The Banking System Of Ukraine STRUCTURE OF THE BANKING SYSTEM OF UKRAINE
The evolution of the national banking system in Ukraine started in March, 1991, after the adoption of the Law of Ukraine «On Banks and Banking» by the Ukrainian Verhovna Rada. The Ukrainian banking system is a two-tier structure consisting of the National Bank of Ukraine and commercial banks of various types and forms of ownership including the state-owned Export-Import Bank and a specialized commercial Savings Bank.
The National Bank of Ukraine serves as the country's central bank which pursues a uniform state monetary policy to ensure the national currency stability.
Commercial banks are formed as joint-stock companies or as companies on an equal footing with both legal and natural persons involved. The range of commercial banks activities includes: receiving deposits of enterprises, institutions and households, crediting of economic entities and households, investments in securities, formation of cash balance and reserves, as well as other assets, cash and settlement servicing of the economy, foreign exchange operations and other services to natural persons and legal bodies.
The banks act in accordance with the Constitution of Ukraine, the Law of Ukraine «On the National Bank of Ukraine», «On Banks and Banking)), the Ukrainian legislation on joint-stock companies and other economic entities, as well as with the normative regulations of the National Bank of Ukraine and their Statutes. The major banks are Prominveslbank, the «Privat» Bank, the Export-Import Bank, «Avah>, the Savings Bank of Ukraine and Ukrsotsbank.
Five of the commercial banks are the former specialized state banks: one is a savings bank (Oschadnybank), two are specialized lending banks (Prominvestbank and Ukrsotsbank), and one is the Export-Import Bank of Ukraine (Ukreximbank). Oschadnybank and Ukrcximbank are still stale owned. Prominvestbank and Ukrsotsbank receive concessionary treatment from the NBU and arc responsible for the vast majority of corporate lending.
There are also 'new banks'. Most of these are based in the major industrial centers. They were generally formed by groups of companies to manage their treasury and payment systems. There are currently six main banking companies in Ukraine with foreign ownership: Credit Lyonnais, Citibank, Bank Austria Creditanstalt, ING, Raiffeisenbank and First Ukrainian International Bank.
Notwithstanding the banking sector's difficulties, the procedures for settlements, particularly relating to domestic transfers, have proven efficient. Foreign investors no longer encounter delays in converting currency and remitting profits in foreign currency as a result of the banking system.
Numerous Ukrainian commercial banks have joined the Society for Worldwide Interbank Financial Telecommunications (SWIFT). SWIFT provides financial data communication and processing serv-ices supporting the business activities of banks around the world.
BANKING SYSTEM
Banking system of Ukraine consists of two levels -— the National Bank of Ukraine at the higher level and commercial banks at the lower level. The National Bank of Ukraine activity is aimed at forming the system of finance and credit of the state and controlling the credit system lower level section activity. Lower level section activity is aimed an available resources mobilization and their employment in crediting and investing subjects of management as well as getting profits and capital accumulation in order to refund economy. At the background of finance and money stabilization the money reform was successfully carried out in 1996 — the own money unit — Ukrainian hrivna — was put into circulation. Stability of national money laid the foundation of positive changes in economy, having provided the proper financial conditions, stable criteria, which must interest investors. Long-term credits of banking system are growing.
RISE AND DEVELOPMENT OF THE BANKING SYSTEM OF UKRAINE
The rise and development of Ukraine, similar to that of the other countries arising on the ruins of the USSR, is a unique phenomenon in the modem history. From a single «public zone» the national monetary and banking systems have separated. The elements and structure that earlier have not existed were given birth and are progressing: these arc central banks and commercial banks, the national currencies, the systems of payments, currency exchanges, systems of the bodies engaged in regulation and bank supervision.
Playing a special role in the economic system as a whole and on the monetary-credit market, banks actively effect all the constituents of economic reform.
It is the banking system that is to create the infrastructure, methods and tools of the new market-oriented regulation of the economy to replace the command-administrative methods and instruments.
The banking system in a market-oriented economy plays a triune role. First, the structure of commercial banks administers the system of payments.
Second, together with other financial intermediaries, banks direct the savings of the public to firms and commercial enterprises.
Third, acting in accordance with monetary-credit policy of the central bank, the banking system regulates the quantity of money in circulation.
Stable and temperate growth of money supply balanced along with the growth of commodity supply is a guarantee of the provision of a steady level of prices. As soon as this is achieved, market relations influence the economic system in the most effectual and gainful manner.
The rise and development of Ukraine's banking system has proceeded in extremely adverse conditions.
BANKS AND THE ASSOCIATION OF UKRAINIAN BANKS
As of 1 January 1998, 227 banks were registered in the National Book for Registration of Banks, Currency Exchanges and Other Financial-credit Establishments, including two state-owned (Oshchad-bank of Ukraine and Ukreximbank) and 17 banks with the involvement of foreign capital. Within 1992—1998, 42 commercial banks were excluded from this book.
