Ukraine’s banking system is teetering on the brink of disaster. The International Monetary Fund’s (IMF) $16.4-billion loan (see EDM, November 12) has probably come too late either to restore trust in banks or to prevent the national currency, the hryvnya, from a free fall. Most banks are in serious trouble, and several may soon change hands or collapse. Meanwhile, the chair is shaky under Volodymyr Stelmakh, the chairman of the National Bank of Ukraine (NBU, Ukraine’s central bank).
Ukraine’s ailing banks have been using the funds they are receiving from the NBU to buy foreign currency with hryvnyas. The demand for Ukraine’s main export commodity, metals, has fallen dramatically on the world market, so less hard currency is coming into Ukraine. In addition, the Naftohaz Ukrainy national oil and gas company has been buying dollars on the domestic market in order to pay its debt to Russia (see EDM, December 3). All these factors have contributed to a 65 percent devaluation of the hryvnya against the dollar since August.
Ukraine has been among the countries worst hit by the global financial crisis. Key industries such as metallurgy and machine building are laying off workers, and real wages have started to fall for the first time in a decade. This makes it hard for Ukrainians to make payments on loans, many of which, especially mortgages, were issued in dollars. Since most people are paid in hryvnyas, they have to buy dollars with the weak hryvnya and are paying back much more on the loans than they had expected. The share of problem loans in bank portfolios grew to 10.3 percent by December 11 and is continuing to grow (Kommersant-Ukraine, December 16).
Banks have all but stopped issuing loans, and their clients have hurried to withdraw deposits. In October the NBU introduced a moratorium on withdrawals ahead of schedule, which further undermined trust in banks. Some 70 percent of Ukrainians would prefer to withdraw their deposits from banks, and 67.7 percent of them do not trust banks at all, according to a public opinion poll conducted across Ukraine at the end of November by the Kyiv-based Research and Branding Group (Ukrainski Novyny, December 8).
The Ukrainian version of a Russian business daily quoted a source at the NBU as forecasting that over 40 banks may soon collapse (Kommersant-Ukraine, December 16). Two banks, Nadra and Prominvestbank, have apparently been the hardest hit by the crisis.
Nadra reportedly borrowed more from the NBU than any other bank over the past few months (Zerkalo Nedeli, December 13). Although Nadra was taken over in November by RosUkrEnergo gas intermediary co-owner Dmytro Firtash (www.korrespondent.net, November 7), Nadra’s cash machines are empty most of the time, and it has stopped paying depositors money from their accounts. Nadra, which is Ukraine’s seventh largest bank, is among the top five leaders of the mortgage loan market, which is a serious drawback in the current situation (Delo, December 15).
Ukraine’s sixth largest bank, Prominvestbank, was the first to admit to being in trouble. The NBU has been managing it and trying to find buyers for the bank since October 7. It was announced in early November that the Klyuyev brothers, businessmen and deputies from the Donetsk-based Party of Regions, had agreed to buy a controlling stake in Prominvestbank; but they apparently failed to come up with the necessary $120 million. Russian multibillionaire Alisher Usmanov, who had reportedly been interested in the bank, said he would not buy into it (Interfax-Ukraine, December 10).
The NBU reportedly offered stakes in Prominvestbank to the European Bank for Reconstruction and Development and the International Finance Corporation. A majority stake will most probably be nationalized (Ekonomicheskie Izvestia, December 12; Delo, December 16). The Ukrainian presidential office has urged Prominvestbank’s prompt nationalization, as the bank’s stabilization is one of the IMF’s main conditions (Interfax-Ukraine, December 16).
The new parliamentary coalition, established on December 16 by Prime Minister Yulia Tymoshenko’s bloc, the majority of President Viktor Yushchenko’s Our Ukraine-People’s Self-Defense (NUNS), and the bloc of Speaker Volodymyr Lytvyn, threatens to remove Stelmakh. On December 8 two NUNS deputies formed a parliamentary investigative commission to examine how the NBU managed its foreign exchange reserve (Zerkalo Nedeli, December 13). Addressing the nation on TV a week ago, Tymoshenko blamed the NBU leadership for the situation on the currency market (Inter TV, December 10). Lytvyn is also in favor of replacing Stelmakh (UNIAN, December 13).
Stelmakh was deputy chairman when Yushchenko chaired the NBU in the 1990s, and the president is now his only supporter. Yushchenko met Lytvyn after his election as speaker on December 9 and warned him against being hasty in ousting Stelmakh, but even Yushchenko’s own trust in Stelmakh is waning. On December 1 Yushchenko’s spokeswoman Iryna Vannykova warned that “the president will have to make difficult personnel decisions” if the NBU failed to stabilize the hryvnya (Zerkalo Nedeli, December 13). According to the Ukrainian constitution, even if the president decides to dismiss the NBU head, the final decision is up to parliament.