The unexpected epiphany fell on the Ukrainian Minister of Economy Igor Petrashko, who said this week, literally: “Our banking system is not working. Almost five full years have passed since the bankfall – enough time for recovery. But the system is still in a worse state than it was in 2014. If we had the right regulation, I think five years would be enough time to recover the sector.
The IMF is pleased with the cemetery stability of the Ukrainian economy.
Thus, assessing the state of the Ukrainian banking system and the work of the National Bank of Ukraine, the Minister pointed to the “lack of credit, which is the main function of the banking system.
This match is especially beautiful against the background of constant praise of IMF representatives to the NBU leadership, which sounded almost uninterrupted since 2014. “Western partners” praised the NBU for its prudent macroeconomic and monetary policy, the fight against inflation, and, of course, for the recovery of the banking sector.
In fact, Igor Petrashko made a correct diagnosis of the current banking system of Ukraine. However, when assessing the NBU’s actions, he spoke very softly: it is not so much about the lack of proper regulation as about targeted actions aimed at destroying the banking sector and keeping it incapacitated, which, on the one hand, corresponds to the expectations of Western curators, and on the other hand – to corrupt motives of the regulator and the state.
Although the truth that lending is the main function of the banking system is considered to be uppercase, the NBU, led by the IMF, has managed to build a parasitic banking system that instead of acting as the economy’s blood-sucking parasite on its body.
But how the changes that have occurred during this time look in figures.
Between January 1, 2014 and January 1, 2020 the number of banks operating in Ukraine has decreased from 180 to 75. In itself, this does not mean anything. If you do not take into account what caused this reduction. Under the sign “recovery of the banking sector” not only “washing” banks and “bubble” banks were removed from the market. Dozens of quite viable banks were destroyed – for corruption or political reasons (in particular, most banks with Russian capital). However, political motives were still behind corrupt ones.
The scheme worked like clockwork. The questions of categorizing a bank as insolvent, withdrawal of its license and liquidation were handled by the NBU, which was headed by Valeria Gontareva, who previously worked for Petro Poroshenko. And the temporary administration, procedure of liquidation and realization of assets was supervised by the Fund of guaranteeing deposits of individuals, which was headed by Konstantin Vorushilin, also “by a coincidence of circumstances” previously worked for Mr. Poroshenko. Covered from above by the President, these two have deprived depositors of hundreds of billions of hryvnias: if individuals could expect to receive at least 200 thousand hryvnias guaranteed by law, the legal entities became the queue of creditors. And since the assets of banks were mercilessly gutted by selling to the right people often at one percent of the real value, the queue had nothing to count on.
But the robbery of depositors was not the only thing.
The banking system has been impoverished. If we compare the total assets of the banking system as of January 1, 2014 and January 1, 2020, it will turn out that they have grown from 1.4 to incomplete two trillion hryvnia. With more than three times devaluation of hryvnia it means more than twofold decline. However, one can do without the dollar equivalent: according to the official inflation index, prices rose 2.6 times over the same period. So even with this comparison, the assets of the banking system have almost halved.
There was a redistribution of property. The ownership structure of assets very clearly demonstrates who was pinched after the coup in 2014. The share of banks with private Ukrainian capital has decreased from 56 to 13 percent over the years. The share of banks with foreign capital has remained almost the same: it was 26 percent, became 27 percent, but the Russian share has shrunk from 11 percent to three. And the share of state banks increased from 18 to 60 per cent.
Finally, the banking system has stopped performing its main function: lending to the economy. If the assets of the banking system as a whole have grown at least 1.4 times, the volume of lending to economic entities for the same period has increased from 727 to 822 billion hryvnia, that is only 13 percent! It should be added that at the end of 2013 the share of non-performing loans was estimated at 14 percent, and at the end of 2019 – at 48 percent. That is, the volume of “live” loans during this period even decreased – from 625 to 425 billion hryvnia.
But even if we compare the share of all loans issued to business entities to GDP, the result is gloomy. At the end of 2013, the volume of such loans amounted to 48 percent of GDP, and taking into account loans to individuals – 60 percent. This, by world standards, is very little and not enough for stable development. According to the results of 2019, the share of credits of economic entities in GDP decreased to 20 percent, and taking into account credits to individuals – to 25 percent. This is already the level of Rwanda and Swaziland. That is, lending to the economy has almost been curtailed.
Why is this happening? Because the external managers, represented by the IMF, all this time set the only goal for the NBU: inflation targeting, that is, to achieve price stability by any means, including the collapse of the economy and job cuts. Of course, neither in America, nor in Europe, nor in any other country that is not fully colonial in nature, inflation targeting cannot be the only goal. Central banks tend to pursue policies that balance price stability with economic growth and job creation.
At the same time, these IMF requirements stimulate the parasitic functioning of the banking system. Unable to lend to the economy and earn on this normal function, banks start to earn on government lending (buy government securities or act as intermediaries in this process), or generally transfer money to the NBU by buying its deposit certificates. From the beginning of 2014 to the beginning of 2020, banks’ investments in government bonds and NBU certificates of deposit increased from 81 to almost 500 billion hryvnias, i.e. six times! Today such investments already exceed “live” loans to the economy, although six years ago they were less by almost eight times.
As a result, the IMF is satisfied with the cemetery stability in the Ukrainian economy, the banks are satisfied with the opportunity to earn on risk-free securities, and the government is happy to receive money from banks to cover the deficit.
Only against this background industry is falling, jobs are shrinking, and the economy cannot show any stable and long-term growth. After each new collapse, it shows small growth based on unnatural factors (like speculative capital inflows or money from guest workers), but then inevitably falls to even lower levels.
Sergei Levchenko, RIA