Banking sector reform is widely regarded as one of the cornerstones
of the current efforts to rebuild the Ukrainian economy along European
lines. The task which the country’s banking sector leaders currently
face is genuinely Herculean in nature, with a severely devalued
currency complicating the process of reversing decades of financial
mismanagement. Ukraine’s ability to adopt and adapt international
standards to local needs will have an important role to play in this reform
process, with international banks operating in Ukraine serving
as on-the-spot advisers to assist the process.
ING Bank’s Ukraine Country Head Erik Versavel serves as the Chairman
of the Forum for Leading International Financial Institutions
(FLIFI), which brings together representatives of international banks
present in Ukraine in a bid to engage in dialogue with the Ukrainian
authorities and implement best international practices of management
and supervision for the Ukrainian financial market. He spoke to
Business Ukraine magazine about the challenges the Ukrainian banking
sector faces and explained why recent measures implemented by
the National Bank of Ukraine are cause for cautious optimism.
What role do you see international expert groups like FLIFI playing
in the process of reforming the Ukrainian banking sector?
It’s very important to understand that foreign banks cannot operate
without local banks. We need a strong local banking sector
which can contribute to a sense of trust in the financial system. FLIFI
tries to share best international practice and advise the central
bank and the government. It is not always easy because we are often
faced by Ukraine’s default bureaucratic or regulatory approach.
In broad terms, we think there needs to be a clear vision and a
roadmap of where the authorities want to see the country and the
country’s financial system going. At the moment we are still at the
Does your interaction with government officials leave you with the impression that there is sufficient political will to create a fully-functioning European banking system in Ukraine?
It is always dificult in Ukraine to distinguish between genuine intent
and verbal support. What I can say is that we have been pleased so
far with the efforts to clean up the Ukrainian banking sector, which
is largely the work of the new management of the National Bank of
Ukraine. This is a very dificult job and it will remain a difficult job
for quite a long time to come.
The Ukrainian authorities have already significantly reduced
the number of banks operating in the Ukrainian banking sector.
Have they gone far enough or should we expect further closures?
I cannot speak for the NBU, but from the point of view of FLIFI and
ING, we are pleased to note that after so many years without any
reforms, we are now seeing action being taken. We fully support the
management of the NBU in this gigantic task. It is not possible to
undo more than 20 years of financial mismanagement in the banking
sector in the space of six months. It is much more complicated
than that. From a supervisory perspective, we have no doubt that
the NBU’s efforts are focused in the right direction. The dilemma
the NBU faces is how to address systematic problems in the banking
system without damaging the Ukrainian economy.
Your professional background includes experience in the banking
sectors of the ‘tiger economies’ of South East Asia. Are there
any lessons from this region which you feel are particularly applicable
to today’s Ukraine?
Not all Asian countries are the same and not all Asian economies
have been successful, so I don’t think we can talk in general terms
about an ‘Asian model’. I believe each country needs to develop its
own model, and this applies to Ukraine as well. At present there is an
absence of a vision. Instead we currently see a focus on regulations
and paperwork, which doesn’t get you anywhere. In most Asian
countries, government officials and also many ordinary people in
the street can tell you their country’s economic vision and competitive
strategy. Here in Ukraine we see an absence of goals, with people
just muddling through. That is the key difference. Ukraine needs
to decide where it wants to be and where its competitive strengths
lie, and then it needs to build on that and do everything possible to
reach these goals. People here always talk about Ukraine’s potential
without saying exactly what this means in terms of the country’s
competitive position or its strengths and weaknesses. We’re basically
talking about non-delivery. It is unfortunate but inevitable that
in the absence of a vision or a roadmap for Ukraine, the competitive
position of the country has further deteriorated. Even the currency
devaluation has failed to improve Ukraine’s competitiveness.
The Netherlands has one of the world’s oldest banking traditions.
What support can Dutch banks like ING provide to Ukraine
during the current transition period?
One of the key roles ING has to play is in developing people. We
have a reputation for building and developing talents in the market
who are capable of taking on senior roles in the country, both
within the banking sector and beyond. We try to move people away
from a reliance on bureaucracy and encourage them to be independent
How have the developments of the past year impacted on ING’s
strategy for the Ukrainian market?
ING has been in Ukraine since 1994. Obviously we are concerned
about the financial and economic condition of the country, but our
business model and strategy are clear and can survive the current
crisis. Actually I hesitate to use the term ‘crisis’. If you view the current
situation as a crisis, then you are going to have problems. If you
look at it as a permanent state of development with periods of greater
and lesser success, then you can adjust your business model to the
state of development without taking very significant measures when
the country experiences deeper problems. If you talk about a ‘crisis’,
you are effectively shifting responsibility for what is happening to
the outside world. This is a very typical situation in Ukraine. Blaming
outside factors allows people to deny ownership of the problem,
instead of focusing on the fundamental problems which exist domestically
where people can actually make a difference.
To what extent does the success of the Ukrainian banking sector depend on the stability of the nation’s hryvnia currency?
A healthy financial system has instruments and checks and balances
in place to manage currency fluctuations, so exchange rate changes
should not be a major problem. It only becomes a problem if there
are no financial instruments in place to manage these fluctuations.
The gradual depreciation of a currency is to be expected in developing
countries, and this process will inevitably lead to financial crises
from time to time if exchange rates are not allowed to adjust – especially
in highly dollarized countries which finance their development
with an influx of foreign currencies. The new NBU management
faced an impossible task in June 2014; they were confronted by financial
distress which had accumulated over more than two decades
and had insufficient political independence which exasperated the
problems they faced. This is why we are where we are today. The
actions of the central bank and of individual banks now need to be
geared towards building trust. This sense of trust can be very difficult
to define or quantify, except when it is absent and people no
longer trust the banking system. I think we are currently seeing actions
which are slowly tipping the balance back towards a restoration
of trust. More and more small steps are being taken to rebuild
trust rather than erode trust, so we are confident that the situation
will continue to stabilize.
What do you see as the next steps along the road to reform?
FLIFI believes that it is urgent to start talking about how to develop
the economy rather than shrink it. We have formulated some core
areas to try and contribute to this debate. First of all, there is no
escaping the fact that a country needs an independent court system
able to implement justice and, in financial terms, provide protection
for creditors. Secondly, we need to encourage import and
export trade, and try to ensure that we get export credit agencies
to insure commercial and political risk. Foreign banks and foreign
governments can both help this debate develop and can contribute
to the sustainable economic development of the country.