Emergency moves to defend Ukraine banks - FT

10:25, 14 October 2008
Ukraine
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Ukraine’s central bank on Monday imposed emergency measures

Ukraine’s central bank on Monday imposed emergency measures to stabilise the country’s fragile banking sector, which has been shaken by declining confidence, a falling currency and a deepening political crisis, The Financial Times reported.

The National Bank of Ukraine (NBU) imposed a six-month freeze on the early withdrawal of deposits from commercial banks to prevent a run. It more than tripled its guarantee on deposits to $38,000 (?28,100, £22,350) and increased reserve requirements for banks.

The NBU’s deputy chief, Volodymyr Korotyuk, said the measures should “stabilise the situation within one month, possibly earlier”.

Tim Ash, an analyst at the Royal Bank of Scotland, said the measures came amid “increasing stress on the local banking system, concerns over political stability and [as difficulty in] external financing mounts”. In October some 4 per cent of deposits, or $3bn, was withdrawn from Ukrainian banks, he estimated.

The NBU has in recent days offered more than $1bn in emergency aid to thwart liquidity and solvency problems at a handful of banks. The biggest intervention came at Prominvestbank, the recipient of a $600m rescue package. The NBU also introduced state management at the bank, Ukraine’s sixth largest.

Nadra, the seventh biggest, on Monday confirmed it received a central bank loan of about $290m.

Bankers in Kiev said a run on deposits at Prominvestbank were triggered by a smear campaign and hostile corporate attack. But they warned dozens of the country’s 170 banks were experiencing liquidity problems.

Ukraine’s economy has in recent years been boosted by high prices on steel, the country’s main export, and a lending boom financed by heavy foreign borrowing by domestic banks. Now falling steel prices and a widening current account deficit have put pressure on the currency, and access to fresh credit facilities has dried up with the credit crunch.

Bank officials said they were eager to restore confidence in the sector, and worry that a deepening political crisis could stir up instability.

Viktor Yushchenko, Ukraine’s president, dissolved parliament this month, ending his alliance with Yulia Tymoshenko, the premier. In a decree last week Mr Yushchenko scheduled Ukraine’s third parliamentary election in as many years for December 7. The move threatens to end the two leaders’ pro-west coalition.

But in recent days Ms Tymoshenko has defied the vote, insisting it would complicate the country’s ability to grapple with the world financial crisis. Her allies have in recent days challenged the president’s decree on snap elections in court, setting the stage for a stand-off and drawn out legal battle.

The Financial Times

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