December 8-25, 2010

FINREP Program on Financial Literacy and Consumer Protection Rolls Across Ukraine

“Each person and each family has to become financially literate; each citizen wants his children to be financially competent.” With those words, Gennadiy Dmytrenko, Deputy Head of Lviv Oblast State Administration, launched FINREP’s nationwide effort to raise awareness of the importance that an educated consumer of financial services is a cornerstone of a stable financial system. From December 8 through December 25, FINREP organized seminars in Lviv, Kharkiv, Simferopol, Odessa, Zaporizhzhya and Donetsk, based on the first-ever survey of financial literacy and consumer protection in Ukraine. In contrast to the first national presentation held on December 6 in Kyiv, the regional speakers focused on the survey results in their specific area, particularly as compared to responses across Ukraine. “It was very important for us not just to present information to the regional media, but also to hear the opinions of the regional leaders, scholars, politicians, regulators and market participants regarding financial literacy,” stated Natalia Lozytska, Head of FINREP’s Communications Department. The presentations featured an overview of the USAID/FINREP survey results, followed by comments from representatives of the local government, oblast state administrations, heads of the regional offices of the National Bank of Ukraine and the Securities and Stock Market State Commission, bankers, and academics. Journalists were a key part of the audience, as were scholars from Odessa State Economic University, Lviv Institute of Banking of the NBU, and Kharkiv National Economic University. In Zaporizhzhya, the event caught the interest of the major Ukrainian enterprises headquartered there, such as Zaporizhsteel, Dniprospetssteel, Dniproenergo and a Zaporizhzhya aluminum smelter. In each city, Alex Kutsenko of FINREP explained the survey’s methodology, presented an overview of the national results, and then provided regional specifics of the survey. For instance, people from the Western region turned out to be more financially literate, both in terms of self-assessment and in reality, than an average Ukrainian. Ukrainians from the Southern region are more inclined to have debt, and at the same time have had more bad incidents with their financial services compared to their peers from other parts of the country. Eastern Ukrainians are more likely to assert their rights should a conflict arise with a financial institution. At the same time people from this region expect to use more deposit products in the future, while on average Ukrainians do not expect to increase their involvement in the financial sector. People from the Western and Central regions are much more interested than an average Ukrainian in gaining more financial knowledge about investment products. Interestingly, no gender differences were discovered in either knowledge about financial services or behavior regarding financial planning, budgeting, saving, or spending. In general, the survey results present a troubling portrait of the Ukrainian financial services consumer. Most respondents were not able to answer a majority of simple mathematical questions about consumer finance (see Test Your Financial Knowledge). Similarly, elementary questions about legal rights and responsibilities of financial services consumers were answered incorrectly by the vast majority of respondents. Most Ukrainians do not know who to turn to in the event of a dispute with a financial institution. Likewise, the majority of Ukrainians do not know the maximum amount of funds in a bank account that are protected by a guarantee of the Deposit Guarantee Fund in case of a bank failure (UAH 150,000). More than a quarter of those interviewed do not save, and only 11% of Ukrainians have a deposit account in a bank. Two issues dominated the discussion across Ukraine. One was the lack of trust in the financial sector generally, and the resulting requirement to strengthen the legal and regulatory apparatus for consumer protection. The second was the need to raise levels of financial literacy through a variety of public education initiatives. Lack of financial services consumer protection was the focus of attention for the media. “We often witness banking agreements that are intentionally written in ‘bafflegab’ and in a very small print. If you read them carefully you can find clauses violating consumers’ rights,” stated Eduard Karazhiya, academic of Odessa Economic University. Accordingly, he advocated teaching people “to put on their glasses and