Reform of the financial sector: from resolving the problems of the past to the development of financial markets of tomorrow
Today the National Bank of Ukraine presented the results of reforms of the Ukrainian financial sector in 2014 - 2016. Starting from 2014 the NBU efforts focused on three main areas: internal transformation of the central bank, banking sector reform and financial sector development. The Comprehensive Program of Ukrainian Financial Sector Development Until 2020 is the basis for development, changes and transformation.
"Reform of the NBU and the financial sector, which was launched after the Revolution of Dignity and with the new team starting its work at the central bank, aims to achieve the EU standards and requirements for the development of the financial sector. To achieve this, we focused our efforts on three main components - ensuring financial stability, building up institutional capacity of regulators, consumer and investor rights protection," stressed NBU Deputy Governor Vladyslav Rashkovan opening the press conference on the results of two years of reforms.
A trigger to the financial sector reform was the signing of the Association Agreement with the European Union. The choice of the European development model and building up a financial sector capable of ensuring sustainable development and market competitive environment required a systemic resolution of accumulated problems, major among which were the rapid growth of share of distressed assets in banks’ balance sheets, considerable outflow of deposits, high dollarization of loans and deposits, insufficient amount of equity and regulatory capital of banks etc.
“After adoption of the Comprehensive Program of Ukrainian Financial Sector Development Until 2020, the National Reforms Council entrusted the NBU with a very important mission - to take a lead in the financial sector reform. We are the driving force of this process and we can confidently say that the reform of the financial sector is the most successful, broad-scale and multidimensional in Ukraine. The NBU is fully committed to the implementation of the Comprehensive Program of Ukrainian Financial Sector Development Until 2020. Major work has already been done for implementation of over 40 reform projects. We are active in building up the NBU’s institutional capacity and independence, resolving the accumulated problems of the past in the banking sector, creating a solid foundation towards a stable and flexible financial system," the NBU Deputy Governor Vladyslav Rashkovan said.
It is no exaggeration to say that the NBU is one of the country’s leaders in promoting change, according to Vladyslav Rashkovan. This has become possible due to four factors. First, it is the vision of future changes; second, it is the belief that the vision will be implemented; third, it is the implementation of projects to reform the financial and banking sectors based on the project management system; forth, it is the shared values that help us move in one direction and achieve our goals. “It is the teamwork that enables us to keep going with confidence,” he said.
The NBU together with the banking system and the economy of Ukraine passed the "perfect storm" in 2014 - 2015, however the measures taken to stabilize the macroeconomic situation helped us overcome the crisis tendencies and start reloading of the banking and financial sector in general.
Thus, the main efforts of the regulator were the following:
in 2014:
- macrostabilization;
- removal of problem institutions from the market;
- Households Deposit Guarantee System;
- responsibility of banks’ owners;
- flexible exchange rate;
in 2015:
- the internal transformation of the NBU;
- asset quality analysis and stress testing;
- related parties;
- transparent participation in the bank’s capital;
- term deposits;
- independence of the NBU and a new team;
- AML;
- IFRS implementation;
- new procedure for credit risk assessment.
The following priority tasks for the financial sector reforms were defined:
- inflation targeting;
- foreign exchange liberalization;
- new supervision;
- banks consolidation;
- cashless economy;
- PROSTIR payment system;
- resumption of lending and treatment of problem loans;
- financial literacy;
- corporate governance;
- split of regulatory duties;
- implementation of state-owned banks’ strategy.
In addition to summing up, a planned revision of the Comprehensive Program of Ukrainian Financial Sector Development Until 2020 was announced at the conference.
“Many projects of the Comprehensive Program of Ukrainian Financial Sector Development Until 2020 are actively implemented. However, in order to fit the Program for modern requirements and current challenges we should make a planned revision of our targets, projects and terms of their implementation. So, we call on all stakeholders to join this process,” said Vladyslav Rashkovan.
In addtition, he noted that further successful implementation of the Comprehensive Program requires not only the daily work of all the financial market participants but also support from the Verkhovna Rada of Ukraine.
“Today, there are more than 20 financial draft laws in the Verkhovna Rada of Ukraine; sometimes, some of them may wait for a year or longer to be read in the session hall. Of course, when developing the Comprehensive Program of Ukrainian Financial Sector Development Until 2020, such delays in providing the legal framework were not envisaged. The striking examples are draft segments of the Comprehensive Program A.11 on protection of creditors’ rights and A.18 on the insurance market development, whose deadlines have been already disregarded due to delays in approval of relevant regulations,” said Vladyslav Rashkovan. “Moreover, the so-called draft on split of functions of the National Commission for Regulation of Financial Services Markets between the National Bank of Ukraine and the National Securities and Stock Market Commission has not been approved yet by the Ukrainian Parliament.”
The press-conference presentation can be found by the link.
For reference
Comprehensive Program of Ukrainian Financial Sector Development Until 2020
On 15 May 2015 the National Reforms Council upheld and approved the Comprehensive Program of the Ukrainian Financial Sector Development Until 2020. The Program was approved by NBU Board Resolution No.391 of 18 June 2015, and by the respective decisions of other financial market regulators (decision of the National Securities and Stock Market Commission No.931 of 30 June 2015, and order of the State Commission for Regulation of Financial Services Markets No.1367 of 11 June 2015).
The Comprehensive Program is developed by the National Bank of Ukraine in cooperation with the National Securities and Stock Market Commission and the State Commission for Regulation of Financial Services Markets, representatives of the Ministry of Finance of Ukraine, the Deposit Guarantee Fund, professional associations (Independent Association of the Banks of Ukraine, Ukrainian Insurance Federation etc.), financial market experts, heads of MPs groups in the Verkhovna Rada of Ukraine).
Experts and scholars were also involved in the development of the Comprehensive Program and submitted their suggestions. Recommendations provided by the international financial advisory and donor organizations were also taken into account.
The Comprehensive Program meets the requirements of the Sustainable Development Strategy Ukraine 2020, the Association Agreement between Ukraine and the European Union, Memorandum of Cooperation with the International Monetary Fund, Agreement on coalition of parliamentary groups European Ukraine etc.
The main objective of the Comprehensive Program is to build a fully-fledged, efficient and effective financial market in Ukraine, develop all the market segments, build its infrastructure, and strengthen its resilience to external threats.
The Comprehensive Program includes strategic areas of the financial sector development, the main principles of the vision for the future stages of reform implementation.
The financial sector reform will ensure its functioning and development through creation of competitive environment in accordance with the EU standards. This will allow, through mobilization of the investment resources, to ensure sustainable economic development and while maintaining integrity of the financial market of Ukraine to integrate into the European financial environment.
The Comprehensive Program is implemented in three key areas:
A. - ensuring financial stability and dynamic development of the financial sector;
B. - development of institutional capacity of financial market regulators;
C. - protection of rights of financial market consumers and investors.
The Comprehensive Program includes in total over 40 projects implemented in accordance with the international principles of project management.
Thus, the Comprehensive Program implementation implies three stages:
Stage I - resolving problems of the past and the financial sector clean-up (2014-2016);
Stage II - setting the stage for the system development (2015 - 2017);
Stage III - implementation of measures for the development (2017 - 2020).