At the end of May, a lawsuit was filed in Kyiv District Administrative Court on the removal of the National Bank of Ukraine (NBU) Deputy Head Kateryna Rozhkova. The NBU said at the time they would regard such a decision as the direct blocking of the work of the country 's main financial institution. Kyiv region 's Baryshevsky district court handed down the verdict one month later, in June. The NBU, in turn, said it "was worried about the situation when Ukrainian courts are increasingly becoming an instrument of pressure on the work of the central bank."
" These circumstances once again vividly confirm the need to complete the initiated judicial reform in order to prevent the corrupt use of the judicial system as an instrument of political pressure on government bodies." — National Bank of Ukraine
discussed the strange rulings of Ukrainian courts on the matter, legal loopholes in Kolomoisky 's lawsuits, the future of Privat Bank and the financial system of Ukraine with NBU First Deputy Head Kateryna Rozhkova.
- Have you been removed from your duties pursuant to the court decision?
- There is a decision of Kyiv region 's Baryshevsky district court requires my removal. However, the law on the NBU does not provide for the removal of NBU deputy heads of the NBU "by court decision." We do not understand how to carry it the court order, so we asked the court to explain. We want them to explain the ruling, because it contradicts existing Law. The Baryshevsky court refused to give us an explanation, arguing that the ruling has already been appealed.
- While the court is considering the case, you are performing your duties. Is it possible then to challenge your working decisions?
- We have a collegial decision-making system. This is one of the achievements of the NBU's internal reform. There is a system of committees, there is a board, there is the concept of quorum. After the quorum, there is a vote. I am a member of some committees and a board member. Therefore, today it is impossible for anyone, even the head of the NBU, to take any decision unilaterally. Everything is decided collectively, and this is, in fact, very good.
- It turns out that no one is responsible for the decisions made?
- You should not say so. This is transparency and a hedge against subjectively. In any case, each person has a certain subjective opinion. When we discuss something, we consider the same question from different points of view. As a result, the most objective decision is taken. This kind of system has been adopted in Europe and around the world. The main thing is objectivity.
- It is believed that our people are accustomed to the vertical.
- This cannot be done. The board makes important decisions, for example, about serious sanctions against banks, or approves conceptual documents that affect the entire banking system, and possibly the entire financial sector, and the entire economy. Imagine that a person would decide these issues alone.
- Most think that this is how they decide. Now Ihor Kolomoisky says that Gontareva took the bank from him.
- It is not true. And why Gontareva and Rozhkova? Because, apparently, we were communicating with him. The decision was made collectively, but we communicated with him, she as head of the NBU, and I, as the person in charge of banking supervision. Therefore, he remembered us.
Regarding collegiality, we have very serious discussions. Yesterday [July 18 — Ed.] the NBU board adopted two new banking system policies. The discussion was intense.
- And what new provisions were adopted?
- The first is the provision on the organization of work with problem debts. The second is the provision on the requirement for banks to create recovery plans in case of crisis situations. We are talking here about organizing work on the putting plans. These are quite serious systems, the implementation of which will require additional efforts from banks both to create separate departments and to organize new processes.
The discussion was serious. We talked about how necessary it is now, how expensive is it, whether it makes sense to make changes in the structure, how will this affect the demand for banking specialists and if there are such specialists in the banking market and where to find them (if they 're not). These are serious issues. We can offer something, and banks as a result cannot do anything for a number of reasons. Therefore, a full discussion and collegiality is important. And this is how all decisions are made.
About Privat Bank
- If you listen to ordinary people, they say about Privat Bank like this: either Kolomoisky will take him away; either will not take; or take not the bank, but the money. Is it possible to predict something now?
- We do not live in a fairy tale, not in the virtual world. The decision on nationalization is the decision of the NBU, Cabinet of Ministers, National Security and Defense Council (NSDC). In addition, we have the Financial Stability Board, which includes representatives of other regulators, for example, the Finance Ministry, Guarantee Fund, National Securities and Stock Market Commission and the National Financial Services Commission. We discussed everything together: why we do it; what happens if we do not do it, what negative consequences will be in general for the country. So, these decisions are completely justified. And I believe in the triumph of justice.
Secondly, we continue to defend and defend these positions in the courts. Thirdly, the support of our external partners and creditors is very important in this process. For example, the IMF. When the IMF comes to some country and provides it with financial support, a memorandum is signed, where, as in a loan agreement, there are requirements. In order to return the funds after some time, we need to improve something. As a rule, they are not engaged in individual financial institutions. They talk about the financial system as a whole: you must ensure the stability of the system, for this you must conduct an audit every year, require additional capitalization in certain cases.
There are world standards. But at the same time, if individual financial institutions are systemically important, the IMF also deals with them separately. In our case, because Privat Bank had 35% of deposits and accounted for 50 +% of financial transactions. It was impossible in principle to allow such a monopoly position. And for this the regulator always has its own possibilities. But they, unfortunately, were not involved in their time. In the end, we got what we got: too big to fail.
The IMF did not set the task to nationalize or not to nationalize. He set such a task: do a stress test, improve the banks, and let them work. But if the bank is bankrupt, then nothing can be done with it.
Why am I saying that support is very important? The IMF has repeatedly stated unequivocally that it is inadmissible to annul the decision on nationalization in any form — in part, in full, and so on. And I am convinced that for continued cooperation this will be a serious factor.
- That is, after all, the IMF will not allow you to return the bank?