read banking agreements carefully before signing them.” In Lviv, Victoria Dovzhyk, Department Deputy Head of Lviv Municipal Council, stated that the Lviv Municipal Council constantly receives complaints against financial institutions. She stated that people do not fully understand the documents that they are signing when entering into contracts with banks. “They do not understand their responsibility. They do not understand that they should read the agreements very carefully before signing them,” Ms. Dovzhyk told the Lviv press club audience. In her opinion, the current low level of financial literacy damages not just banking clients but also the national economy because lack of trust in banks results in money being kept under mattresses instead of being invested and working for Ukrainian development. FINREP’s regional presentations were also attended by representatives of Ukrainian banks, such as Raiffeisen Bank Aval, PrivatBank, Erste Bank, Brokbusinessbank, Finance and Credit Bank, Ukreximbank, Pivdennyi Bank, SwedBank, Piraeus Bank and ProCredit Bank. Some banks are beginning to develop their own financial literacy programs for the population. Volodymyr Pidipryhora, Deputy Head of NBU Regional Office in Odessa Oblast, explained that the interest of bankers in this topic is easy to understand. “Raising the literacy and awareness of people is in essence building a better, more sophisticated, and probably more successful future customer.” Ruslan Mazur, First Deputy Head of Odessa Branch of Finance and Credit Bank, argued that market participants themselves should take the lead in helping to improve the financial literacy of their clients. Journalists in Donetsk, Lviv and Kharkiv questioned the practice of a bank unilaterally revising the terms of a contract and of manipulating the calculation of interest owed to the bank. Oleh Sergeyev, Deputy Head of the Association of Lviv Banks, and Head of Lviv Oblast Branch of Ukrsotsbank, acknowledged that sometimes bankers take advantage of unwary, financially illiterate customers. “One can, for instance, set a low interest rate and a high fee. However, only an ignorant client can swallow the bait of dishonest bankers.” He further commented that the only protection one had was to be an informed consumer. “The recipe was given by the prominent Ukrainian poet Taras Shevchenko,” he added. “GET KNOWLEDGE, BROTHERS! THINK AND READ!” It is no secret that even in developed countries most people have modest levels of financial literacy. As a result, more and more governments worldwide are taking steps to promote financial literacy and improve consumer protection in financial services. Mykola Chornyi, Director of Southern Region Corporate Business, Erste Bank, is convinced that a separate central government agency must be created to protect Ukrainian citizens. “Many countries have an institution called the financial ombudsman,” he said. “We can borrow from others; we do not have to reinvent the wheel to move forward.” Alex Kutsenko of FINREP agrees with this view. “Tell me, please, which central government agency takes care of financial literacy? Which local government body or regulator is actively involved in this? The answer is that the responsibility to protect the Ukrainian consumer of financial services is fragmented among various institutions.” According to Yuriy Rovinski, Head of the SSMSC Odessa Regional Office, the Ministry of Education needs to be involved. In his opinion, a specific, targeted course on financial education needs to be designed and introduced to the school curricula. Olexii Druhov, Deputy Research Director of Lviv Institute of NBU, also is a strong proponent of the introduction of a separate course on financial literacy and thinks its development should be expedited. At Lviv press club meeting Gennadiy Dmytrenko, Deputy Head of Lviv Oblast State Administration, volunteered to introduce the first financial literacy course on a pilot project basis in the schools of Lviv region. He cited examples in Poland and Russia where significant funds are being spent to raise the financial awareness of the population. Mr. Dmytrenko stated he agreed with the sentiments of the Polish Central Bank: “The government’s financial literacy allocations are not expenses. These are investments.” Alex Kutsenko underscored that the time has come for Ukraine to take active steps. “Today the financial literacy issue is becoming an issue of concern for national security. Most of the population is unable to work with the financial markets. This significantly restrains the prospects for economic growth,” stated the expert.

