Selyshchev Kyrylo
50 years of the USSR 143A/37
83100 Donetsk
International Economics
Specialisation "European Studies"
Semester: 3
E-Mail: n1416@matrixhome.net
Date of submission: 17.10.2010
Table of content
Abbreviations............................................................................................ III
Abstract ...................................................................................................... IV
1. Introduction ............................................................................................. 1
2. Stages of a banking crisis in Ukraine .................................................... 3
2.1 I stage. The beginning of the banking crisis. End of September October 2008 ............................................................................................ 3
2.2 II stage of the banking crisis. November-December 2008 ............. 4
2.3 III stage of the banking crisis. January-February 2009 ................ 4
2.4. IV stage of the banking crisis. March-June 2009.. ........................ 5
2.5 V stage of the banking crisis. July - August 2009 ........................... 6
3. Stabilization policies of the banking system of Ukraine during the
financial crisis .............................................................................................. 7
4. Improvement of the Ukrainian banking system and its exit from the
crisis............................................................................................................10
5. Conclusion. The future of the banking system of Ukraine, forecasts
and fears.....................................................................................................14
References .................................................................................................. 18
II
Abbreviations
AUB
Association of Ukrainian Banks
bn.
Billion
GDP
Gross Domestic Product
JSC
Joint Stock Company
NBU
National Bank of Ukraine
UAH.
Hryvnia
III
Abstract
This paper describes the stages of a banking crisis in Ukraine during the financial crisis
beginning in late September 2008 and ending August 2009. The mechanisms of
stabilization of the banking system of Ukraine during the financial crisis. Discusses
ways to improve the banking system and out of the crisis. The last section shows the
future of the banking system of Ukraine.
Keywords: banking system, the global financial crisis, stabilization mechanisms,
the banks.
IV
1. Introduction
In the first half of 2007, the local mortgage market crisis began in the U.S. and very
quickly transformed into a national financial crisis, including a banking crisis. In mid2008 grew into a global crisis. What was this? A meltdown in financial markets, the
bankruptcy of leading banks in most developed countries, reducing the liquidity of
banks and economies of most countries, caused by the rapid outflow of capital from
countries that are developing, a decline in foreign investment and the devaluation of
national currencies. The further deepening financial crisis, in order to further strengthen
its impact on the real sector of the global economy, which produced up to a collapse in
demand and prices, as well as unemployment, bankruptcy of mass campaigns, including
the presenters.
Not gone unnoticed and Ukrainian banks. The global financial crisis has not taken in
the real sector and the Ukrainian banks side, which over the high openness of national
economies have become too dependent on processes in global markets. The banking
system of Ukraine was not ready to test the financial crisis. Before the global crisis,
financial analysts gave a positive assessment, as happened the other way around. Has
been developed and long-term vision of the banking system of Ukraine, and this despite
the fact that in its formation, it is experiencing the third wave decline. Many scientific
publications related to the question about the problems of Ukraine's banking system
amid the global financial crisis.
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Ensuring the stability of the banking system is the main guarantee of the effectiveness
of counter possible negative effects of the global financial crisis.
Analyze the state of the banking system needed in complex with the entire financial
system. The financial health of the state as a whole - is the main factor for our business.
In a crisis, the banking system in the public mind has lost status as the main engine of
the economy. You can talk about a lot of problems that have accumulated in the
banking sector: the large and small banks, the short-term liabilities, distressed assets,
imperfect methods, obsolete products and much more. To increase the stability of
banking systems should quickly establish a new reserve currency, albeit not as global as
the dollar, but also capable of protecting the banks from the impact of the crisis.
2
2. Stages of a banking crisis in Ukraine
2.1 I stage. The beginning of the banking crisis. End of
September - October 2008
The banking crisis in Ukraine began by raiders' attacks on Prominvestbank. From this
bank had a run of money at first - legal entities, but after a while, and physical. If the
National Bank of Ukraine has not entered a temporary administration in
Prominvestbank, it would be declared bankrupt. But this did not happen. The Bank
continued to function, due to the emergence of a new investor. They became
Vneshneekonombank Russia. After five months of interim administration in the bank
ceased its operation. But she did a lot of effective measures, such as full control over the
bank's payment system, implementation of liquidity management, the new wage system.
