Political uncertainty looms over appointment of Ukraine’s new central bank governor

Political uncertainty looms over appointment of Ukraine’s new central bank governor
Volodymyr Lavrenchuk, board chairman at Raiffeisen Bank Aval, is seen as the hot favourite to succeed Valeria Gontareva as central bank governor.
By Sergei Kuznetsov in Kyiv May 26, 2017

“For the first time in the history of our country, the resignation of the governor of the central bank is not a political decision,” the outgoing governor of the National Bank of Ukraine (NBU), Valeria Gontareva, told journalists on May 10, her last day in office. “I believe that my successor will be a person independent of any political affiliations.”

However, the country’s President Petro Poroshenko, who is due to appoint Gontareva’s successor, still faces the political challenge of balancing opposing forces in selecting a candidate who will be: compliant with Kyiv’s Western backers and donors; able to secure necessary support in the Ukrainian parliament; and loyal to Poroshenko himself.

“I am sure that this person will steer the NBU towards further development of the banking system and will not swerve from this path, even under possible political pressure,” Gontareva suggested in her farewell speech. “Any person in this position will most certainly be under political pressure,” she added.

However, despite the fact that Gontareva handed Poroshenko a short-list of possible candidates for the post in mid-January, the president admitted on May 14 that he had failed to start any consultations with parliamentary political forces.

At the same time, Poroshenko is keeping a brave face in spite of the messy transition of such a key post. “I do not rule out that this process [choosing a new head of the NBU] may take place before the Rada’s summer recess, and that we will not wait until the autumn,” he told reporters the same day.

Meanwhile, Gontareva has officially taken leave until the second half of August, waiting for the Ukrainian parliament to accept her resignation. In the meantime, her first deputy Yakiv Smoliy has became the acting governor.

“This situation could very well last beyond September,” Alexander Paraschiy of Kyiv-based brokerage Concorde Capital predicts. The lack of an approved NBU governor reduces the chances of Ukraine receiving its next scheduled tranche from the country’s main donor, the International Monetary Fund (IMF), the expert added in a research note.

“Professional patriot” wanted

Poroshenko has avoided announcing the names of possible candidates to head the NBU, saying only that he will consider contenders using “criteria of professionalism and patriotism”.

Nonetheless, almost all of Ukraine’s senior bankers, market experts and media sources with close ties to the NBU consider Volodymyr Lavrenchuk, chairman of the board at Raiffeisen Bank Aval, the country's fifth largest lender by assets, to be the leading candidate. They also believe he has the support of Gontareva.

Lavrenchuk is a professional banker who has led the Ukrainian operations of the Raiffeisen group since 2005. Before that, he occupied managerial positions at the Savings Bank of Ukraine and Ukrinbank. “The answer is yes, when that time will come,” he responded a month ago to a question from the Kyiv Post about whether he was interested in leading the NBU.

Lavrenchuk’s candidature would be welcomed by Ukraine’s international donors, since he has a reputation as a conciliatory technocrat. Meanwhile, the position is likely to appeal to the banker himself, as the current deputy governor is his former subordinate – Belarus-born Dmytro Sologub, who previously worked as a senior analyst at Raiffeisen Bank Aval.

Gontareva appeared to suggest recently in an interview with the Interfax agency that Lavrenchuk was her preferred candidate, although she did not specify any names. “If we look at the names being published [in the press], the supposed number-one candidate [being considered by Poroshenko] is someone who was on my short-list. In my opinion, this candidate is just what our banking system needs, for the independence of the central bank, and for the preservation of continuity [in the policies of the NBU],” she said.

An open question, however, is the extent to which Poroshenko is prepared to appoint an independent technocrat rather than someone from his close circle, as Gontareva was. It is possible that he will prefer Konstantyn Vorushylin, head of the State Deposit Guarantee Fund, who has a history as a long-time business partner of the president.

Vorushylin's family currently owns a 5.5% share in the Kyiv-based International Investment Bank (IIB), in which Poroshenko owns a 60% stake. In 1996-2007, the banker was the head of the board of Mriya Bank, which belonged to the current president.

Also among the possible candidates is Roman Shpek, senior advisor to the Ukrainian operation of Alfa Bank. In the years 2000-2008 he headed the Permanent Mission of Ukraine to the European Union, and between 1993 and 1995 he was economy minister.

However, Shpek has recently indicated that he has no interest in leaving the commercial sector. “I have a job where I am well respected and where I am not badly paid,” he said in an interview with the 112 TV channel. “I have not been disappointed by my decision [to leave the state and diplomatic service], and I have not reconsidered it. I am not looking at vacancies or expecting any offers.”

Another candidate who has been named by experts and bankers is the current head of the recently nationalised PrivatBank, Oleksandr Shlapak.

Between February and December 2014 he was the economy minister in the first government of then-prime minister Arseniy Yatsenyuk. In 2003-2005 he was a deputy governor of the NBU, which at the time was headed by the businessman Serhiy Tihipko, a close associate of former president Leonid Kuchma and the oligarch Viktor Pinchuk.

Pinchuk is married to Olena Pinchuk, the daughter of Kuchma, who represents Kyiv in the trilateral OSCE-Ukraine-Russia contact group for settling the Donbas conflict. Pinchuk’s media empire, including the ICTV television channel, provides support to Kuchma, who remains a powerful actor in the clan-style political system of the war-torn country.   

In 1998 Shlapak worked as an advisor to Tihipko in Ukraine’s government. Before that he was employed at PrivatBank in various capacities.

In May, Oleksandr Dubinsky, a producer at the 1+1 television channel (controlled by oligarch Ihor Kolomoisky, the former owner of PrivatBank) said that Shlapak might leave PrivatBank due to what he said would be the future deterioration of the bank's financial situation. However, Ukrainian Finance Minister Oleksandr Danylyuk immediately denied this information. “Nobody is going to resign,” he told reporters on May 18.

Task list for NBU successor

An updated strategy for developing the state-owned banks, which is necessary for their healthy competition and appropriate corporate governance, was mentioned by Gontareva as a key task during her farewell meeting with the heads of Ukraine’s 40 biggest banks on May 10.

“It is essential that an updated development strategy for the state-owned banks be approved,” she said. “This is a top priority task for 2017. The NBU will closely monitor the implementation of this strategy. This will give a new impetus to the development of the banking sector in the upcoming years.”

Indeed, after the nationalisation of PrivatBank in December, state-owned banks control around 52% of the country’s market, compared with around 26% in early 2015. This is creating an urgent necessity to re-write the IMF-compliant, five-year roadmap for reforming the state-run banks that was published in February 2016.

The Ukrainian government has already approved a tender to select an internationally recognised consulting company as an advisor to draw up the adjustments to the document. The advisor’s services will be paid for using funds from state-owned PrivatBank, Oschadbank, Ukreximbank and Ukrgasbank.

According to Gontareva, the new NBU governor will also be charged with other comprehensive tasks, including “a revival of lending, addressing non-performing assets, and building a cashless economy”.