Millionaire from the NBU. How Parliament Bargains Over Smoliy

Millionaire from the NBU. How Parliament Bargains Over Smoliy

Who Gontareva Is Leaving in Her Place

In mid-January President Petro Poroshenko finally decided on a candidate for head of the National Bank. The head of state proposed the acting NBU chief Yakiv Smoliy for the position. Rumors that Valeria Gontareva would be replaced by Smoliy had been circulating for months. But the president kept the suspense for a long time, while the expert community tirelessly considered all the likely contenders.

Currently Yakiv Smoliy is visiting factions to persuade them to support him. According to Hlavkom, as of the middle of this week there are not enough votes in the Verkhovna Rada for this appointment. While deputies are grilling Gontareva’s likely successor with questions, real bargaining over the position is taking place at other levels of power...

Prerequisites for the Vote

Before considering Smoliy’s candidacy, deputies of the Verkhovna Rada must also vote to dismiss the current head of the NBU, Valeria Gontareva. As is known, since May last year she has been on unpaid leave, and she submitted her resignation back in April. However, Parliament could not consider it because the president had not submitted the relevant documents to the Rada. As a result: the National Bank chair’s seat remains vacant for the 10 month…

How It All Began

A few months ago several candidacies for head of the NBU were actively discussed in back rooms and among experts. They included the current chairman of Raiffeisen Bank Aval, Volodymyr Lavrenchuk, and the chairman of UkrSibbank, Oleksandr Hrytsenko. More exotic names mentioned were Arseniy Yatsenyuk, Viktor Yushchenko and even Leszek Balcerowicz (electing a foreigner to the NBU runs up against a legal provision). In the end, Lavrenchuk and the NBU’s first deputy head Yakiv Smoliy—who became acting head when Gontareva went on leave—made the “final round.” But, as informed Hlavkom sources explained, the president’s team “threw” Lavrenchuk into the information field only to convince Western partners for a time that a well-known successful banker could head the regulator. In reality, Poroshenko did not want an independent person in such a responsible position. So there was no doubt that Poroshenko would submit Smoliy’s candidacy to Parliament. The only intrigue was when that would happen and what personnel consensus the leading coalition players would reach.

According to the media, the Narodnyi Front faction refused to vote for Smoliy unless it received the post of his deputy, or even two deputy posts. In a comment to Hlavkom, a Narodnyi Front MP who is a member of the parliamentary committee on financial policy and banking, Viktor Romanyuk, insisted he was hearing about such ultimatums for the first time. But the deputy admitted that negotiations have been going on for a long time.

This week they entered an active phase, but everything is being decided behind closed doors. Meanwhile Smoliy himself has been visiting factions to persuade deputies.

The first faction to invite the candidate to its meeting was the Radical Party of Oleh Liashko on 6 February. Smoliy predictably heard many emotional accusations (in places it really resembled a “beating…,” which Liashko himself soon wrote about). Concrete questions were also raised. Parliamentarians asked him to evaluate Gontareva’s policy of cleaning up the banking system, the radicals’ constitutional amendment draft to refine the NBU’s constitutional function. They also wanted to hear Smoliy’s strategy for developing state-owned banks and proposals for changing the monetary-credit system. Much attention was paid to the issue of raising the NBU’s policy rate.

“He has a backbone, he came and answered,” Liashko conceded. “We saw a professional, not weak, not timid person, but a person who will pursue the policy of the current authorities. And the policy of the current authorities does not correspond to national interests.”

The published decision — the radicals will not vote for Smoliy.

According to Hlavkom, the Opposition Bloc also decided not to support this candidacy.

Today, 7 February, in the evening Smoliy’s briefing will be heard by the Samopomich faction, Hlavkom was told by Oleh Bereziuk. Until then its members are refraining from comment.

Batkivshchyna is also hesitating about when to invite the candidate. They are not sure whether it is worth spending time on such talks. “I can’t say that I have a lot of questions for him,” Aliona Shkrum confesses to Hlavkom. “He has been working all this time. And is it worth inviting him just to point out all his 25 thousand mistakes? There is no formal decision in the faction — we will discuss it when it is on the agenda.”