With these activities Prominvestbank back the confidence of customers.
In early October, with the liquidity problem facing the bank "Nadra". He was unable to
pay off its external obligations and they cannot be restructured. But not only Nadra was
in a bad position. In other banks decreased level of loan repayment. Internal political
divisions in Ukraine and in addition to the international financial crisis affected banks'
activities in Ukraine. The media did not provide any information about the situation in
the banks. Furnishing pumping and all this have led to mistrust. Customers of banks
dramatically began to take their money. To maintain liquidity and solvency of the
National Bank refinancing loans issued by banks under liquid collateral. In turn, banks
had to provide a program of financial recovery. National Bank of Ukraine (NBU) has
restricted the activities of banks in order to avoid risks in their activities.
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2.2 II stage of the banking crisis. November-December 2008
By the liquidity crunch has been added to the currency crisis. There was a dramatic
change of course in November. Some banks will not be able to cover credit risks. They
just did not have enough capital.
The level of administrative expenses relative to assets in 2008 was practical at the same
level as in 2007. NBU actively pursued activities and acute liquidity problems of banks
were lifted. Have also been introduced in some banks interim administration for the
solution of problems such as stabilization of banks, as well as updating the solvency and
liquidity.
2.3 III stage of the banking crisis. January-February 2009
Despite the problems with liquidity, banks have not been able to maintain its own
without a new tranche of loans from the NBU refinancing. Decline in economic activity,
significant contraction in domestic demand, these factors led to negative economic
trends that impact on the liquidity of the banking system.
Tense due to the liquidity of banks, as well as the level of highly liquid assets continued
to decline. There were introduced by the interim administration in the bank "Nadra" and
Ukrprombank. National Bank introduced the "Institute of coaching, in order to gain
control over the banks. "Curators" to provide controls over the activities of banks, being
in them. First and foremost, control the use of bank loan refinancing, as well as the
program of financial rehabilitation and other items.
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2.4 IV stage of the banking crisis. March-June 2009
Some positive changes have come in March, significantly reduced the rate of outflow of
funds in the fall of the index of production of basic industries - to (-) 28.8% in annual
terms compared to (-) 29.9% in February, which was due to improvement in the
dynamics of certain industrial activities - in the food industry, coke, chemical and
petrochemical industries. In March, accelerate the increase in agricultural production.
This phase of the banking crisis has found a certain reversal. Gradually returned
confidence in the banks to reduce the intensity of customer churn, and the level of
liquidity started to rise. Stabilization of the exchange rate is well influenced by banks'
customers, especially for banks with foreign capital.
Macroeconomic situation in Ukraine remains difficult. For the II quarter of 2009, real
Gross Domestic Product (GDP) declined by 18%, while investments in fixed assets for
the I half of 2009 compared with the same period in 2008 decreased by 43.3%. The
situation in the banking sector has remained heavy. In the context of high risk and the
deterioration of solvency of the population development of retail lending has ceased to
be a priority. The market situation has greatly affected the activities of banks. The sharp
increase in risk, as well as the deterioration of bank assets in 2009 resulted in significant
contributions to the reserves.
At this stage the deterioration contributed to the increase of capital as the expense of
making the owners of real money, and the capitalization of 50% profit for the year
2008. The authorized capital of the 1 half of 2009 increased by 10 billion (bn.) hryvnia
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(UAH), or 12.2%.Level of capitalization increased by performing bank capitalization
program.
2.5 V stage of the banking crisis. July - August 2009
During July - August 2009 to restore lending to the economy. Loans that were granted
to economic entities increased by UAH 2.4 billion, or 0.5%, while loans to individuals
dropped by only 30 million (million) or the hryvnia at 0.01%. Capitalized three banks
(Ukrgasbank, Rodovid Bank, Kyiv). At this time, maintained negative trend
deterioration in the credit portfolio and assets in general. Trend deterioration in the loan
portfolio quality, lower income from loan repayments have a negative impact on
liquidity and remain one of the major challenges for the banking system of Ukraine.
