Which Banks Will Win and Which Will Lose If Yatsenyuk Leads the NBU

What banks will gain and which will lose if Yatsenyuk heads the National Bank of Ukraine (NBU)

For some banks, the arrival of Arseniy Yatsenyuk at the NBU instead of Valeria Hontareva is a chance, at a minimum, not to lose the loyalty that the current leadership of the National Bank already demonstrates today. For some financial institutions—it's a chance to strengthen their positions (across various parameters). And for others, it will be a challenge.

Among those financial institutions that would welcome A. Yatsenyuk's appointment as head of the NBU are, in particular, two large banks that are in, let's say, an “unsatisfactory” financial condition and therefore very dependent on the regulator's will.

We are talking, first of all, about Diamond Bank, whose owners officially include a person close to Arseniy Yatsenyuk (and to some extent politically “toxic” due to the NABU investigation) — former MP Mykola Martynenko. The plus for Diamond Bank is that with a different successor to V. Gontareva than A. Yatsenyuk, the NBU might pay more attention to the bank’s program of capital replenishment and raise questions—such as regarding the source of funds that may be injected into the bank’s capital, or collateral provision for loans. If, however, the conflict of M. Martynenko with his partner — not only in banking but also in other businesses — David Zhvania — flares up with renewed strength and conditions arise under which one refinancing by the NBU will not be enough to extinguish the “fire.”

At least with restrained optimism, PrivatBank could welcome Yatsenyuk’s appointment as head of the NBU, given its financial indicators and, accordingly, the regulator's favorable stance. As is known, the owner of this bank, Viktor Pinchuk, is also on good terms with Arseniy P. (even back in 2011, Yatsenyuk publicly said that Pinchuk, apparently, is not an oligarch). Same with the President (which helps the bank “Credit Dnipro” interact comfortably with the NBU even under V. Gontareva).

PUMB of Rinat Akhmetov can also breathe a sigh of relief, as he also has good, diplomatic ties with A. Yatsenyuk (and recently with Petro Poroshenko). Perhaps, even too good.

A separate large story is PrivatBank. The bank is currently led by Oleksandr Shlapak, who was Finance Minister in the first government of A. Yatsenyuk. Moreover, in 2014, when Yatsenyuk was acting head of the NBU (instead of Tygypko, who then headed Yanukovych’s pre-election staff), one of his deputies was Shlapak. But the more important thing is the well-known significant influence of the former PrivatBank shareholder, Ihor Kolomoyskyi, on A. Yatsenyuk.

This increases the risk that the restructuring of PrivatBank’s loans previously issued to insiders (160 billion UAH) will be carried out on terms not favorable to the state, reinforcing the perception that nationalizing PrivatBank was the most profitable financial operation in I. Kolomoyskyi’s life and that of his partners. And under a new NBU leadership, the regulator could also, for instance, effectively challenge the bailout operation, aligning with various former bank shareholders or related structures.

Oschadbank would definitely welcome Yatsenyuk’s appointment as head of the NBU. Indeed, primarily, the bank’s chairman of the board is a close ally of A. Yatsenyuk, Andriy Pyshny. However, the recent occasional distancing of A. Pyshny from the People’s Front could backfire. There is a risk that Oschadbank could expect not just loyalty but additional incentives from the probable new NBU head to restructure the debts of the agricultural group “Creative” as soft as possible. And there, if anything, the NBU would spend hundreds of pages arguing to the government why the Finance Ministry should inject further billions into Oschadbank’s capital via government bonds (i.e., through increasing state debt). That would allow, among other things, to loan money to the businesses of current and potential sponsors of the People’s Front with a more “peaceful” mindset...

And which banks would lose if A. Yatsenyuk heads the NBU?

Given Arseniy Petrovych’s presidential ambitions, primarily the subsidiaries of Russian state banks (Prominvestbank, VTB Bank, Sberbank). Obviously, to gain electoral points, he might use a tougher tactic and rhetoric toward them than V. Hontarjeva. In practice, this could push banks with Russian state capital to more actively “pull back” from the Ukrainian market. At the same time, it is not certain this would be a one-sided game. Not only to minimize market instability. Russian banks might find an approach to A. Yatsenyuk. For example, through the former head of VTB Bank, Vadym Pushkarov, who headed banking supervision at the NBU when A. Yatsenyuk was acting head of the National Bank and who is a friend of O. Shlapak.