December 6, 2010

The Government of Ukraine Thanks USAID for Financial Literacy and Awareness Survey

Low levels of financial literacy and consumer awareness among Ukrainians, and their lack of trust in financial sector institutions, are the key findings in “Financial Literacy and Awareness in Ukraine: Facts and Finding”. These results are based on an All-Ukrainian public opinion survey 2014 respondents conducted in September-October 2010 by the InMind company, under contract to the USAID Financial Sector Development Project (FINREP). The survey results were presented at a public event, chaired by Anatoliy Maksiuta, Deputy Minister of Economy of Ukraine, on December 6, 2010. “The topic of this survey is very important since one of the key elements of economic growth is attracting broad popular participation to the financial market. People should know how and where to invest; money must work for the economy,” he said in his remarks opening the presentation. “The survey provides an objective picture of how Ukrainians manage their personal finances, and about their knowledge of finance and of their rights as financial service consumers.” The survey paints a disturbing portrait of the average Ukrainian who uses financial services. He/she lacks basic knowledge of finance, uses only basic financial services, knows little about his/her rights as a financial services consumer, and does not trust financial institutions. The survey also demonstrated that many Ukrainians overestimate their knowledge in the financial sphere. The majority of respondents could not answer correctly simple mathematical financial questions. Most Ukrainian families do not make or follow detailed family budgets, and they have only a general idea of their income and spending. Only 11% of the population have a bank deposit account. More than one fourth of respondents do not save anything. An average citizen of Ukraine does not want to live on credit - less than 25% of Ukrainians are indebted to banks. Many of the distinguished participants in the public presentation agreed that financial services consumers in Ukraine are not sufficiently aware of modern financial services and are not sufficiently protected as financial services consumers. Alex Kutsenko, a consultant of the USAID Financial Sector Development Project (FINREP), gave a vivid example of the findings of the poll: only 7% of respondents knew that the state guaranteed amount for bank deposits in commercial banks is UAH 150,000. Similarly, the majority of Ukrainians did not know to whom they could apply if they have a problem with a financial institution. “Ukrainians do not believe that if a problem arises with a financial institution that they will be able to achieve a fair result,” Volodymyr Lavrenchuk, CEO of the Raiffaisen Bank Aval, said. The public discussion of the survey results also focused on the issue of how the state and the market could increase trust in the financial sector. Specifically, the speakers raised the issue of establishing new institutions in Ukraine which would strengthen the rights of financial services consumers. One suggestion was the establishment of a financial ombudsman agency, which would be responsible exclusively for protection of the rights of financial services consumers. “Unfortunately, in Ukraine so far there is no central agency which protects the rights of financial services consumers, no ombudsman, no active nongovernmental organizations which specialize in financial education and the protection of the rights of consumers,” said Michael Martin, Director of the USAID Office of Economic Growth. “Can we achieve progress in this sphere?”, was a rhetorical question of Andriy Olenchyk, First Deputy Executive Director of the Deposit Guaranty Fund (DGF). “Now is exactly the time when all those involved in finance should understand that, as the crisis has proved, such things as financial education and public awareness contribute to stability of the financial system. I think that much should be done not only by the state, but also by heads of financial institutions. I am sure that it is very disadvantageous to work with uninformed customers, because these customers are disloyal, dangerous and ineffective.” Financial market participants themselves – bankers, brokers, exchanges and insurance companies – must also play a role in such educational efforts. A few banks have already started to work in this direction. “We invite young people to open accounts and tell them about financial products, give them an opportunity to maintain their accounts and make their budgets,” Yuriy Blaschuk, Chairman of the Platinum Bank Supervisory Board, noted. “It seems to me that it is very promising because by making an input today, we obtain normal and competent customers tomorrow.” Viktor Lysytskyi, an advisor to Privatbank, told participants about the Junior Bank program introduced for children. “Money from depositors is the main resource of the banking system, and banks as key financial intermediaries should deal more attentively with end consumers to educate them,” Serhiy Kruglyk, Director of the NBU Department of Foreign Economic Relations, stressed. The survey is only the first step in USAID/FINREP’s efforts to promote a more knowledgeable, empowered financial consumer. “Governments worldwide are taking steps to facilitate financial literacy and search for effective ways to improve protection of the rights of consumers in the sphere of financial services,” Michael Martin said. “We rely on close cooperation with the Government of Ukraine to enlarge the opportunities for financial education and protection of the rights of consumers. Our joint purpose is to renew trust in Ukraine’s financial sector. I hope sincerely that the survey findings will be a significant contribution to a dialogue as regards further steps,” Mr. Martin said. Closing the forum Anatoliy Maksiuta thanked USAID for the initiative in conducting the survey. “The Government should formulate a strategy for the future, and I thank USAID and the FINREP Project for the fact that such a survey was conducted. I am sure that it will help the Government in elaborating an economic strategy,” Mr. Maksiuta stated.

