Ukrainian parliament appoints Smolii central bank governor

Ukrainian parliament appoints Smolii central bank governor
Yakiv Smolii is seen as having performed competently as acting governor over the past 10 months. / Photo: CC
By Sergei Kuznetsov in Kyiv March 15, 2018

Ukraine's parliament, the Verkhovna Rada, appointed Yakiv Smolii, the National Bank of Ukraine (NBU)'s acting governor, for the post of central bank head on March 15, replacing Valeria Gontareva.

The move followed the resignation of Gontareva, who was highly respected by Ukraine's donors, 11 months ago. Gontareva, who is a close business associate of President Petro Poroshenko, had led the central bank since June 2014.

Gontareva won widespread praise from Kyiv's donors for her work in cleaning up the banking sector, having closed around 80 banks that were little more than scams and glorified money-laundering schemes. She also made the bold decision to nationalise PrivatBank, the country’s largest lender by assets, which belonged to Ukrainian oligarchs Ihor Kolomoisky and Gennadiy Bogolyubov.

At the same time, much of the Ukrainian population blames the NBU for the meltdown of the hryvnia and the continuing crisis in the banking sector.

Gontareva's resignation was supported by record 342 votes, well over the minimum 226 votes required. "I consider my mission to be fully implemented, as the reforms have been done," she said during a short report to the parliament.

Smolii's appointment was backed by 247 lawmakers. In his nomination speech, the new governor underlined that the regulator's goals "remain unchanged". They were "to maintain price and financial stability, to promote economic growth, to integrate Ukraine’s financial system into the European one".

According to Smolii, over last three years the NBU has managed to stabilise the macroeconomic situation, make the banking sector healthier, and introduce important innovations, such as inflation targeting and a floating exchange rate. "The NBU team will continue to shape the modern and open central bank trusted by the society," he added. "It is also very important to maintain and develop cooperation with our international partners."

Who is Smolii?

Gontareva, who is a close business associate of President Petro Poroshenko, has led the central bank since June 2014. She stepped down from the post on May 10, although some analysts have speculated that she was pushed out of the job following her attack on oligarch-controlled banks. In December, the NBU nationalised the country’s largest commercial lender Privatbank.

Smolii, 57, was born in Ukraine's Ternopil region. The banker holds a PhD in economics. He was appointed to the post of the NBU's acting governor in May 2017, following Gontareva's statement about her resignation. Since October, 2016 he was the regulator's first deputy governor, after becoming deputy governor in April, 2014 (the start of the financial, economic and military crises in Ukraine).

In 2006- 2014, Smolii worked in the private sector as a director at Ukrainian companies Banking Business, Prestige-Group; in 2005-2006 he was a consultant at companies Office Stolychnyi and Prestige-Group.

"While Smoliy might not have been the preferred initial choice for the position to replace Gontareva – I think back in April 2017, Oleksandr Lavrenchuk, chairman of Raiffeisen Bank Aval, was universally seen as the most technically qualified person for the job – I think he has done a stellar job in running the NBU in an acting capacity," Timothy Ash, a senior sovereign strategist at BlueBay Asset Management, said in an appeal to Ukrainian elites on February 28.

"He [Smolii] has had a hugely difficult job, lacking the authority which comes with affirmation as governor in a permanent status, and still having to manage difficult challenges such as fighting inflation and managing still considerable problems in the banking sector," Ash added. "But he has performed well in the job, and the fact that Ukrainian markets have performed smoothly during this period is I think testimony to his skills in the job."

Smolii has declared UAH15.2mn of income for 2017. The official's wage in the NBU amounted to UAH2.3n; dividends from AMC Etalon Asset Management around UAH5.45mn; interest on accounts in Ukreximbank around UAH4.85mn, according to Interfax news agency.

According to the declaration, Smolii has bank accounts in Ukreximbank for $3.93mn; Ukrsibbank for UAH105,000; Raiffeisen Bank Aval for $4,455 and UAH105,000; in Delta Bank that went bancrupt in 2015 - for around UAH6mn; in Oschadbank UAH254,000.

The official is also the co-owner of 12 offices, which repeatedly treaggered accusations of alleged conflicts of interests in local media.

Lending and FX liberalisation

Smolii said also that Ukraine needs to resume lending to the real sector as soon as possible. "By now, the banking system has already accumulated enough resources to launch full-scale lending. Over UAH80bn can be channelled to revive the economy of Ukraine," he said.

However, the NBU and the market face "several challenges, in particular, critical volumes of non-performing loans in bank portfolios and weak creditor rights protection, which may be resolved only through amending the laws".

"I encourage you to support the draft laws developed to pump credit funds into the economy," Smolii urged lawmakers. "These are draft laws which are aimed to revive lending and streamline asset resolution activity. By adopting the above mentioned changes our economy will gain momentum which will help bring in lending to full stream as early as next year."

The NBU's governor also believes that the time is ripe for "a comprehensive FX liberalisation" following years of tough capital controls.

Smolii also underlined in his speech that the NBU must remain independent from political processes in the country. "The central bank that enjoys political independence will be effective in carrying out its mandate which is to ensure price and financial stability," he said.

 

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