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Week’s balance: farewell to Bank Khreshchatyk, ban on Russian fuel, and strengthening of hryvnia

10:50, 10 April 2016
5 min. 600

The National Bank of Ukraine declared insolvent one of the capital’s oldest banks – Bank Khreschatyk; the Cabinet has launched the development of a mechanism of banning purchases of Russian fuel; the hryvnia has started its gradual strengthening – these are the main economic news of the past week.

Last week, the Netherlands hosted a referendum in which the Ukraine-EU Association Agreement was supported by only 38.1% of the voters, while over 60% of the Dutch people opposed it.

Apparently, now the Dutch elite will seek ways to take into account the mood of the people, at the same time trying to stick to the obligations within the European Union, especially since the majority of the European officials expressed disappointment with the outcome of the referendum.

What does this mean for Ukraine? Many experts agree that the Dutch referendum will not affect the economic part of the Agreement. The World Bank confirmed that the free trade area between Ukraine and the EU is already working, and no one is going to impose restrictions on this process.

German Chancellor Angela Merkel said that Ukraine’s path toward Western standards must be continuous. Thus, the referendum is unlikely to affect the lives of ordinary Ukrainians, but it is clearly an alarming bell for the country’s politicians – delayed reforms and the lack of results in fighting corruption can be dead weight to the state.

The effect of the Dutch referendum was amplified with the scandal over Panamanian offshore companies. It featured President Poroshenko, NBU Governor Gontareva and several Ukrainian businessmen.

Tax evasion is a global problem, which is what U.S. President Barack Obama said. But Ukraine, which is in dire need of investment and support from international financial institutions, just cannot afford emerging in corruption scandals. Managing Director of the International Monetary Fund Christine Lagarde was talking about it last week, adding that the fight against corruption should be a key element in the program of cooperation between the IMF and Ukraine.

Banking rumble

Surprisingly enough, some Ukrainian media reported on a possible resignation of the NBU chief, Valeriya Gontareva. The rumors were reasoned by information on Gontareva allegedly registering n offshore company for the president, while already in office, which means a conflict of interest. Therefore, as rumor had it, Gontareva wrote a letter of resignation.


The NBU denounced the rumors about Gontareva’s resignation, as well as the fact that the NBU Governor had been involved in the registration of offshore companies for Petro Poroshenko. Gontareva later commented on the situation with a bit of irony, saying that she will warn the public a month ahead if she decides to resign.

In addition, the head of the NBU last week was criticized for poor control activities over Bank Khreschatyk, one of Ukraine’s 20 largest financial institutions. The National Bank has issued a death sentence to this bank, declaring it insolvent.

But the claim to the controller may only be indirect - a major role played in this story of the bank's shareholders, among them - the Kyiv City State Administration.

According to Deputy Head of the NBU Kateryna Rozhkova, a number of enterprises, including utility companies, owned by the bank’s shareholders, have transferred their accounts to other banks, which led to a deterioration in liquidity of Bank Khreshchatyk. The NBU held talks with shareholders, but to no avail. Given that, as well as the violation of regulations on capital liquidity, the NBU has declared the bank insolvent, according to Rozhkova.

"We wanted to have enough support from shareholders. Unfortunately, this did not happen. With a great effort, we fought for the bank to the last," Chairman of the Board of Khreshchatyk Dmytro Hridzhuk said.

But unlike companies, other bank customers – thousands of retirees and workers of different areas – were unable to withdraw their money. Immediately after the NBU’s verdict, crowds have gathered in front of the Khreshchatyk’s branches.

Crowds near Khreshchatyk branches / Photo from UNIAN

The panic was relieved after the Individual Deposit Guarantee Fund vowed to pay contributions in full.

Advances in the financial sector

Despite the problems with the regulation of the banking system, the National Bank has achieved some success in stabilizing hryvnia exchange rate. Last week, the NBU has made an intervention, the largest since October last year, buying $147.5 million from banks. This fact shows that the currency supply in the market is growing, which means that the hryvnia is strengthening gradually. This is evident in the foreign exchange offices, where the dollar dropped by a hryvnia this week.

It is also the cause of the active sale of foreign currency could be the implementation of standards for capitalization of banks. "It is likely that one of the banks sold the currency to replenish the regulatory capital", - said director of the department operations in financial markets UniCreditBank Ekaterina Volodina.

In any case, with its interventions, the NBU fulfills its direct function of maintaining the national currency stability, preventing significant rate jumps.

The Finance Ministry has also excelled in fundraising over the last week. The ministry attracted to the state budget UAH 18.24 billion, a record since year start, by placing the hryvnia and foreign currency government bonds, for which demand has been high recently. This is not surprising as the leading rating agencies forecast growth of the Ukrainian economy this year by at least 1%, while the industry has already shown positive results in the first two months – the rise by more than 7%.

The State Statistics Service delivered some disappointing news though. According to the latest stats, Ukraine has recorded 1% inflation in March compared with the previous month, after a 0.4% deflation in February compared to January 2016. Electricity tariffs jumped most – by 25.2%, and that put pressure on the overall rate. In annual terms, the price of natural gas prices increased the most – by 3.7 times, electricity – 2 times, hot water and heating – by 77.5%.

Yatsenyuk’s Joker

Prime Minister Arseniy Yatsenyuk decided to return to the subject of sanctions against Russia. At a government meeting on Wednesday, he instructed the Ministry of Economic Development and Trade to develop a mechanism for banning the purchase of petroleum products from Russia.


According to experts, for Russian oil companies will experience “no shock,” because they are already half-dead, remaining under severe restrictions on the supply of diesel fuel to Ukraine, which Russia has imposed itself.

Now the Cabinet’s ban could lead to a virtual re-export of Russian diesel fuel through Belarus.

Many are inclined to think that the embargo will lead to higher prices for petroleum products.

In addition, Yatsenyuk raised another popular subject – import duty on used cars. He unexpectedly proposed to draft a bill to abolish the import duty on cars with mileage and submit it to the Verkhovna Rada in the near future.

The aggressor state was, of course, excluded: Yatsenyuk’s proposal does not concern vehicles of Russian origin.

Expansion of power grids

One of the most significant infrastructure projects has been implemented in Ukraine / Photo from UNIAN

Last week, the construction was wrapped up of a 750 kW Khmelnitsky NPP – substation Kyivska 129km-long power line by Ukrenergo in cooperation with the Croatian general contractor Dalekovod. This is - one of the country’s most important infrastructure projects.

According to Ukrenergo CEO Vsevolod Kovalchuk, the line will be connected by the beginning of this fall.

A 750 kW Rivne NPP - substation Kyivska power line completed in December will be connected by the end of the second quarter of this year.

Commissioning of the two high-voltage lines significantly increases the reliability of the Ukraine’s United Energy Grid, as well as provides an opportunity for Kyiv to double its power consumption.

"Kyiv is developing dynamically, and it is energy deficient. But the restrictions on electricity supplies will be removed after the two high-voltage lines are connected to the energy ring and the reconstruction is complete. This will give Kyiv an additional capacity of 1.5 MW," Kovalchuk said, adding that today, the capital of Ukraine consumes about the same amount of electricity.

So, one of Ukraine’s largest projects in recent decades for the construction of high-voltage lines, allowing power consumption to increase in Kiev, is approaching completion. This once again confirms the country's ability to confidently implement global infrastructure targets.

Vitaliy Chuiko (UNIAN)

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