November 11, 2010

Problems of the Public Debt Management are Discussed at a Meeting of the League of Financial Development

The issue of whether Ukraine may increase the level of the public debt further at a rapid pace became the subject of heated discussions between Viktor Pynzenyk, former Finance Minister, and Ihor Shumylo, NBU Executive Director on Economic Issues. Former Finance Minister Viktor Pynzenyk did not rule out a possibility that Ukraine would have to restructure domestic government bonds, thus declaring a technical default. NBU representative Ihor Shumylo did not agree with him. “Domestic government bonds are issued within the framework envisaged by the Memorandum with IMF and it does not threat the macroeconomic stability”, Mr. Shumylo says. Natalia Zinets, a Reuters news agency journalist, expressed her concern about the amount of the external debt and the pace of its growing. “Will the 1998 situation repeat when a technical default in fact has taken place?”, she asked. Borys Tymonkin, the Ukrsotsbank CEO, believes that the current situation with the public debt in 2010 and 1998 differs in principle. “Today the foreign exchange market does not feel foreign exchange tension as it did 12 years ago. Nonresidents have much smaller domestic government bond portfolios than they had in 1998”, the banker says.

According to the Ministry of Finance as of 09.30.2010, the public and state-guaranteed debt of Ukraine was equal to UAH 404.3 bn. Within January-September 2010 the volume of the public and state-guaranteed debt increased by 27.18% and Ukraine ranked the 13th in the world rating of the countries which are increasing their debts most dynamically. “The budget still has to cover the deficit of the Pension Fund. Is this an additional risk for the budget?”, a journalist from Reuters journalist asked the roundtable participants. Former finance minister Viktor Pynzenyk said. He is sure that the public debt to GDP ratio has already exceeded 40% and is equal to more than UAH 420 bn. However, Ihor Shumylo is sure that the government can service the existing liabilities. Pavlo Tsvetkovskyi, the Erste Bank CEO, stated that the public debt to GDP ratio has not yet reached the average European level. But in his opinion, the major problem of Ukraine is not so much the amount of the debt itself as the dynamics of its growth”. The idea of limiting the volume of the public debt up to 60% of GDP legislatively is fixed in the draft law “On Regulation of Public Debt” which is being drafted at the Ministry of Finance. In the opinion of Volodymyr Vysotskyi, “the debt growth should be accompanied by enhancing the debt management”. For example, Mr. Vysotskyi believes that the Ministry of Finance even today could make certain steps to reduce large debt payments to be made in September, 2011 (about UAH 6.5 bn). Large payments of Ukraine under the public debt fall on 2011 (UAH 53.5 bn) and 2013 (UAH 55.2 bn). “In order to avoid this problem the government should buy back such debts on the secondary market. There are ways which make it possible to do it”, Volodymyr Vysotskyi says.

Info Materials “Public Debts of Ukraine”

October 6, 2010

USAID FINREP Project Shares Financial Education Plans for Ukraine at Microfinance Center Conference

The Microfinance Centre in cooperation with the Consultative Group to Assist the Poor (CGAP) held a CIS regional Forum on Policy, Law and Regulation for Inclusive Finance in Kyiv on October 6 - 8, 2010. At the Forum session on financial education led by the Organization for Economic Cooperation and Development (OECD), Natalia Lozitskaya, Head of the USAID FINREP Communications department, gave a presentation on FINREP current and planned activities in financial education and consumer protection, and presented preliminary results of a nation wide survey of financial literacy in Ukraine.

