Ukraine’s Rada adopts IMF-mandated banking bill that might put stand-by agreement back on track

By bne IntelliNews July 1, 2021

Ukraine’s Rada passed in the third and final reading a banking bill that the International Monetary Fund (IMF) has made a prerequisite for restarting the stalled $5bn stand-by agreement (SBA) on June 30.  

As governor of the National Bank of Ukraine (NBU) Kyrylo Shevchenko told bne IntelliNews in an exclusive interview in June, the bill is a key part of restarting the IMF deal that has been suspended due to back-tracking on reforms.  

The law will introduce a number of European norms that are also recommended by Bank for International Settlements (BIS) and are covered by the BASEL III banking guidelines. They should improve transparency and corporate governance in the banking sector. The law will also affect the functioning of National Bank of Ukraine (NBU) and strengthen its independence, which has been in question in the last year.  

Some 279 MPs backed the bill at a meeting on June 30, which needed 225 votes to pass. Earlier this year deputies also passed the so-called anti-Kolomoisky banking law that bans a former owner from retaking control of their bank if it has been nationalised. There were fears that oligarch Ihor Kolomoisky would through the courts regain control of his PrivatBank that was nationalised in 2016 after $5.5bn hole was found in its balance sheet.   

The new banking law comes as Bankova has been particularly active on the reform legislation front recently. The Rada has also just passed a bill that beefs up penalties for public servants that fail to hand in an annual electronic declaration of their assets or lie on the form.  

MPs included an amendment in the new banking bill to expand the composition of the National Bank's board from six to seven members, adding to it a board member who will be responsible for non-banking financial institutions.  

While the banking sector clean-up has largely been completed, Shevchenko told bne IntelliNews that he was now moving on to clear up the non-bank entities part of the sector – things like insurance companies and credit unions.  

In addition, the MPs supported the amendment, suggesting the creation of companies and enterprises by the National Bank. As explained by MP Andriy Ivanchuk (Dovira group), the matter concerns the creation of a banknote mint by the NBU, a special paper factory for making and printing money, as well as representative offices abroad.

The bill is intended to improve corporate governance with a special focus on making banks’ councils and boards more accountable, as well as beefing up the internal control and risk management systems.  

In keeping with BASEL III norms, the bill introduces a new capital structure (including capital buffers) that will strengthen a bank's ability to absorb losses, as well as additional requirements for members of banks’ councils and boards.

The NBU will be given the right to establish individual size of economic standards for banks depending on the riskiness of activities and the right to demand changes in the composition of the council or board of the bank, if the current composition of these bodies is not able to ensure effective management and control over the activities of the financial institution.

The bill also clarifies certain provisions of banking legislation, in particular regarding consolidated supervision of banking groups, licensing of banks, approval of the acquisition of significant participation in banks and requirements for their ownership structures.  

 

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