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3. Stabilization policies of the banking system of Ukraine
during the financial crisis
One important factor that ensures the further development of Ukrainian economy is the
banking system. However, the mechanism for saving the stability of the banking system
of Ukraine during the financial crisis is still poorly understood problem and therefore
requires further study.
In order to stabilize the banking system of Ukraine, to regain the trust of Ukrainians to
domestic banks and the national currency. Let's look at how to do it:
1. Must regain the trust of Ukrainians in the national currency. According to Igor Lvov,
the deputy chairman of the bank, "Finance and Credit, by far the NBU to stabilize the
situation it is necessary to make foreign exchange intervention, introduce a rule for
mandatory sale of foreign exchange earnings (5 days), stabilize the currency at 7.5
Hryvnia for dollar.
2. The stabilization of the banking system. Probably, the main challenge in dealing with
the stabilization of the banking system of Ukraine is to maintain the liquidity of the
banking system as a whole and of individual financial institutions. In early 2009, there
was a significant deterioration of the solvency of a significant number of banks that
have been provoked, first of all, the outflow of deposits and decrease the liquidity of
working assets. Banking institutions had provided significant financial (in the form of
loans to refinance NBU) and regulatory (NBU number of resolutions aimed at keeping
the resource base) support the NBU. Starting from the second quarter of 2009 marked
stabilization of the resource base, and the second half - an increase of deposits.
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However, the question of confidence in the banking system of Ukraine, both from
domestic investors and foreign creditors is still open, so over the coming year, the
stability of the resource base will depend largely on the actions of the regulator for
specific banks (including banks, in which currently there are temporary administration
imposed NBU), as well as overall situation in the country (economic and political
stability).
3. Cancel order of the Board of NBU № 413 of December 4, 2008, which was extended
a moratorium on repayment of term deposits. A positive decision on this issue
demonstrates the rule of law and allows commercial banks to restore investor
confidence. But this requires good will of the NBU, which must admit a mistake and
rescind its letter № 22-310/946-17250, which he drew the attention of banks on the fact
that "banks are prohibited from carry early repayment of deposits, as they are invested
in long-term debt other assets. " And then came that moment. May 15, 2009, it became
known to abolish the National Bank of the moratorium on early repayment of deposits
of individuals. Decree № 282 dated May 12, National Bank lifted paragraph 2 of
Resolution № 413 of December 4, 2008, under which banks were obliged to "take all
necessary measures to ensure the positive dynamics of growth of deposits in order to
prevent the early return of funds placed with investors." In NBU consistently stated that
this wording does not mean a moratorium which would contradict the Civil Code, but
the bankers refused to early withdrawal of funds. "Moratorium on the withdrawal of
deposits has never been. Perhaps the second paragraph of Resolution № 413 was
interpreted as a ban, and some banks abused by this, - recognized Director of Legal
Department of the NBU Viktor Novikov. - We have made a decision that lifted the
second paragraph. Banks are not required to return deposits upon request of depositors.
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They should educate and offer better conditions. If the client does not agree, the bank
must return the contribution. "Lifting of the ban was expected, as a recommendation to
the Board of the NBU and the condition of the International Monetary Fund. Also in
April for the first time since the crisis has increased the volume of deposits in UAH - on
1.1%, or 1.05 billion USD. From October 2008 to March 2009, it declined by 29 bn.
UAH.