The FINREP presentation was part of a session dedicated to financial education and protection experience and strategies. Other presentations included a general overview of financial education strategies worldwide by OECD Financial Affairs Division Principal Administrator Flore-Anne Messy, responsible for Financial Education & Global Relations. She said that interest in improving financial awareness had grown considerably since the financial crisis. On Kazakhstan, Narkhan Nurpeisov, Deputy Head of the Agency for Regulating the Activities of the Regional Financial Center of Almaty, presented the ambitious Government financial education program launched in 2007 under direct subordination to the President Nursultan Nazarbayev and planned to last at least until 2012. The program includes a financial education portal, a school curriculum, and a hotline. Poland’s Microfinance Center Consultant Piotr Korynski described the situation with financial awareness in Poland. Other presentations described experience of protecting consumers of financial services in Kyrgyzstan and in Azerbaijan.

October 5, 2010

International Teacher’s Day: Financial Education on Pension Provision for Kyiv Universities

Celebrating World Teacher’s day by illustrating the importance of education, USAID Financial Development Sector and Capital Markets Projects proceeded with their financial awareness program, distributing issues of the project’s Pension Investment Glossary among Kyiv students and teachers. Wearing a cap advertising “Knowledge is your wealth”, seven young men and women handed out 4,500 issues of the Pension Investment Glossary at some of Kyiv’s major higher education establishments.

The Pension Investment Glossary targets Ukraine’s younger generation because the under 35 will be the prime beneficiaries of changes to the pension system, in particular the planned introduction to the pension system of a mandatory accumulation scheme (also called Pillar II) Under Pillar II workers’ pension contributions will go not only towards the solidarity pension scheme as is the case today, but also to the accumulation fund where they will be invested in financial instruments to accumulate a capital and a profit over the long-term to be paid out in annuities when the worker retires.

In a “back to school” campaign held early September the Pension Investment Glossary was distributed at regional universities throughout Ukraine.

September 22, 2010

Regulators Study Concept Paper on Detecting Red Flags in Pension Fund Performances

CMP’s Senior International Accounting Expert, Benjamin Hill, presented a concept paper on “Key Indicators for Regulators on Non-state Pension Funds” at the State Commission for Regulation of Financial Services Market. The presentation focused on describing the use of qualitative and quantitative data to evaluate NPFs performances and detect “red flags” which demand additional investigation on the part of the regulators. The presentation was attended by regulators from the Department of standards and supervision over financial institutions and from the Department on prudential supervision.

“As a regulator, the easiest method for detecting which NPFs will experience problems with their businesses is to search for violations of the formal procedures required by Ukrainian law and regulations. However, regulators must take a broader view of the financial services market”, Hill explained. “Regulators act as an active safeguard for fund participants and should be inquisitive.” Benjamin Hill first described how “soft data” can be used by regulators to establish a picture of a fund’s performance. Pointing out that qualitative data can be information available that was not collected directly through the regulatory process, he listed complaints, market news, and public statements and press-releases by issuers and funds as possible useful sources. But also “drought and a bad harvest can tell you that funds that have invested significantly in the agricultural sector can be affected.”

Describing the use of quantitative sources of data in analyzing and NPFs performance, Hill noted he was “amazed” by the amount of information that is not reported by non-state pension funds in their financial statements. He also insisted that “change in the Unit Value (UV) is the best indicator of fund performance” and expressed hope that unit value accounting would be implemented in Ukraine. “We are very much waiting for strict enforcement of uniform unit value calculations.”

“We are going to use the indicator of Unit Value change”, Victor Logvinovsky, Deputy Director of Department of Standards and Supervision over Financial Institutions said.

Questions from the audience focused on issues relating to evaluating the funds’ liquidity to cover outstanding liabilities. “It is real issue because fund participants demand lump sum payments”, Logvinovsky noted.

September 17, 2010

Back to School: Financial Awareness Campaign about Pension Provision at Regional Universities

The USAID Capital Markets Project (CMP) and Financial Sector Development Project (FINREP) held a financial awareness campaign for students during the first two weeks of September, distributing 13,000 copies of the Pension Investment Glossary at key universities throughout 25 regions of Ukraine. The Pension Investment Glossary outlines the basics of the pending pension reform and explains key concepts relating to investing pension contributions in financial markets. USAID CMP distributed 6250 copies of the glossary in 58 cities using 17 local students at twenty higher education establishments in Dnepropetrovsk, Odessa, Simferopol, Lviv, and Donetsk. In order to reach a broader audience, an additional 6750 copies were been made available at libraries in 270 institutes and universities throughout Ukraine. The distribution was organized with the assistance of CEUME, a Ukrainian management education provider.