Given the current active “unlove” between the People’s Front and Dmytro Firtash, banks with Ivan Fursin among shareholders — Misto-Bank and Clearing House — could face trouble. This concerns both capital replenishment to form reserves and issued insider loans. In the context of D. Firtash, the NBU under new leadership could take a more proactive stance on prosecuting by law enforcement agencies questionable operations at Nadra Bank (including possible abuse of refinancing funds), in which, among others, D. Firtash himself appeared, as well as in the sale of the development process of the Republic mall.

A. Yatsenyuk’s political ambitions could have an ambiguous impact on TascomBank and Universal Bank, which are controlled by Serhiy Tihipko. The leader of the People’s Front could well see in him a future political opponent (considering, among other things, Tihipko’s third-place finish in the presidential election in 2010 year, which, however, was erased by the subsequent not-so-successful vice premiership and pension reform during Yanukovych's time).

Paradoxically perhaps, but the initiative to appoint Arseniy Yatsenyuk as head of the NBU could play a nasty joke on Petro Poroshenko. Gaining access to a larger volume of information about the work of the International Investment Bank, Arseniy Petrovych could use it in the upcoming political struggle with Petro Oleksiyovych (which seems inevitable given last year’s coalition tensions and considering the presidents ambitions of these two people in the horizon after 2019 year).

The same can be said about Ukrseximbank, which today lies in the President’s sphere of influence.

It may not be cheerful for the “dynamic” bank Avangard, which belongs to the ICU group, whose co-owner before the appointment of the NBU head was V. Hontareva.

It is possible that, becoming NBU head, A. Yatsenyuk will try to extend his influence to the sweet morsel of the Deposit Guarantee Fund, headed by the President’s man, Kostyantyn Vorushylin. This means we could witness not only new legal battles already ongoing between the NBU and the FDVFO (State Guarantee Fund), but also hear a lot of interesting (official and unofficial) about the “internal kitchen” of the Guarantee Fund, which has accumulated assets of hundreds of billions of hryvnias.

Compared with Valeriya Oleksiivna, Arseniy Petrovych is considered a more flexible negotiator, more capable of compromise, as journalistic investigations and NABU criminal cases against his associates have shown (not always in the nation’s favour).

At the same time, like Valeria Hontariva, he has a trait that many perceive as excessive conviction in his own right and a superior attitude toward alternative views.

Moreover, both V. Hontareva and A. Yatsenyuk show particular sensitivity to IMF wishes.

Plus for A. Yatsenyuk is that V. Hontareva did a lot of “dirty” work in the banking system—with a number of excesses, flaws, and sometimes downright dubious episodes (including Delta Bank, Finance and Credit, Nadra, Platinum Bank, Mykhailivska), the clear emphasis of which should have been set by law enforcement agencies, but overall it was important and useful work for cleaning the system. Yet the “final point” is still far away. For example, although many shady banks were removed from the market, a large part of the questionable operations moved to relatively decent banks outside the system… So, one can say this is an objective acknowledgment of economic realities, that all problems cannot be solved by one NBU, etc., but the fact remains.

Perhaps the main citizen complaint about V. Hontareva is the depreciation of the hryvnia. Obviously, criticism of the current NBU head isn’t always fair. But even considering a dozen objective unfavorable factors that pushed the hryvnia down (Russia’s military aggression against Ukraine; a drop in world commodity prices Ukraine exports; macroeconomic imbalances accumulated in the Ukrainian economy by 2014 year, etc.), it seems the NBU’s line of conduct was not optimal, which, so to speak, broadened the range of fluctuations on the currency and complicated stabilization at less critical values.

Two interlinked episodes can be recalled. First, in the autumn of 2014 year, before parliamentary elections, the NBU spent reserves by nearly 1 billion dollars for political reasons, which was economically quite dubious. Second, in winter-spring of 2015 year, every dollar literally was worth its weight in gold; foreign exchange reserves were not enough. The then slowed response of the NBU (in the form of administrative restrictions) worsened the situation, requiring rapid, decisive actions to curb panic, but only fueled it.

This is a subjective opinion and in no way claims to be the ultimate truth.

But none of this means that A. Yatsenyuk will have an easy time at the NBU if he accepts the President’s offer. It’s not only about finishing many processes and giving momentum to new (not just declarative) changes. It’s also about the looming risk of renewed military aggression from the Kremlin within the coming years.

Due to too-slow reforms, failures in fighting corruption, and the need to make substantial payments on external debt ahead of elections (early/regular parliamentary/presidential), the usual word “default” could reappear. Unpleasant, because it ties to exchange-rate and inflation dynamics that hit the wallets and lives of the majority of Ukrainians. The deadline is known. 2019 year. There is little time for real change.

Finbalance