The Legacy of Ukraine's Outgoing Central Banker, Explained
13 April, 2017
Photo: Vladyslav Musienko/UNIAN

The head of the National Bank of Ukraine (NBU), Valeriya Gontareva, announced her resignation on April 10th 2017.

“My mission has been completed,” she said during press-conference in Kyiv, where she declared her decision.

Ukrainian President Petro Poroshenko hasn’t yet signed-off her application to resign, and has stated that he wants to meet with Gontareva and hear her reasons for leaving the position.

Photo: Mykola Lazarenko/UNIAN

She became the head of the National Bank of Ukraine on the 19th June 2014. 349 MPs voted in favour of her appointment. In her role as head the National Bank, Gontareva spoke about her ambitious intentions to fundamentally reform the banking system of Ukraine. She previously headed the board of directors for Investment Capital Ukraine (ICU - a company which, for many years, has consulted Petro Poroshenko, even long before he was elected president) which also advised Poroshenko-owned company“Roshen” on the sale of assets. Gontareva sold her shares in the company as soon as she became head of the National Bank.

She became the first woman to lead the National Bank, in the history of Ukraine's independence.

Hromadske has prepared 7 facts about what the head of National Bank of Ukraine Valeriya Gontareva is famous for.

The nationalization of largest Ukrainan bank, 'Privatbank'

'Privatbank', the largest commercial bank in Ukraine, has had liquidity problems for several years. It worked on a "vacuum cleaner" principle: collecting funds from the public by offering favorable conditions and innovative banking, whilst at the same time crediting structures associated with the shareholders.

Photo: Vladyslav Musienko/UNIAN

'Privatbank' failed to comply with NBU norms, so on 18th December 2016 after long negotiations, the regulator made the decision to nationalize the bank previously owned by Ukrainian oligarch, Ihor Kolomoisky. It was discovered that 97% of the loans were issued to people connected to the bank's owners.

The world’s financial media called the solution on the "Privat issue" an example for other countries having problems with the banking sector. The nationalization was also supported by the International Monetary Fund and the European Bank for Reconstruction and Development. It should be noted that the Ukrainian Minister of Finance, Oleksandr Danyliuk and Valeriya Gontareva both said it was the owners of 'Privatbank' who had requested its nationalization.

Photo: Roman Pilipey/EPA

The financial institutions former management stated that the bank was transferred to the state voluntarily, so the "unprecedented information attack" on the bank didn’t harm the customers.

The process of nationalization went pretty smoothly to the public: bank branches operate as usual and the system of Internet-banking 'Privat24'  continues to function, despite all concerns. In February, the Cabinet of Ministers decided to recapitalize 'Privatbank' for $364.7 million (9.8 billion UAH) by issuing government bonds.

“Cleaning” the banking system in Ukraine

During Gontareva's time in office, the number of banks in Ukraine decreased by almost half. The National Bank conducted stress-tests on the banking system, which resulted in all the financial institutions that failed to meet the regulator's requirements, according to the test, being declared insolvent and withdrawn from the market.

As of the beginning of 2014, there were 180 banks in Ukraine. According to the NBU's official statistics, there are now 92 functioning financial institutions, meaning that, within three years, 88 banks have been declared insolvent. However, some banks had been eliminated before Valeriya Gontareva came to office, when National Bank was headed by Stepan Kubiv (now Minister of Economic Development and Trade of Ukraine - Ed.)

Some banks tried to resume operation through the court. They appealed the regulator's decision that they were, so dubbed by Valeriya Gontareva, 'zombie banks'. In an interview with Hromadske, she explained: "..they were not banks at all, they weren't holding anyone's money. All the money had been withdrawn, stolen or were non-existent, 'fake' assets on the balance sheets. You can’t regret something that never really happened. 20 of these institutions were not banks at all. They held no deposits and no-one even suffered. Those were companies for money laundering, and we succeeded in closing them."

Cooperation with the IMF

Over the last three years, Ukraine has resumed cooperation with the International Monetary Fund. The National Bank of Ukraine received the latest bailout from the IMF, to the amount of about 1 billion dollars, on 5th April. In addition to this, Ukraine expects to receive a further 4.5 billion dollars from the International Monetary Fund by the end of 2017.

