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A step back. What's happening to the National Bank of Ukraine


Recently, the question "whether or not there will be an IMF loan" has turned into a matter of the Ukrainian economy's survival. And relations with the IMF, in turn, have bumped up against the "NBU’s independence", which is demanded by the International Monetary Fund itself, and the US embassy, and the G7, and international investors. It is not easy to understand what actually stands behind the "NBU’s independence", but it is possible: to do this you need to look at what changes took place after the resignation of Yakiv Smolii and the appointment of Kyrylo Shevchenko as the new chairman of the NBU.

For several months, the newly appointed chairman of the NBU, Kyrylo Shevchenko, was forming a majority in the board of the National Bank. To do this, he held a series of conversations with previous board members, and after that they voluntarily resigned. The NBU Council, headed by Bohdan Danylyshyn, promptly approved new deputy chairmans of the board. So, the positions previously held by Dmytro Kholod, Roman Borysenko and Oleh Churyi were replaced by new personnel—the team of Kyrylo Shevchenko. It includes Yurii Heletii who is closest to the NBU chairman, the former head of PrivatBank legal coordination department, Jaroslav Matuzka, and Oleksii Shaban who comes from Privat. These appointments raised questions, since the average qualifications and work experience of the NBU board members after these appointments dropped significantly, and Shaban also turned out to be the son-in-law of Ihor Kolomoyskyi’s junior business partner.

However, Kateryna Rozhkova and Dmytro Solohub remained on the NBU board, despite rumors of their imminent departure. Judging by a number of public statements, they have clearly become a problem for both Kyrylo Shevchenko and Bohdan Danylyshyn. Therefore, in November, the NBU chairman took an unprecedented step and, by a majority vote of the board, redistributed powers so that Solohub and Rozhkova lost all key departments. And the departments of licensing, financial monitoring, analytics and supervisory technologies he took personally. This further exacerbated the IMF's fears, as corruption risks in the NBU skyrocketed after that. It was after this step that the demands to ensure the NBU’s independence began to sound louder and louder from Ukraine's international partners.

To understand the IMF's concerns, we should look into 2015 first. Back at the National Bank a global management reform with the participation of international experts was carried out. This was necessary because it is the NBU that can either open a black hole in the budget, indulging garbage banks, or, on the contrary, keep the economy afloat. To reduce the corruption risks, the NBU's areas of work were divided into blocks and, more importantly, the principle of collegial decisions was introduced, when middle and senior managers of different departments constantly communicate with each other, discuss how to do better, and come to the NBU board meetings with an agreed solution or with its variants. In these conditions, it is much more difficult to lobby for a corrupt decision, since any dissenting employee can break the scheme. In addition, the prepared decision was supposed to suit the entire NBU board, and not the simple majority.

It is also important to understand that in the previous five years, the chairman of the NBU board was "the first among equals," but by no means superior over other board members. He was responsible for the highest representative functions and a general bloc of issues. But the chairman of the board has always voiced the consolidated position of the board, and not his individual opinion.

Departure from these practices was the reason for the IMF’s disappointment. Therefore, Kyrylo Shevchenko had to make concessions, which, however, turned out to be just cosmetic.

On December 11, the National Bank announced the next distribution of powers within the board. For the sake of effective management and distribution of powers, Kyrylo Shevchenko renounced part of his functions, namely the so-called "prudential bloc". In fact, this is the supervision and monitoring of the regulator, a number of departments engaged in the prevention and identification of bank problems at an early stage. The sphere, until recently headed by Kateryna Rozhkova, now belongs to Jaroslav Matuzka. Rozhkova, on the contrary, has headed the financial, administrative and operational blocs, which were headed by Matuzka since September. What was it all, what is the meaning of the "rearrangement of chairs"?

Very interesting and not very favorable tendencies are hidden behind the state-owned turns of the regulator. And the phrase "the decision to redistribute the verticals of subordination was preceded by fruitful consultations with international partners" can be interpreted into reality language as the IMF’s demand "immediately bring back and do not break what was done five years ago.". The NBU tried to bring it back, but in a very limited amount, that is unlikely to alleviate the IMF's concerns.

Why? With the departure of Smolii and the advent of Shevchenko, the general management style began to return to "one-man management" and the vertical of decision-making, tied to Kyrylo Yevhenovych. Under his clear leadership, three board members who worked together with Smolii resigned, and only Kateryna Rozhkova and Dmytro Solohub remained. All this time, Shevchenko has been consistently returning the former "vertical of power", removing collegiality in decision-making, pluralism and transparency.

The wave of dismissals from the NBU, that began with the departure of Smoli, became an evidence of the new policy rejection. It is enough to open the website of NACK declarations and set the filter "declaration before dismissal" and "National Bank of Ukraine" in the context line to see a picture of the great exodus—from senior specialists to department directors.

During the personnel changeover at the NBU in early September, Jaroslav Matuzka came and headed the financial, administrative and operational blocs there. Then in October, Kyrylo Shevchenko continued the offensive against the first deputy chairman of the board, Katyrina Rozhkova, who remained after the departure of Yakiv Smolii. The proverbial "prudential bloc" was removed from her subordination, and it was not accidentally transferred from the chairman of the NBU to the first deputy—this decision was supposed to remove the corruption risks. However, Shevchenko transferred the prudential bloc directly to his subordination, adding to the existing general bloc.

This caused deep concern both for the IMF and other structures that are trying to give money to Ukraine. And the instructions on ensuring independence in the work of the regulator are, first of all, a "finger poke" at Kyrylo Shevchenko. The poke is so tangible that the proverbial regulator’s independence returned to the IMF's prior actions.

The recent decision made last Friday on the "prudence transit " and the exchange of responsibility areas between Shevchenko and Matuzka is an attempt to justify themselves and show donors that the NBU’s independence is preserved. Nevertheless, such an exchange has clear political connotations and retains a clear vector of "one-man management".

Jaroslav Matuzka is undoubtedly a highly qualified specialist, but clearly not in the industry that was transferred to him, that is market participants’ supervision. Of all the regulator functions that distinguish it from a bank, prudence is perhaps the most specific. For a quality banks supervision, one should have a specialized education and experience as a banker, not a lawyer. Even for the best specialists, if he came from the banking sector, three months of work at the central bank is clearly not enough to adapt. This means that he will be more dependent on the person who gave him this position, that is on Kyrylol Shevchenko. Alas, there is nothing like any distribution of powers and collegiality, as it was understood before.

The changes did not change the main thing: the competence and system consistency are sacrificed for manageability. As another example: Strategy and Development Department, the body that provides answers to the questions of the level "where are we going and where will we be in five years?" was given by Kyrylo Shevchenko from the general bloc to the payment systems bloc that is completely illogical for the strategy.

Dismantling transparency, abolishing collegial decision-making, placing dependent managers with insufficient competence and building a vertical where everything is tied to one person has another side effect. This person, the "king of the hill", becomes too vulnerable, and his position turns into a coveted prize with every redistribution of power, with every change of the Cabinet.

As now on the "chessboard" there are posts of ministers or services and agencies heads, so then the post of the National Bank chairman may appear on it. Even despite all its declared independence. And it will be much easier to replace another such temporary chairman with an almost indistinguishable other one than the displacement of Smolii last summer. Since the dubious decisions made by each previous head of the NBU in a vertical non-transparent management system for the benefit of its political shareholders will be used as leverage for pressure by the next contender for his position.

Of course, the described possible model will very little relate to the independent National Bank of Ukraine, the need for which we are constantly reminded of by our Western partners.

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