The Pension Investment glossary targets Ukraine’s younger generation because the under 35 will be the prime beneficiaries of changes to the pension system, in particular the planned introduction to the pension system of a mandatory accumulation scheme (also called Pillar II) Under Pillar II workers’ pension contributions will go not only towards the solidarity pension scheme as is the case today, but also to the accumulation fund where they will be invested in financial instruments to accumulate a capital and a profit over the long-term to be paid out in annuities when the worker retires.

September 17, 2010

Crimea: USAID CMP and FINREP Projects Help Increase Financial and Pension Reform Awareness

The “Pension Investment Glossary”, which outlines key concepts pertaining to pension investment in financial markets, was made available to students in Yalta, Simferopol and Sevastopol at four universities and institutes. The Crimean campaign is part of the USAID Capital Markets Project and Financial Sector Development Project (FINREP) “back to school” awareness program on pension financing issues through the distribution of the glossary in 58 cities throughout Ukraine.

The glossary was distributed to several libraries and handed out directly to students in Simferopol at the Crimean Faculty of the European University and the Tavria National V. Vernadsky University. Libraries of the Sevastopol National University of Nuclear Energy and Industry, the University of Economics and Management, and of Yalta’s University of Management also received copies. The distribution was organized with the assistance of CEUME, a management education provider. According to Veronika Shidlovskaya who handed out the glossary to fellow students in Simferopol, many students had questions on the subject of personal financial education. Some professors discussed the booklet in class. “The students recognized their personal responsibility for their financial well-being, not only during their working life but also in the future,” said Svetlana Soldatova, professor of economics at the Tavria National University in Simferopol. The Pension Investment glossary targets Ukraine’s younger generation because the under 35 will be the prime beneficiaries of changes to the pension system, in particular the planned introduction by 2012 of a mandatory accumulation scheme of the pension system, also called Pillar II. Under Pillar II workers’ pension contributions will go not only towards the solidarity pension scheme as is the case today, but also to the accumulation fund where they will be invested in financial instruments to accumulate a capital and a profit over the long-term to be paid out in annuities when the worker retires.

September 15, 2010

FINREP held training session for FSR specialists to improve accounting knowlegde on NPFs

The main purpose of the presentation was to improve the professional knowledge of FSR specialists on the accounting procedures used by Ukrainian NPFs and how they would differ under international reporting standards. The lecture focused on analyzing some significant discrepancies between the national and international financial reporting standards and their impact on financial reporting and information disclosure. The highlights of the analysis were the differences affecting financial reporting disclosed by NPFs in Ukraine.

“A quick switch of Ukrainian NPFs to international standards will be a very important step – both for the establishment of efficient supervision over these institutions, and for the benefit of average participants. A transfer to international standards means that NPF participants will have access to fair, objective and transparent information about the value of their investment,” said Benjamin Hill, Senior Accounting Expert for FINREP. According to Mr. Hill, current reporting rules allow NPFs to manipulate their statements. There are significant discrepancies between national and international reporting standards, such as the presentation format, pricing methods for pension units, accrual methods, calculation of depreciation, information disclosure on transactions with related entities, and valuation of financial instruments.

Mr. Hill’s presentation titled Comparison of Ukrainian Accounting with International Accounting: Impact on NPF Participants answers some questions as to how the implementation of international accounting standards at NPFs will affect their participants. Using specific examples, the expert has shown that the law still has many gaps allowing manipulation of financial information.