Overall, since the Extended Fund Facility (EFF) program was launched in March 2015, Ukraine has received four bailouts from the IMF amounting to 8.5 billion dollars. 5.9 billion dollars of this sum was allocated for replenishing reserves.

Photo: Mykhailo Palinckak/

It should be noted that Ukraine was set to receive the latest bailout from the IMF back in mid-March, but the issuing of funds was postponed due to the blockade in Donbas

Also, the International Monetary Fund sets certain conditions when providing financial assistance. In particular, the Ukrainian government has to lift the moratorium on the sale of agricultural land, resolve the issue of pension reform and introduce a tariff for the distribution of gas by the end of 2017.

Gontareva's biggest scandals

The National Anti-corruption Bureau of Ukraine (NABU) has opened criminal proceedings in a case, which according to them involved Gontareva’s Deputy Kateryna Rozhkova, regarding the 'Platinum Bank's' withdrawal from the market. Gontareva was accused of deliberately bringing the bank to bankruptcy, and of speculation on the growth of the dollar exchange rate. The rallies from the allegedly deceived depositors of the failed banks repeatedly gathered outside the National Bank of Ukraine.

The National Bank of Ukraine chief wascriticized mostly because of her policy regarding the other bank, 'Mykhailivskyi', which was also withdrawn from the banking system. A special law was even issued to solve the problems of its depositors.

Photo: Sergey Dolzhenko/EPA

Ukrainian MP, Sergiy Taruta, accused Gontareva of destroying the financial system and failing to ensure exchange rate stability, which is the main function of the NBU. Chairman of the Association of Ukrainian Banks, which unites the small financial institutions, Oleksandr Sugonyanko, distributed this report abroad, while Taruta presented it in the parliament. The National Bank of Ukraine responded, saying that it was Taruta's reaction to the huge debts which he hasn’t clear since 2007.

Exchange rate policy

To keep the hryvnia exchange rate from falling rapidly, the National Bank of Ukraine imposed restrictions on the purchase of foreign currency and the mandatory sale of foreign currency earnings. When the exchange rate was stabilized and the bailout from the IMF was received (on the 5th of April, 2017), the restrictions were relaxed; the limit on purchasing foreign currency per day was increased to the equivalent of 150 thousand UAH and the amount of foreign exchange earnings for mandatory sale was reduced to 50%.

During Gontareva's tenure, the hryvnia devaluated almost three times. The main reasons for currency depreciation were the annexation of Crimea and military operations in eastern Ukraine. This was the cause of Ukraine's record economic decline. The National Bank abandoned fixed exchange rate regime, which they had managed to keep up for a long time, 'burnt off' the reserves, and moved to a flexible exchange rate regime, as the IMF had repeatedly demanded.

Instead, the National Bank focused on the so-called inflation targeting. This is when the central bank becomes responsible for the compliance of inflation in the country with the target level, and uses the discount rate. A discount rate which increased when the policy of "expensive money" was implemented in order to curb inflation, reduce it to provide "cheap money", and revitalize the economy.

Disclosure of banks' beneficial owners

The Verkhovna Rada adopted a law on increasing the liability of bank shareholders in March 2015. In summer 2015, the National Bank ordered all banks to submit information on beneficial owners. Since then, all the financial institutions have to disclose their ultimate beneficiaries. If a bank refuses to do so, it risks being withdrawn from the market.

The information on bank’s beneficial owners is now available on the website of the National Bank of Ukraine.

The internal transformation of the NBU

People from outside the system who used to work in the commercial sector were attracted to the National Bank of Ukraine. The approach to communications was totally changed.

The bank reorganized or removed non-core functions from the bank structure: BTB TV-channel, the Banking University of the National Bank of Ukraine in Kyiv and the State Higher Educational Institution NBU Ukrainian Banking Academy in Sumy, the maintenance complex and the NBU printing house, the center of scientific research and therapeutic complexes. The Journal 'Visnyk of the National Bank of Ukraine was considerably and conceptually changed. Since September 2015, it has turned into a research-oriented digital magazine providing high-level analytics.

/Translated by Olga Kuchmagra