Posted by The Chamber on Apr 12, 2010 in Banking and Financial Sector, Expert View, News & Updates | 3 comments
By Federico Russo, CEO, UniCredit Bank, OJSC
With less political uncertainty (at least for now – local elections are expected to take place in November 2010) and a new government in place, now the key focus has to be on accelerating growth, introducing jump-starting reforms in many industries, including banking. I see re-start lending as one of the key targets both for the Government and the Central Bank. There are many obstacles to re-open the credit channel, including lack of the stable funding base in local currency, high inflation, low confidence and huge problems with creditor’s protection rules and practice. I would also mention another factor which negatively influences the sustainable growth of the banking system: its high fragmentation. Small undercapitalized banks are the large majority of the 180 banks in Ukraine, and this is confusing among consumers who at times can be attracted by extremely high interest rates offered by them for deposits. This coupled with specific cases of insolvency has further depressed confidence in the system while low lending power and increasing costs of prudent supervision continue to hamper growth and competitiveness. Currently there is no proper alternative to organic growth for the key market or regional players, but consolidation might have positive impact on the supply of credit which would help to stimulate economy recovery. I would expect that the Central Bank will start encouraging banking consolidation in the form of improving regulations to ease the merger process or via enforcement of bank capital requirements. There are obviously other points to be touched among which include: the need to register foreign investments – in my understanding there is already a draft of a new law in the Parliament, but I would like to comment that in the current circumstances the country should be open to investors to the greatest extent possible and not set further barriers even if they are just formal or bureaucratic. National Bank of Ukraine (NBU) regulations #107-109 also do not help in managing the currency exposure risk, and the new strict NBU requirements on cash desks armoring will lead to significant costs for banks with large networks and consequently will have an impact on the consumers of the banking services. I think, such measures (independently from their effectiveness) do not appear to be a priority instrument to allow banks to recover and focus on the primary functions to serve as the best financial intermediaries and provide new credits for the real economy in parallel with safely managing the savings of population and companies.