By September 1, according to National Bank data, the growth of the banking system's loan portfolio was 24.8% (UAH 18.2 billion), whereas for the analogous period last year growth of 31.2% was recorded. The figures cited do not fully reflect the real state of affairs. Recently, banks have noticeably cooled toward lending to the economy. For example, in July credit investments decreased by 0.1%. Loans in hryvnia shrank especially noticeably — by 1.4%. According to bankers' own estimates, they satisfy only 50–60% of loan applications.
What the National Bank had been seeking since the beginning of the year has come to pass. Recall that it saw a serious threat in the intensive buildup of loan portfolios by its charges, and NBU acting head Arseniy Yatsenyuk (at that time he was first deputy head) promised to make maximum efforts to knock the lending zeal out of commercial banks.
Surprises from the National Bank
The NBU is acting quite firmly and consistently, using both administrative pressure in the form of telegrams with recommendations and various regulatory levers of influence. The main thing that prompted bankers to reduce lending rates was the spring increase in the capital adequacy ratio from 8 to 10% and the autumn tightening of reserve requirements with the simultaneous transfer of banks to daily reserving.
Whereas previously banks had to meet the mandatory reserve requirement only once a month, transferring the necessary amounts to correspondent accounts, now a requirement for a daily non-reducible balance has been introduced. Since the end of August it was raised from 60 to 70% of the amount of mandatory reserves for the previous reporting reserve period. Thus banks must constantly keep a considerable sum in NBU accounts without earning any profit from this money.
From October 1, the National Bank established new unified mandatory reserve requirements for its charges on funds raised. The NBU explains the change in reserve rules by the fact that banks often resort to all sorts of tricks, manipulating the terms of placing money in their accounts in order to "freeze" as little funds as possible. "We did not tighten, but on the contrary, we carried out a liberalization in this part: there is no longer a 12% reserve norm, it has been changed to 7 and 8%. Another thing is that banks will not be able to deceive us by understating the volumes of reserving. According to our calculations, across the system as a whole, UAH 500–800 million more will be reserved than before, that is, approximately 8% more. This is what was previously hidden by banks," commented NBU acting head A. Yatsenyuk on the innovation. According to NBU data, in September balances in bank accounts stood at UAH 8–9 billion. According to bankers' own estimates, this month UAH 1 billion to 1.5 billion will actually be withdrawn from the banking system. This will inevitably lead to a rise in the cost of interbank resources and an increase in loan rates. All this may worsen the financial position of most large and small banks.
The main thing forcing the NBU to take such unpopular steps is the inflation level this year. That it will significantly exceed the indicators forecast by the government no longer raises doubts in anyone. However, even the National Bank does not venture to predict the real inflation level. Evidently, it will be in the range of 8–10% and depends seriously on how much money flows into the country's monetary system by the end of the year. And it is easier for the NBU to control money if it is in banks rather than in people's hands.
On the other hand, the National Bank never ceases to emphasize that currently an excess of liquidity is observed in the banking system. Money is not working, is not being invested in the economy, and therefore, instead of profit, it may bring the banking system considerable trouble. The NBU intends to solve this problem by selling its deposit certificates. Arseniy Yatsenyuk forecasts the system's liquidity at the end of December within UAH 10–12 billion, of which about UAH 3 billion the NBU intends to "sterilize" by selling deposit certificates. However, excess liquidity will persist until the end of the year, since UAH 7–9 billion will still remain in banks' correspondent accounts.
The tightening of NBU requirements proceeds smoothly only against the backdrop of an excess of money in banks, but with the slightest deficit it threatens liquidity problems for many individual banks.
Stability of the hryvnia spoiled bankers' business
According to bankers, business has been spoiled over the past three years. The NBU demanded that banks lower loan rates, and besides, they competed with each other. As a result, over three years loan rates fell by half, and deposit rates by one and a half times. The banking system has turned into a vacuum cleaner, where a large part of income is pumped out into clients' deposits.
The stability of the national currency, strange as it may seem, also does not promote the development of banking business. Three years ago the population brought 90% of money in dollars, while consumer lending was carried out in hryvnia. Today it is the opposite — 80% it gives in hryvnia and borrows in dollars.
Currently the rates for attracting funds in hryvnia differ from dollar loan rates by some 4–5%. It is precisely with this spread that most banks have to work. Our bankers are not accustomed to such low profitability. It is necessary to seriously lower rates on hryvnia deposits so that everything can be converted into hryvnia. However, one cannot simply take and sharply lower rates. This will lead to a sharp reduction in the inflow of money. But banks are moving in precisely this direction.
Having frightened bankers with a ban on issuing foreign-currency mortgage loans, the National Bank decided, instead of restricting lending in foreign currency, to stimulate bank lending in hryvnia. NBU acting head Arseniy Yatsenyuk reported that the central bank "sent to the Ministry of Justice a resolution agreed with the banks. This is no longer the three-hundredth, but the four-hundred-eleventh resolution on streamlining the formation by banks of reserves for active operations. We went from the opposite. Not by worsening the conditions of lending in foreign currency, but by improving lending in the national one." The document provides for some liberalization of reserving for hryvnia loans while the conditions for reserving for foreign-currency loans remain unchanged. Whereas currently when calculating the reserve, 50% of the amount of mortgage collateral is taken into account in both national and foreign currency, after this resolution comes into force, 70% of the collateral amount will be taken into account in national currency, and in foreign currency — at the former level (50%). The entry into force of this resolution should, according to the NBU's design, lead to both de-dollarization and improvement of mortgage lending. "Foreign-currency loans may rise in price to the level of hryvnia ones," agrees Tetyana Yastremska, adviser to the credit department for credit business development at Nadra Bank.
And indeed — according to NBU data, since the beginning of the year the rate on banks' foreign-currency loans has risen by 1.8 percentage points (to 13%), while on hryvnia loans it has fallen by 0.7 percentage points (to 17%). The difference is only 4%!
Brakes of policy
In September some growth in banks' credit activity was observed compared with the summer lull. According to bankers, the growth of banks' loan portfolio in September was connected with the activity of grain traders and entities related to agriculture.
However, the general trend persists. Banks, as before, have a lot of money, which they part with ever more reluctantly and ever more selectively. And loan rates continue their unbridled growth. After all, bankers are first and foremost businessmen; they do not want to lend money at a price lower than what they are prepared to pay for it.
The head of the NBU board, and concurrently the head of Viktor Yanukovych's election headquarters, is concerned first and foremost with the stability of the hryvnia and curbing ever-growing inflation. Price stability on the eve of the elections must be achieved at any cost, even at the cost of slowing the growth of the country's banking system.