Date: October 4, 2017
One of the causes of the deep financial and banking crisis that Ukraine is still struggling to overcome is the habit of the large corporate players to fail to repay their loans to the banks. This applies to the companies connected to the owners of those banks, too. There is even a joke about this: "only cowards pay their loans". But building a strong state with wealthy population is impossible with such traditions, according to Serhiy Rybalka, head of Verkhovna Rada Committee on Financial Policy and Banking, author of the column below.
During the preparation of the strategy for development of the banking system for the next 5 years elaborated by the expert group led by our committee, foreign experts recommended us creating a unified credit registry overseen by National Bank to strengthen our banking sector. This is what the majority of successful countries have done.
After the financial crisis of 2008, many states have worked on optimizing their own credit registries so that those could be better used for banking regulation and inspections. According to World Bank, in 2015, 91 countries had already created unified credit registries, primarily supervised by the central banks. In Europe, 16 countries had those, while 8 more countries had embarked on the process of creating such registries (Netherlands, Luxembourg, Greece, Finland, Estonia, and Cyprus). Among the most comprehensive, according to the experts, are the registries of Malaysia, Hong Kong, and Singapore. In those countries, the governments applied American technology to more comprehensive databases. The registries contain reports on both individual and corporate loans.
Central registries in different countries vary by the type and the comprehensiveness of information they contain. The key differences include the thresholds for the loans required to be registered, the types of loan transactions and types of the data collected. The range of thresholds is quite wide: from 50 euros in Portugal to 1.5 million euros in Germany. About 60% of the credit registries in different countries collect data on the overwhelming majority of loan transactions.
We elaborated our own draft bill on such a registry a year ago. However, sabotaging of financial reforms in the parliament has made it impossible to pass. For instance, the parliament has been unable for a year now to pass a law on protection of the lenders' rights. This law is meant to close the legal gaps currently allowing crooks to avoid paying the loans. Verkhovna Rada has failed to pass this bill twice already. And, despite my multiple requests, it has been impossible so far to get the third version of the bill on the agenda.
We have finally seen the creation of a unified credit registry in Ukraine become an obligation of the Ukrainian government before IMF. Now, our chances of passing the bill in the parliament are considerably higher. And we have registered our version of this bill just this week, under No. 7114-1.
Yet, the closer we get to the elections, the less Ukrainian government is concerned about the economy. I talked about the threats for Ukraine's development stemming from the sabotage of financial reforms with the members of the U.S. Congress, managers of influential American think tanks, business associations, as well as at the IMF headquarters in Washington D.C., during my last visit to the States. The experience and the support of other countries are very important for us.
In Ukraine, it is too often that the same people are connected to non-performing loans in different banks. They create new companies, take loans and imitate bankruptcies. The same dishonest people are fooling different banks by registering completely unmarketable property as a collateral or make decisions on lending to clearly unreliable borrowers. Private loan bureaus possess very fragmented information and banks are not required to cooperate with those.
The key objective of the centralized state credit registry is serving as an additional tool for adequate evaluation of credit risks, both for the purposes of banking inspections and for all the banks. The unified system will gather all information on the borrowers or private entrepreneurs, as well as all court decisions on specific loans. This way, not only will the last names of the top managers and the owners of the non-compliant companies can be known, but also the names of the accountants, members of the supervisory councils and any other managing bodies. This way, the crooks will have a limited possibility to register new firms and take more loans.
We propose focusing on more or less significant loans that represent severe risks for the banks. After prolonged discussions with experts, we decided to set the threshold at 510 thousand hryvnias. Private credit history bureaus will take care of the smaller loans.
NBU will have to ensure online access to the data in the credit registry for the banks and for the Deposit Guarantee Fund, as well as to the law enforcement agencies. National Bank has to regularly assess the data in the registry and flag potentially problematic borrowers based on their credit history, as well as provide corresponding recommendations to the banks. For the banks, using the data from the registry will be required to assess the risks when giving out new loans.
Access to the data will be provided on a paid basis (except for the law enforcement agencies and the individuals who have information about them posted in the registry). However, the price for access should not be too large, and should not exceed the costs related to its administration.
I am confident that many influential oligarchs will oppose this bill. But Ukraine has no other choice. Either we start living by the rules of the civilized world, or they will continue robbing billions and getting away with it, while the country will continue degrading into abysmal poverty, torn by social and political conflicts and aggressive neighbors.
Therefore, the introduction of a registry will allow to strengthen the banking system, better protect the funds of the citizens and honest businessmen from bank failures, facilitate for them the procedure for obtaining loans and reduce interest rates. A robust banking system is an important condition for economic growth.