Ukraine's banking associations doubt active growth of banking system in 2011

Kyiv, December 23 (Interfax-Ukraine) – The large volume of bad credits, bad financial state of borrowers and the low level of legal protection of creditors would hinder the development of the Ukrainian banking system in 2011, according to heads of the largest banking associations of the country.

"Stagnation with elements of recovery [is expected in 2011]… It's unlikely that we can be optimists next year with such a sick economy being in the debt prison," Association of Ukrainian Banks (AUB) President Oleksandr Suhoniako said at a press conference at Interfax-Ukraine on Wednesday.

"Bad assets should be cleared for the banking system to start stably operating… It would be more thorough selection [of borrowers]," Ukrainian Credit-Banking Union (UCBU) Director General Halyna Olifer said.

She said that the consideration of the draft law on the increase of protection of creditors is hampered by officials, who are large debtors of banks.

"They are trying to block the adoption of the document," she said.

As reported, credits issued by banks in 11 months of 2010 grew by 1.4%, and overdue loans expanded by 29.1%.

Heads of the banking associations also said that there are risks, which are brought by draft law No. 0884 into the banking sector. The draft law toughens requirements to banks' capitals.

"The draft law would lead not only to the redistribution of the banking market, but to its destabilization… This would lead not to the resumption of the economic growth, but to destabilization of the banking system and finally to a crisis in the economy," Olifer said.

Suhoniako expressed hope that the parliament would reject the draft law. The document is to be considered at second reading on December 23.

He said that if the parliament passes the draft law in present wording, the AUB would ask the president to veto it. However, if the law takes effect, the AUB plans to take measures to appeal against it in the Constitutional Court.

"We would not allow simply eliminating Ukrainian banks," he said.

As reported, draft law No. 0884, which has been prepared for second reading, foresees the toughening of the requirement on the banks' statutory capitals, raising them from UAH 75 million to UAH 500 million. Experts believe that setting an absolute figure for the minimum statutory capital in the law will lead to resultant requirements on the regulatory capital of all operating banks.