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22:01 PM Monday, April 24, 2017
Finance
Gov’t Pushes Russian Banks to Leave Ukraine
Part of wider curbing of Russia's economic influence here: flights rerouted to EU, exports to Russia down, worker remittances from Russia down
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KYIV – In the latest move to cut Russia’s economic influence in Ukraine, Kyiv seeks to gradually push Russian banks out of the Ukraine market, either through buyouts or wrapping up operations.

"We want them to leave our market painlessly," Kateryna Rozhkova, deputy governor of the National Bank, told journalists Tuesday. "There are two options: either find a new owner or gradually reduce your presence."

Five Russian banks, all state-owned, are active in Ukraine. They hold a combined market share of 8.6 percent.

Russia’s Economic Hold on Ukraine Weakens

The move comes as Russia’s once dominant economic influence here is ebbing. In 2015, direct flights between the two countries ended. Since then, flights west have boomed. In 2016, Ukrainian exports to Russia dropped by 27 percent, falling to one quarter the level of exports to the EU. Since 2014, remittances by Ukrainian workers from Russia have dropped in half, falling below that of remittances from Poland.

Behind the economic chill is Russia’s annexation of Crimea in March, 2014, and then Russia arming and bankrolling separatists in the nation’s southeast corner. At the press conference, Rozhkova said that Central Bank experts had found no evidence that Russian banks here have financed the separatists, who control portions of Donetsk and Luhansk oblasts.

Fake Blood on Bank Doors

Twice last week, members of a nationalist youth group, the National Corps, protested in front of Kyiv branches of VTB and Sberbank. On Friday, at the VTB branch at Taras Shevchenko Avenue, they poured fake blood on the doorway and covered windows with posters denouncing Russian banks.

“No to Russian banks!” they chanted in Ukrainian, while handing out flyers printed with a sinister image of Moscow’s Red Square. The flyers warned: “Attention! This is the bank of the aggressor country. It will be closed. Withdraw your money immediately.”

Anti-Russian feeling has flared here in recent days following the separatists’ intense shelling of Avdiivka, a Donetsk oblast city that is home to Ukraine’s largest producer of coke, a key ingredient for steel manufacturer. The Ukrainian Army held the city, but 33 soldiers and civilians have been killed in the worst fighting in two years.

Nationalists have directly targeted the National Bank of Ukraine, the NBU.

“The criminal management of NBU bartered away Ukraine’s banking sector to the aggressor country,” read the leaflet from the Corps, a civilian wing of the Azov Batallion. “We won’t allow enemy banks to work in our country. We won’t allow them to earn money in Ukraine when our soldiers are losing their blood on the front lines. The banks of the aggressor country must be closed. Withdraw your money immediately from the Russian banks. Otherwise your money will disappear with the banks.”

Two Russian Banks up For Sale

Three days later, Rozhkova, the NBU deputy governor, told reporters that VTB and VEB, another Russian bank, are negotiating sales of their Ukrainian subsidiaries. Rozhkova predicted progress by this summer. The other Russian banks here are Sberbank, the savings giant, and BM Bank and VS Bank.

Given the economic sanctions that Ukraine and Russia have placed on each other, Rozhkova said Russian banks are at a dead end in Ukraine.

“Taking into account current sanctions, we cannot speak about potential future additional capitalization,” she said. “This means there can not be any development, as boosting of assets requires additional capital.”

In 2014, the central bank prohibited the five banks from increasing their assets and deposits. This resulted in their market share falling by half, according to calculations by Reuters.

Gradual Phaseout

Rozhkova said Ukraine wants a gradual phase out of Russian banks here. Together, the five banks hold 22 billion hryvnias ($815 million) in Ukrainian consumer deposits and 16 billion hryvnias ($593 million) in business deposits.

Some are skeptical that the government is really pressuring Russian banks here. UAWire, a digital news service quotes Andriy Novak, head of the Committee of Economists of Ukraine, as saying: "On the one hand, the head of the NBU reports that the share has decreased from 18% to 8%. But judging by the number of branches, this information does not seem credible."

In a separate move, the central bank has closed 88 insolvent Ukrainian banks over the last three years: 33 in 2014; 33 in 2015; 21 in 2016; and one in 2017.


For comments and story tips, please contact UBJ Editor in Chief James Brooke at james.brooke@theubj.com

Slider Photo: Nationalists protested Feb. 1 in front of the VTB bank branch on Taras Shevechenko Boulevard, central Kyiv (Credit: James Brooke)

Top Photo: Kateryna Rozhkova, deputy governor of the National Bank, briefed journalists Feb. 7 about government pressure on Russian banks to wind up their operations here. (Credit: Julia Berezovska)

Photo: Protester picks up leaflets at a Feb. 3 protest at the VTB bank branch on Taras Shevechenko. (Credit: James Brooke)

Photo: With fake blood spattering the entrance of the VTB bank branch at Taras Shevchenko on Feb. 3, a nationalist leader, exhorted 30 youth protesters to march on a nearby branch of Sberbank, the largest Russian bank operating in Ukraine. (Credit: James Brooke)

Bottom Photo: Nationalists protested Feb. 1 in front of the VTB bank branch on Taras Shevechenko Boulevard, central Kyiv (Credit: James Brooke)

Posted Feb. 9, 2017

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