Serhiy Rybalka: "A single credit registry will strengthen the banking system"

One of the reasons for the financial and banking predicament, from which Ukraine is still recovering, is the bad habit of the big businesses not to return non-performing loans.
Date: October 04, 2017

One of the reasons for the financial and banking predicament, from which Ukraine is still recovering, is the bad habit of the big businesses not to return non-performing loans. It is also true for the enterprises affiliated with the bank stockholders. I know that these people even have an inside joke like only cowards return loans. If this tradition gets deep-rooted we will never be able to build a powerful state with successful and well-off citizens, the head of the Verkhovna Rada Committee on Financial Policy and Banking Serhiy Rybalka wrote in his column.

During the preparation of the 5-year Strategy for the development of the banking system by a team of experts who were working under the guidance of our committee, the foreign experts advised us to create a single credit registry that will be managed by the National Bank, as a tool to strengthen the banking system. This is the common practice in many successful countries.

After the 2008 financial crisis, many countries put extra effort into customizing their loan registries to the changes in the banking regulation and supervision. According to the World Bank, by 2015 the total of 91 countries already had central credit registries, primarily under the guidance of central banks, 16 of these in European countries with other 6 countries just launching the process (the Netherlands, Luxembourg, Greece, Finland, Estonia and Cyprus). According to the experts the best credit registries have been built in Malaysia, Hong Kong and Singapore where the US technology was combined with more complete databases. These registries contain reports on both consumer and commercial loans.

Central registers in different countries can be distinguished by type and amount of information. The main differences are in the amount of loans subject to mandatory registration, types of lending operations and the nature of the data collected. Threshold values very largely: from 50 Euros (Portugal) to 1.5 million Euros (in Germany). Approximately 60% of all credit registries worldwide collect data on almost all possible credit relations.

We have developed the draft law on this issue a year ago. But considering the Verkhovna Rada's overall trend of slowing down the pace of financial reforms it is little wonder that the voting on this bill failed. For example, the Parliament could not pass a law on the protection of creditors' rights for a year. It is meant to eliminate the legislative loopholes that are currently used by frauds to avoid repaying loans. The Verkhovna Rada derailed this bill twice. And, despite my numerous appeals, its third reading can not get into the agenda.

Now the issue of creating the credit registry is included in Ukraine's IMF commitments. It means the odds of the bill being passed in the Parliament are slightly higher. We have registered our own version of the bill this week under No. 7114-1.

But the closer are we moving to the elections, the less Ukrainian authorities seem to be preoccupied about the economy. In our discussions with the members of the US Congress, the leaders of American influential think tanks, business associations and at the IMF headquarters in Washington during my last visit to the United States we spoke about threats Ukraine is becoming increasingly exposed to considering the sluggish pacing of financial reforms. The experience and support of other countries are things we hold very dear.

In Ukraine, very often, the same people hide behind the schemes of non-performing loans to various banks. They create new enterprises, take loans and fake bankruptcy. The same frauds go to different banks and receive loans against absolutely illiquid property as security or take decisions on granting loans to obviously unreliable borrowers. As to private credit bureaus, they have very fragmented information and cooperation with them is not mandatory for the banks.

The main task of the state centralized credit register is to serve as an additional tool for an adequate assessment of credit risks and for banking supervision. The integrated system will collect all information about borrowers, security, guarantors, officials, corporate or private borrowers, and about all court decisions on specific loans. The system will provide access not only to the names of directors and owners of nonpayment enterprises but also accountants, members of supervisory boards and other management bodies. The ultimate goal is to prevent frauds from having even a slightest chance of registering new firms and taking out loans again.

We propose to focus on loans significant enough to pose risks for banks. After long expert discussions, we decided to set the threshold at UAH 510 thousand. Smaller loans will be the domain of private loans bureaus.

NBU will have to provide access to credit register data online for the banks, the Deposit Guarantee Fund and to law enforcement agencies. The National Bank should regularly analyze the register and identify potentially unreliable borrowers (whose credit history gives grounds to believe that they may not repay the loan) and provide relevant recommendations to the banks. For banks, the use of registry data will be mandatory to assess risks associated with issuance of new loans.

Users (except for law enforcement agencies and persons, information about whom will be included in the register) willing to get access to these data will have to pay a relatively small fee not exceeding the actual administration costs.

I am sure that the so-called oligarchs will resist this bill. But Ukraine has no other choice. Either we start living according to civilized rules or they will steal billions with total impunity while the country will slip into the abyss of poverty, torn to pieces by socio-political conflicts and aggressive neighbors.

Having such register will strengthen the banking system, protect the money of ordinary people and honest businesses from bank failures, simplify the procedure for obtaining loans and reduce interest rates. A strong banking system is an important prerequisite for economic growth.

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