The Narodnyi Front faction has not discussed the appointment either. “We have not invited him yet, but Smoliy’s candidacy is good. They say he is a decent specialist and apolitical,” Oleksandr Kirsh told the media.

BPP is likewise not in a hurry. They scheduled an interview with Smoliy for the next faction meeting on 26 February. Although the result here is, in principle, quite predictable. The president’s faction cannot vote against a candidate proposed by the president.

The vote for the head of the NBU is scheduled for the plenary week from 27 February to 2 March. Deputies have two weeks ahead that are free of sittings (a week of committee, commission and faction work and a week of work with constituents). And, as experience shows, during such an interval the alignments can change significantly.

Millionaire from the NBU

Smoliy has worked at the NBU since April 2014, and since October 2016 he has been the first deputy head. His responsibilities include developing NBU policy on information infrastructure development, regulating payment systems and cashless payments. In March 2015 he joined the Interagency working group coordinating the return to Ukraine of funds illicitly obtained by former officials.

Before working at the NBU Smoliy spent 23 years in the financial sector. Since 1991 he worked in the NBU’s management in the Ternopil region. In 1994 he was employed at Aval Bank, where he later became a shareholder and deputy chairman of the board. In 2005 the bank was acquired by the Austrian Raiffeisen Group. At that time Smoliy became one of the founders of Prestige Bank, which in July 2006 was acquired by the Austrian Erste Bank. After selling his shares in the bank, Smoliy became director for banking business at Prestizh-Group, which included banking, insurance, exchange and dairy businesses.

Smoliy is a millionaire. He received his first large capital from the sale of a minority stake in Aval Bank to the Austrian Raiffeisen group in October 2005. In 2016 he reported total income of almost 18,6 million UAH. The amount of his pre-tax NBU salary and military levy was 1,8 million UAH. The largest part of his total income consisted of interest on deposits amounting to almost 7,3 million UAH.

At the end of 2016 year, Smoliy had the following on his deposit accounts:

PJSC Ukreximbank — over $3,9 million;

JSC Delta Bank — over 5,9 million UAH;

JSC UkrSibbank — 345 thousand UAH;

PJSC Raiffeisen Bank Aval — 114 thousand UAH and $4,5 thousand.

Smoliy’s wife is not poor either. Her total income for 2016 year amounted to 2,5 million UAH, of which salary was 371 thousand UAH. Last year she received dividends of 723 thousand UAH, as well as interest on deposits of about 970 thousand UAH. On her deposit accounts at the end of 2016 year she held: at PJSC Ukreximbank — 5,2 million UAH and $35 thousand, at PJSC Raiffeisen Bank Aval — almost 116 thousand UAH.

Smoliy’s Tenants

The official’s e-declaration for 2016 year also shows that he receives income from renting real estate to banks. In the last declaration year Smoliy received over 3 million from such activity. Among the tenants are a number of commercial banks: Pravex-Bank (Intesa Sanpaolo, Italy), Credit Europe Bank (Credit Europe Group, Netherlands), Raiffeisen Bank Aval (Raiffeisen Bank International AG, Austria), Pravex-Bank (Intesa Sanpaolo S.p.A, Italy), Fidobank.

Smoliy also rents property to Dnipro-based PJSC KSG. This concerns an office space in Dnipro at 10b Mechnikov Street. Another company that provides Smoliy rental income is Etalon Asset Management LLC. A share of that company is also registered to Smoliy’s wife Svitlana.

Other firms listed as tenants of Smoliy’s property include:

Medichnyi Tsentr Sviatoi Paraskevy LLC — of which Yakiv Smoliy was previously a co-founder; today it is registered to the Cypriot offshore “Saint Paraskeva Medical Holding Limited.”

PJSC Prestizh Group, of which Svitlana Smoliy is a shareholder. The group is controlled by Fedir Shpyh (25%) and Oleksandr Derkach (15%).

PJSC SK Etalon Polis, controlled by Dmytro Voloshko, son of one of Smoliy’s main business partners, Ivan Voloshko.

What Did Smoliy Promise?