Currently, commercial banks of Ukraine fulfill the cash servicing of legal persons, exchange business, servicing of traveler's cheques, transactions with T-bills, service the accounts of physical persons, and service of plastic cards.
Ukrainian banks take part in different international programs to support private entrepreneurship in Ukraine, such as EBRD credit lines, German-Ukrainian fund, etc.
As the share market develops, and more specifically the T-bill market, new services come into being, including the brokerage servicing of clients, and management of T-bill portfolios. There is a new task ahead — to work with municipal securities.
Credit activity of banks becomes more active. In addition to short-term credits, the volume of long-term credits is increasing. There is a tendency toward the decline of all kinds of interest rates on credits granted to direct loan debtors. A positive trend is observed concerning the improvement of the credit portfolios of banks.
In 1990, the first 9 commercial banks united for the advocacy of their interests into the Association of Ukrainian Banks, which now unites 124 banks and four regional bank unions.
During the period of its activity, the AUB became established as an efficient and influential organization that contributed to the progress and stabilization of the banking system.
The AUB considers participation in the legislative process one of most essential directions of its activity. The Association was an active contributor of the elaboration of the Law of Ukraine «On Banks and Banking Activity» Tax legislation was and still is in the focus of the AUB's attention. The AUB. together with the NBU, achieved parity between banks and other business entities in taxation.
It is necessary to mention that the sound activity of commercial banks, to a considerable extent, depends on the quality of preparation of the NBU's decisions, and substantiation of these decisions. At AUB's request the National Bank issued directions, pursuant to which the regulatory acts of the NBU must be submitted to the National Bank Board after their treatment with the par-ticipation of banks and the Association of Ukrainian Banks.
Now the Association takes direct part in the important work dealing with the transition of the banking system of Ukraine to the system of international accounting standards and reporting.
One direction of the AUB's activity is establishing and maintaining business-like relations with the President of Ukraine, the leadership of the permanent Committees of the Verkhovna Rada of Ukraine, Prime Minister, and other officials from government authorities.
The Association coordinates its work with other unions and professional participants of the market.
For Ukraine to have a well prepared banking system capable of attacking new challenges dealing with restructuring of the economy, the economic policy should:
— accelerate the growth of the economic potential of banks, by allowing accumulation of their own capital and release of their balances from the bad debts of state-owned enterprises
— defend banks from the interference of the state agencies that does not meet the requirements of existing banking laws, create the reliable system of insurance of banking deposits, and contribute to the formation of high confidence in banks by legal and physical persons;
-—create an effective legislative and regulatory basis for the activity of banks which would ensure a positive protection against risks and achievement of a high degree of stability in operations.
Without banks that are economically powerful, that can operate in a stable manner, are aware of their mission in the market-oriented economy, and that have credibility in society — without such banks market-oriented reform in Ukraine will not be able to provide those beneficial impacts which are awaited by the public.
THE NATIONAL BANK OF UKRAINE
The National Bank, as the central bank, carries out the state's monetary policy using appropriate instruments. The National Bank of Ukraine keeps the State Register of Banks, Foreign Currency Exchanges, and Other Financial Institutions,
The National Bank maintains relations with other countries' central banks, international banks, and other financial institutions on behalf of Ukraine.
Functions of the National Bank of Ukraine
The National Bank of Ukraine serves as:
— the central bank which conducts a uniform state policy in the
area of monetary circulation and credit and ensures the stability of the
national currency;
— issuing centre;
— foreign exchange authority;
— supervisory body;
— bank of the banks;
— bank of the State;
— organizer of interbank settlements.
Issuing centre
The National Bank of Ukraine has the exclusive right to put currency into circulation, and to introduce national banknotes and coins.
Cash supply to the economy (Hryvnia) is carried out through a network of the National Bank's regional departments commercial banks. The National Bank supervises as requested by the State Treasury of Ukraine and builds up gold and foreign exchange reserves for its own account.
Foreign exchange authority
The National Bank of Ukraine determines the foreign exchange policy.
In the sphere of foreign exchange regulation and control, the National Bank:
—carries out foreign exchange policy based on the general principles of Ukraine's economic policy:
— monitors observance of the limits of the external public debt;
— accumulates, stores and uses foreign currency reserves to carry
out the national foreign exchange policy;
— grants foreign exchange licenses;
— determines the methods of ascertaining foreign exchange rates,
translated into the Ukrainian currency
— monitors compliance with the rules of foreign exchange trans
actions in Ukraine.
Banking supervision
To protect the clients interests and to secure commercial banks' financial reliability, the National Bank imposes the following requirements on commercial banks:
— required minimum statutory fund;
— equity ratio;
—-balance sheet liquidity ratios;
— minimum reserve requirements;
— maximum risk for one borrower.
