Ukraine's banking system is a bottomless pit - Business Insider
London - Kyiv, March 26 (PolitNavigator, Vasily Ablyazimov) - This year, 12 Ukrainian banks lost their licenses, and 14 were introduced into temporary administration, reports Business Insider. It comes after the collapse of President Viktor Yanukovych's government last year and the outbreak of civil war in the country's east, pushing Ukraine into a deep recession.
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The publication cites the depreciation of the hryvnia as the main reason for the deep instability of the Ukrainian banking system: “In February, the Ukrainian currency fell by 30%, reaching a record low level against the dollar. The country's central bank canceled foreign exchange auctions and raised its key interest rate from 14% to 19,5%. The main problem that banks face in Ukraine is that most of their debts are in foreign currency, while their income is in the national currency. In other words, the debts of Ukraine's banks have become much heavier over the past couple of months, and the banks are fighting to stay afloat.
The average regulatory capital adequacy ratio (the buffer that banks must hold to protect depositors from potential shocks) at Ukrainian banks fell below the regulatory minimum of 10% in February.
The publication reports that a likely solution to attempts to stabilize the banking system may be the recapitalization of Ukrainian banks at the expense of private foreign capital. “But how the Ukrainian state is going to entice private capital to finance this recapitalization, given its precarious position and uncertain economic prospects, is still an open question,” the publication writes. “Furthermore, recapitalization is not possible as the government faces the need to renegotiate with its international partners public debt repayment obligations this year.”
In this case, writes the business publication, the country’s financial system can rather be compared to a “bottomless pit.”
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