Let us consider methods of stabilization policy, which suggested that Vladimir Bobylev
PhD, Head of Risk Management Joint Stock Company (JSC) "Black Sea". To ensure
the financial stability of the banking system in times of economic crisis, you must: 1) to
increase capitalization of the banking sector by raising additional equity capital; 2)
improve the methodology for calculating the volume and standards of regulatory capital
and regulatory risk; 3) increase the transparency of financial institutions and the
diversification of business areas banks; 4) improve procedures for rehabilitation,
restructuring and liquidation of banks; 5) enhance the competitiveness of banking
services by substituting cash payments for non-cash payment instruments; 6) increase
the number of state-owned banks, their capital resources and strengthen the role of state
banks to domestic financial and credit markets; 7) introduce incentives for commercial
banks that lend to innovative projects; 8) to set limits the interest rate on loans and
monitor compliance with this restriction; 9) to develop the program cover the budget
deficit through domestic borrowing mainly.
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4. Improvement of the Ukrainian banking system and its exit
from the crisis
The president of the Association of Ukrainian Banks (AUB) Alexander Sugonyako
says: "The problem is very complicated and expensive. It should be thoughtfully and
carefully "to bury the dead banks" that it does not raise a panic in the society.
Currently, about 20 banks, or are in the process of liquidation, or they work the interim
administration. A number of banks continue to delay payments, not fulfilling their
obligations. This negatively characterizes the entire banking system and undermines its
credibility. Therefore, we must take immediate steps to clear the banking system of
unreliable banks. This - a task for the National Bank and the government. "
Necessary to remove the theme of distressed assets. In the majority of Ukrainian banks
is - a major concern. Most part - over 10% of the loan debt is delinquent and bad loans,
which, moreover, tend to increase. Upon reaching a part of problem loans more than
25% of the portfolio, it becomes extremely dangerous. It is therefore necessary to find
ways and mechanisms to reduce this debt. Such activities is the sale and reorganization
of unreliable banks, sale of assets of negative specialized financial institutions, the
establishment of remediation of the bank, the recapitalization of banks and the like.
It is imperative to develop a strategy of power with respect to state-owned banks and
strengthen their role in the economy. It should be noted that today, no strategic
objectives in the operation and development of state-owned banks, we do not exist they work like regular commercial bank. But it is through the power of the state banks
would have to implement its economic policies aimed at the resumption and
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development of Ukrainian economy, the more that these banks are the State has invested
over 45 billion hryvnia budgets.
Extremely important to provide reliable guidelines and safeguards to protect the rights
of creditors, investors and owners, the lack of which is a painful fact of our economy
and society in general. This problem is particularly negative effect on the activity and
stability of the banking system. This theme is there and, of course, overripe since 1917,
after the expropriation expropriators.
However, at the same time, Ukraine would have to determine the presence of foreign
capital in the capital of the banking system and to establish proper control over foreign
investment in Ukraine. The 2008 financial crisis has shown what a serious threat to the
domestic economy and banking system is spontaneous and uncontrolled influx of
foreign capital into the banking sector, as well as the use of these resources for lending
to foreign economies due to the accumulation of debts in Ukraine, which was one of the
factors of the deployment of the crisis. Consequently, the important task of government
is to define the measures the presence of foreign capital into the banking sector and its
direction on the real economy.
Need to resume lending to the economy. Without this, it is impossible not only to
resume its development but also improve the banking system and its assets. How to
solve this problem? First, you must create the conditions for the recovery of the
financial condition of the borrower, give him a chance to use the loans for the
development of production and, therefore, returned to the borrowing period. Secondly,
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we must also build reliable sources of credit. Both of these tasks should perform power
- its economic bloc.
And where can take the long-term national resources - deposits of physical persons and
legal entities, the funds of financial institutions, including state pension funds? To
attract them, not for one day, need to restore confidence in the government, its policies
and concrete actions.
In this regard, significant problems arise and the banking system. Its national challenge
- to reduce costs. And the banks and the business entity should suddenly be particularly
unproductive, cut. Large reserve - improved corporate governance. Needs fundamental
changes and the status of bank management, especially in countering the risks.
Necessary to increase the liability of shareholders and owners of banks' operating
results.