- The president and his team unequivocally stated that, firstly, cooperation with the IMF is necessary; secondly, they will protect the interests of the country. Now fold both halves. If the abolition of nationalization is a stop factor for further cooperation with the IMF, I still hope that the courts will consider this situation in detail and correctly. Analyze all available information, all cause-effect relationships. Because there are a lot of manipulations in these suits.
Even in the lawsuit, it is written that the National Bank, in assessing the adequacy of reserves formed for loans, and, as a result, capital adequacy was guided by instructions that have not yet entered into force. It is not true. We were guided by the instruction that was valid at the time of the inspection. However, since we knew that from January 3, 2017, another would be valid, we made a calculation for it. We stated that we will evaluate capital adequacy and make a decision according to the current instructions, but we will make a forward-looking calculation using a new one, so that the owners and management understand what the perspective will be and what additional actions may be needed from management and owners. And there are many such moments. I hope that the appellate court will study all this.
- When will the appeal? And is it true that the previous court had no right to consider this question?
- The appeal has not yet been appointed. Prior to this, several decisions were taken in a short amount of time and with procedural violations. But I am not a lawyer to correctly explain all the details.
Ukraine 's banking system and ex-NBU chief Valeria Gontareva
- And what will be after the appeal in your case? How do you live in a state of uncertainty?
- I can not guess at the tea leaves. From the point of view of the process, this is an appeal against a temporary ban on performing functions. And if you win it, then in fact the question still remains unresolved. About uncertainty. A lot of things are happening, but there is not enough time. We joke with each other that after a business trip in one or two days it feels like there wasn ’t a month at work.
I do work. For example, now the NBU is developing a new strategy. We have a lot of plans that have been announced for a long time. We are moving within the framework of the regulation of the banking sector. There are so many things to do.
" If you 're worried about rulings made by the Baryshevsky courts, it's better to sell flowers than work for the NBU." — NBU Deputy Chief Kateryna Rozhkova
- Do you believe in the banking system of Ukraine?
- I really believe. You have no idea how much she has changed now. The banking system of Ukraine has become completely different. It 's changed to be at the level of the best. Although the best does not happen — there are just good practices.
- For example, the Swiss system.
- The banking system does not exist by itself. Now we will say that the chicken or the egg is primary, because the size, activity, focus of the banking system are determined by the level of economic development. Today, it ’s good that the banking system of Ukraine has been restored, and it is ready to be a driver of economic development. That is, it is ready to lend and can do it: there is enough capital and liquidity. But what is missing is the need to complete structural reforms that will underpin the economy. And then they will complement each other. If you do everything right, then I think in five years we will have one of the best banking systems.
- Do you communicate with Valeria Gontareva? What does she think about the current situation?
- Of course, I communicate. Valeria Gontareva gave a lot of interviews, it says it all. It is clear that this topic is unpleasant. I still look optimistic: everything is changing and to some extent developing, including the judicial system. Somewhere it is undereformed, somewhere we see the best results.
- is Valeria Gontareva advising the central bank?
- She now works at the London School of Economics. He consults other countries on macroeconomics, market regulation, and the banking sector. She is a very good specialist. NBU she does not suggest anything. When we communicate, we do not have enough time to discuss these things. We are interested in talking about something else.
New technologies and monobank
- Now many people are switching from real banks with offices and branches to virtual monobank cards. Is it reliable?
- They switch to Universal Bank cards, on which monobank is written. And these cards provide a certain type of service or product. Monobank does not have a banking license. This is a financial technology of scoring, product offers, customer generation, which was developed and given to Universal Bank, which applies it subject to using the monobank logo. This is the gateway through which customers enter the Universal Bank balance. We know the owner of the Universal, we understand that he has with capital, annually we check his loan portfolio, we watch how his deposits increase.
- Is it normal for clients to move away from state banks to private ones?
- Someone leaves, and someone comes. Now we are seeing a redistribution of customers. Healthy competition is always good. We need to return people 's confidence in the banking system as a whole, not necessarily only in deposits. Then we will have an influx of those customers who either have never been to banks or left the banks at the time of the crisis. It is waiting for us, there will be more customers. Work on this and banks, and the NBU. We are now turning on a new feature and developing it — it is consumer protection. People will return to the banks, realizing that there is someone who will protect them.
- Christine Lagarde, speaking at the forum of financial directors in Japan, said that in a few years in China, financial and technical companies gained such strength and became such powerful players that we now need to do something about it. Is there a risk that they will affect the financial system, and central banks will not be able to cope with it?
- There are two points. In order to somehow resolve this issue, we really need a split. Today, non-bank financial institutions really have the opportunity, by obtaining a license from another regulator, to obtain from the National Bank a license to carry out certain banking operations, for example, remittances or currency exchange. The National Bank, by giving a license for a particular operation, is not their main regulator. Hence the threat of non-compliance with standards of market behavior and regulatory arbitration. If, for example, we have clear requirements for banks, an understanding of how we check them, then in the case of a non-banking market we are constrained. This does not apply to monobank technology — this applies to non-bank financial companies.
Now let 's talk about fintech companies. They are developing a software product that allows you to make transfers faster or make credit decisions faster, evaluate clients in terms of risks, and automate other banking processes. Further, such companies either sell the technology to any one financial institution, or enter into an agreement with several and give this technology, roughly speaking, for rent. The National Bank looks after banks and forms its requirements for the technologies they use. Regardless of whether these technologies are proprietary or outsourced, they must still comply with the requirements of the regulator