Experts agree that appointing Smoliy head of the NBU would be a positive signal for Western creditors, but it would not change the National Bank’s overall economic course.

Smoliy himself, expressing hope that he will receive enough votes, has already stated that his appointment will not lead to major personnel changes in the NBU’s leadership. “We will have one vacancy for a deputy responsible for the payments and cash circulation block. The candidate will be selected through a competitive process,” he assured.

He also indicated he may lift the mandatory sale of foreign currency earnings this year. “We plan to cancel this provision, since it is a limiting factor for exporters… I think we will achieve this this year,” he said during his meeting with Liashko’s faction.

Smoliy also said the NBU expects inflation to fall in 2019 year. He outlined the main steps the National Bank will take if he is appointed head. “The main steps that will be taken after election are — to achieve a stable financial system, maintain a transparent banking system, achieve a low level of inflation. In the long term — the Cashless project — increasing the share of cashless payments. And the plans that are currently in the program to reform the financial sector by 2020,” he said.

He also added that Gontareva has made major contributions to Ukraine. “She did enormous work in establishing a new banking system, and her main merit is that approaches to banking regulation, exchange-rate formation, and inflation targeting were changed,” Smoliy said, emphasizing that the current NBU head is ready to report on her work as soon as the relevant issue is submitted to Parliament.

Expectations of the Banking Sector

“The Policy Built by Gontareva Must Be Preserved”

Yehor Perelyhin, first deputy chairman of Alpari Bank’s management board

The market expected Smoliy’s appointment. The political establishment was ready for it. And for the banking sector this is quite a positive event. Finally there will be a head of the NBU. After all, the IMF needs someone to negotiate with. That’s the first thing. Second, it will be easier for the banking sector and private banks themselves to communicate with the regulator. Smoliy is an experienced expert with extensive professional experience. He understands the system, the structure, the market. For us the appointment is positive. Work should pick up for the better.

But whoever becomes head of the NBU, the course taken by the current NBU leadership will continue. Essentially the policy built by Gontareva and her deputies should be preserved. This policy was developed in agreement with our key international partners, such as the World Bank, IMF, EU and the US. And if Ukraine wants to continue relying on macro-financial assistance from these partners, the new head of the NBU will have to seriously maintain the course that has been taken.

The main task of the NBU head is to maintain and continue stable cooperation with the IMF. In the period from 2018 to 2020 Ukraine may have to pay almost $20 billion in debt. So the new NBU head inherits a program that must be implemented to ensure stability in the country. And, of course, reforms and the course toward stability, which has finally more or less emerged, will need to continue.

“Relations Between Bankers and the NBU Will Improve”

Vitalii Shapran, member of the executive committee of the Ukrainian Society of Financial Analysts

Smoliy is a person who has long worked in the banking sector. Recent NBU board decisions made collegially (referring to the policy rate increase — Hlavkom) nevertheless showed he is capable of acting independently, fairly autonomously. He has also spent a considerable time at the National Bank performing the duties of the head. He understands bankers’ needs well, so relations between bankers and the National Bank will most likely improve.

“Bankers Support Smoliy’s Candidacy”

Roman Shpek, chairman of the Independent Association of Ukrainian Banks

We (the banking sector — Hlavkom) agree with and support Smoliy’s candidacy for head of the NBU. He is a professional who knows the job, who worked in difficult times during reforms in the banking sector. He showed both decisiveness and understanding of priorities. Overall, bankers support the candidacy because they know Smoliy well.

I would not say that, now as acting head, his hands are tied. He is doing what he must do. But investors, creditors, analysts and rating agencies that look at Ukraine are not used to the NBU being without a head for so long. And inside the NBU people would very much like to have answers to questions that remain in the air. So it is extremely important that our politicians do not play the acting-head game again and allow the NBU to get a permanent leader. This is important for continuing reforms in the country, for solving issues related to restoring lending, protecting property rights. It is important for talks with creditors and the International Monetary Fund. And, given that the government wants to go to the borrowing markets, it is also important for investors we want to attract to invest in securities. It is very important now to understand that the National Bank has been formed, despite the political challenges we face next year — the presidential and parliamentary elections.

Author: Kateryna Peshko