However, all of these events will give positive results only under the condition that
Ukraine will have a real anticrisis budget management and crisis management program
will be implemented austerity measures, in particular, avoidance of unnecessary social
benefits. At the same time, the government should implement real structural reforms to
ensure stability of the national currency - hryvnia and its dominance in the Ukraine. "
July 24, 2009 Ukrainian President Viktor Yushchenko signed a law aimed at reviving
the country's banking system amid the financial crisis. Provisions of the Act relate, in
particular, a simplified procedure for reorganization of banks, transferring their assets
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and liabilities, reducing the share capital when the financial recovery plan as part of the
interim administration, in particular the moratorium on implementation of obligations to
creditors. In addition, the law prior to January 1, 2013 extended the moratorium on nontaxable tax individuals' deposits in banks and nonbank financial institutions.
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5. Conclusion. The future of the banking system of Ukraine,
forecasts and fears.
From the new year passed expect many new developments. Some experts say the end of
the crisis, has traveled the bottom, on the economic recovery, resumption of bank
lending, the return of customer confidence in banks. Other - give the apocalyptic
predictions about the state of default, the elimination half of the banks and return the
troubled nineties. Right the first and the other views. Ukraine is at the point of no return.
By this phrase refers to such milestones, events and turning points in the movement,
after the passage which return to earlier positions or situations is impossible,
unprofitable or dangerous.
What will happen in 2010? NBU will remain hostage to politics. And its liberty and
character (or lack thereof) will depend on who will sit in the chair of the president and
prime minister: will the central bank of the printing press, covering an unreasonable
expenditure of power, or a catalyst for economic growth by providing financing of the
most strategically important for the country's national producers.
We are waiting for hard times. With their problems Ukrainians were left alone campaign slogan slogans and will remain on the support of the authorities cannot count,
but NBU is not able to make volitional decisions. But we have become wiser and more
experienced. And start thinking. We have become selective in choosing a bank and
realized that no tariffs are important in this process. We are demanding the service,
forcing banks to develop their hitherto uninteresting direction (Internet banking, mobile
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banking, etc.). We even learned how to do and do without banking services, which
invariably turn the bank market to market client. The main thing in this - not to succumb
to provocation (depositors against borrowers), try to change the view (the opposite of
"my business") and remember that only together we can achieve many great goals.
Words: 3830
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References
Daily Ukrainian newspaper № 97, Tuesday, 8 June 2010, banks after the crisis.
http://www.day.kiev.ua/297905
Newsru.ua, Economy Section. National Bank announced the lifting of the moratorium
on early return of deposits. But investors will be disappointed.
http://rus.newsru.ua/finance/18may2009/mor.html
Anna Karcheva. Journal "Herald of NBU" November 2009. Especially the functioning
of the banking system of Ukraine in terms of financial and economic crisis pages 12-15.
Vladimir Bobylev. Journal of Banking Business in 2009 № 5, Mechanisms of
stabilization of the banking system of Ukraine during the financial crisis, pages 25-30.
Savluk S.M, Bregeda O.A Journal of Finance of Ukraine "2010 № 4. Development
trends of global and home banking systems, page 27.
OP Timoshenko. Journal «Economics and State » № 7 / 2009. Problems in the banking
system of Ukraine: solutions page 21.
Notes from the conference Anatoly Yepifanov, Alexander Litvinov, Alexander
Kostyuk. Journal "Herald of NBU January 2009. Stability of the system - a reliable
counter the financial crisis.
Tristar, your financial navigator (2010). What awaits Ukraine's banking system in 2010.
http://tristar.com.ua/2/art/chto_ojidaet_bankovskuu_sistemu_ukrainy_v_2010_godu_18
605.html
The rating agency Credit Rating (2010). The banking system of Ukraine: test crisis.
http://www.credit-rating.ua/ru/analytics/analytical-articles/12570
Banki.ua, prospects for investors in times of crisis. http://banki.ua/forum/post153112.html
Ukrainian banks. Analytical Banking Journal (2009)
http://www.ukrbanks.info/interview/Kakoi-by-slozhnoi-ni-byla-situacija-nafinansovom-rynke-panika-vsegda-strashnee.html
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