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NBU stress tests will show the real situation in the banking sector - Georgi Zamanov


How can you assess the NBU 2020 development strategy? What has been included and what is lacking?

It’s good when people start to think what will be in 5 years or more. People in Kyiv lived for the day during “Maidan”, and now somebody is writing strategies for 6 years forward. The same attempts were in 2004-2005 after the “Orange revolution” and in 2008-2009 after the world’s crisis. Ukraine unfortunately can’t live for 10-20 years quietly, without crisis.

Can this new strategy give resources, stability for the bank system?

Probably yes, the question is how Ukrainians and business-society will perceive it. If Ukrainians keep their money at home under the mattress, then this strategy is just a piece of paper, which could be put in a frame on the wall. It won’t stimulate resources increasing for stable development of bank system. And trust will give necessary calmness and perspective. However you should work for the trust for a long time, day by day.

What can you advice to the new leaders of NBU?

I am not acquainted with the new leader of NBU, but I have read about her, and I think she has a good professional experience. I expect that new leadership of NBU will follow the policy of equal, general, similar assessment of all banks and gradual, step-by-step adoption of international standards (IFRS). I know that time is needed for international standards adoption, but it is possible and necessary to do in 2015.

How far are we from “Basel-3”?

What we have now is not even “Basel-0”, it is Ukrainian standards, which are built taking into consideration bases and principles of Basel standards. Concerning “Basel-3”, Ukraine will have to do a few steps to match its demands. The first one - move to reporting according to IFRS – is not so complicated, as I have already mentioned; it’s possible to implement it in 2015. The second step to implement “Basel-3” – is development and adoption of reporting, 2-3 years will be needed to form the statistic data base.

UniCredit Bank, as well as probably other banks with foreign capital, has the package of documents that is needed for “Basel-2” and “Basel-3” adoption. Foreign banks will be able to register everything and put into work in half a year or a year, but several years will be necessary to collect statistical date. And what about other banks? If 10 banks do that, and 150 don’t, then what is it for?

Besides, an important moment in “Basel-2” and “Basel-3” implementation – is keeping in mind the sizes of essential IT-investments for this.

Anyway NBU wants to introduce higher standards for some banks. Is it right?

The question is which part of the market these banks cover. If it is 95% of bank market, it becomes the rule of all bank system. If it’s only 30-40% - then the rules of honest competition will be broken.

Now the stress-tests of banks are held. What results can you predict?

The mission of IMF is to grant aid package and advice to support financial stability of the country. IMF mission always starts from stress-testing to understand the situation in the banking system of the country. The stress-test gives the picture of the situation. For example, if you go to a doctor, he examines you and as a rule, asks to make some tests (blood, pressure, ECG etc)

NBU does stress-test to have the right idea about financial condition of the bank system and its abilities to accumulate foreign capital. Efficient banking structure serves as the infrastructure for foreign and domestic investments, which in their turn are the catalyst of economic growth of a real economy sector.

Why Europeans do not believe in Ukrainian market and leave?

The country has the economic development potential. But it was better not to build the country’s infrastructure in constantly changing business-conditions, when there was no system, long-term plans, when business rules were very aggressive, and the system of creditors’ rights protection was absent. This is a big problem for all banks both Ukrainian and foreign.

What about money longitude?

The question of long UAH deposits is always urgent, if we speak about business development possibilities. Deposits for 1 year term or more are necessary to provide individuals with mortgage loans and to credit enterprises for production facilities renewal and creation.

Bank business works in such a way that even with short money (deposits for 3-6 months) it can give credits for 1-2 years terms. It’s important that our bank has stable deposit portfolio with normal cost.

How do you attract dollar funding?

Both at domestic market and from the parent company. We have launched such a product as export financing, where we made use of parent funding with lower interest rate and longer term. Also we started to cooperate with the international banks - EBRD, EIB and so on. In 2013 the bank signed an agreement with EIB to receive €140 million. These lines are intended to finance small and middle business, our clients will receive certain benefits thanks to this cooperation: the rate is lowered to 0,5-1,5% and credits are longer than average ones (more than 3-4 years). This year we started to negotiate with another two global institutions about the attraction of €100 million to provide financing of energy saving technologies, infrastructures’ re-equipment, export-oriented enterprises support.

What about creditor’s rights protection and what should be corrected?

Oh, that’s the painful topic. Creditor’s rights protection is very important. After the crisis of 2008-2009, as we have seen, many clients simply decided not to pay, take away all the pledges, shift their business from one company to another with the resembling name and owners’ structure. They harm the creditor so they harm the Ukrainian economy as they increase credit risk value, and therefore the size of loan interest rate increases, banks’ credit desire drops down and as a result, the volume of real economy crediting reduces.

Before my arrival to Ukraine, when one of my clients fled away in the beginning of 90-ies, having stolen all the funds, we had written lots of letters to everyone informing about him. He came back in two months’ time, paid off everything and closed his debt. He had no possibility to find a job or make business. He simply wasn’t let to make business.

Economy and society lean on laws, executive power, courts and media. And when a client behaves badly, not only the doors of bank sector should be closed for him/her, but there should be an appropriate reaction of all the society.

Can you release a certain part of reserves by writing off bad loans?

No, nothing is released when writing off. Surely, if you have formed 100% of covering in reserve and the client comes and offers to pay 50%, exactly this sum will be released.

Raiffeisen Bank says they have more than 18 thousands of legal proceedings…How much do you have?

We also have thousands of them. It’s connected with individuals’ portfolio - credits for accommodation, credit cards, car loans. There are less than a hundred of proceedings in corporate sector, but the major part of them has been dragging on for more than 5 years, since the crisis of 2008-2009.

What is the correlation between the returned and lost money?

Except defaults, where the problem of creditors’ protection should be solved, in average the portfolio’s recovery was about 65-80%. Losses happen, when the only source of credit repayment is the sale of collateral. The great part of a debt may be covered when selling the collateral together with the client-debtor. It is profitable both for the bank and for the client: there are no losses for the bank, and the client has a repaid debt and good credit history.

If the client is ready to get down to negotiations, we watch together which possibilities and demands his business will have till the end of this year, the next one, we make plans on short-term restructuring, because in nowadays situation it’s hard to say how the business will look like in 5 years. We are looking for the ways to avoid the sale of collateral and help the client to save his business in hard times.

To what extent was the decision to unite the banks right? Why was it such a long process?

Firstly, we had to receive the permission from four regulators - national banks of Ukraine, Poland, Austria and Italy. Less than half a year passed after the final decisions and to the real integration of two banks. It was the right decision and successfully implemented integration process.

Date: 20.08.2014

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