Unfortunately the general public knowledge about the progress of financial reform is limited to information on the exchange rate. Often conclusions about the effectiveness of the National Bank are made on this basis. But the reform is not limited to the resignation of Valeria Gontareva and NBU work, and to understand what really is going on, we talked to an expert Vitaliy Kravchuk, a senior research scientist of the Institute for Economic Research and Policy Consulting.
The primary objective of the reform –is to overcome the economic crisis consequences, which was also financial in Ukraine. The reform should help to clean the banking system, assure economic recovery, provide a competitive environment in accordance with EU standards, restore Ukrainians confidence to the banking system, restart lending and make non-cash payments accessible and safe. The ultimate reform benefit is that bank depositors will be confident in their money protection, and they can get them when required.
The National Bank reforming. The transition from fixed to floating exchange rate; establishment of specific targets for inflation, which is planned to be around 5%; currency liberalization, ie gradual lifting of restrictions on citizens and companies exchange transactions. Regarding the last point, some restrictions have been already removed, such as extended term of the so-called export pay-back period.
Necessary legislation amendments. There still exists the Cabinet of Ministers Decree “On Currency Regulation and Currency Control”, which was adopted in 1993. Other regulations which were adopted in 90’s also require modernization.
Banking sector. The process of banks stress-testing continues – diagnostics of the banking system, which is one of the commitments of Ukraine to the IMF. More on this topic: the National Bank started small banks inspection.
The Expert gives no positive outlook as for the lending renewal in the nearest time, as the financial situation is not very much improved and banks first of all are still trying to deal with old loans.
State banks are still constituted of about a half of the banking sector. Prior to nationalization of PrivatBank, the share of state banks increased due to their resistance to others. In fact, now the state is the dominant player. “It is clear that sooner or later it will be necessary to do something about it, because this is unhealthy phenomenon when half of the banks are state,” – says the expert. By his words the donor position is clear: high state share is a temporary phenomenon, and while it exists, it is necessary to ensure the impossibility of abusive activities by these banks. Vitaliy Kravchuk predicts that the first step in this direction will be election of supervisory board members in more independent and transparent conditions to ensure qualified management of state banks.
According to expert’s opinion, in the long view, denationalization of part of the state assets, including Privatbank, should be expected. There is no certainty about the future of the rest of the state banks. “Different models can be applied, for example Russian Sberbank emphasizes that 49% of its assets are freely rotating on international stock markets and owned mostly by foreign investors. While 51% are controlled by the state. But the fact that the share of 49% is not a state property makes the bank more appropriate for foreign partners “, – he added.
In the non-banking sector there are less urgent issues that directly affect ordinary citizens. The most important for the population is the pension reform: solution of the Pension Fund deficit problem and amending legislation acts for increasing the role of private pension funds.
There are also a number of reforms in the insurance sector, in fact – Ukraine has obligations under the Association Agreement with the EU, which provide firm requirements for insurance companies. However, there is no progress in this direction.
Development of electronic payment systems, including such operators as PayPal, requires, according to the expert, a critical mass, “As a majority of the population will get accustomed to pay cards and gradually the economy will be restored, there should be a greater need for different forms of payments. When there is demand, there will be supply, “- notes Vitaliy Kravchuk. According to the Expert, the emergence delay of such operators in Ukraine has no political character, while Ukraine begins to use cards, in developed countries there is transition to online payment through mobile applications.