Over the last decade, Ukraine made significant progress in bringing the operations of its financial market participants closer to international standards. However, the work is not yet completed. The FSR should take many more difficult steps to finally harmonize Ukrainian accounting standards with international standards. Another problem is general transparency of the financial markets in Ukraine. FINREP provides technical assistance to the FSR in creating an efficient strategy for regulating and overseeing pension funds that complies with international best standards.

• COMPARISON OF UKRAINIAN ACCOUNTING WITH INTERNATIONAL ACCOUNTING
  Benjamin Hill, Senior International Accounting Specialist
  USAID Capital Markets Project; July 2010

September 10, 2010

FINREP started a series of trainings to improve bank managers’ skills

From September 6 to 10, 2010, 25 representatives of the banking sector received training under the program “Bank Assets and Liabilities Management.” The training took place with the support of the USAID Financial Sector Development Project (FINREP) and the Association of Ukrainian Banks which acted as a training partner. The business training which was conducted at the International Institute of Business took place in the form of a rather unconventional method for Ukraine – for the entire week in addition to lectures the bankers engaged in the financial simulation exercise BankExec International™ which was designed by and licensed from the American Bankers Association.

“This training program is a modern method of training bankers”, trainer Mr. Geary Vance says. “Up to eight teams manage up to eight “virtual” banks for six calendar quarters”. In the course of the training daily each team made financial managerial decisions regarding the team’s strategy for its bank. Each “quarter” each management team made decisions regarding interest rates and fees on loans and deposits, the purchase and sale of investment securities, capital issuance, marketing expenditures and policy decisions on credit risk while taking into account the economic situation in the “virtual community.” Also the behavior of competitors, their market positions and the National Bank’s regulations had to be considered by the bankers in making their decisions.

Each day participants received financial statements of their “bank,” the results of their competitors and the bank share price movement (the simulation was executed by the software program BankExec International™ on the basis of data entered into a computer from the decisions of the simulated “bank” management teams regarding deposits, loans, investment securities and capital of the bank). The team which achieved a maximum bank share price by the end of each calendar quarter and while during that quarter did not commit any violations of the National Bank’s prudential regulations was judged to be the “best” bank that for quarter. After six quarters (one and a half years) of simulated time managing the bank, the overall best bank was also recognized using the same criteria.

An economic computer model which simulates running a medium-sized commercial bank and is very similar to a real bank was used as the starting point for each team in the BankExec International™ simulation. BankExec International™ is not only an exercise which teaches the art of selection of sound strategies in practice, but it also allows participants in the training to understand the use of modern financial instruments and how those instruments help a bank to achieve its financial goals.

Certain portions of the training program dealt with a detailed analysis of the bank’s financial situation, the shaping of a credit policy and tactics of optimal attraction of deposits and the performance of decisions on currency, securities and stock markets. In the course of lectures special attention was paid to planning and analysis of the bank’s credit, liquidity and interest rate risks. At the request of the participants in the training, a separate part of a lecture was devoted to the use of interest-rate SWAPS and how interest-rate SWAPS are used to mitigate interest-rate risk in a bank. Participants could than apply the theory of using SWAPS by making decisions to buy or sell SWAPS in the financial market.

In the opinion of Mr. Geary Vance, giving a unique opportunity to the participants to very quickly assess the consequences of various managerial decisions is a distinct advantage of the BankExec International™ simulation.

“The system of training under which participants do not just sit and listen to lectures, but also make financial decisions which affect the performance of a bank increases the efficiency of the training process and contributes to a high level of interest for the class participants,” the lecturer says. In his opinion, the main thing the program has taught is how to effectively organize decisions effectively in a short period of time.

On the last day of the training the performance results of each bank were presented in the format of a ‘stockholders’ meeting” where all of the simulated bank management teams explained to their “stockholders” the results of their management decisions during the year and a half of managing the bank.

All participants in the training exercise received certificates of successful completion of the BankExec International™ training course and the winners of the virtual exercise (the bank whose share prices increased most and without a violation of the National Bank’s regulations) received personal awards from the lecturer.

August 16, 2010

Project’s New Initiative – Mortgage Calculator

Ukrainian financial system is starting to recover from the deep crisis. More and more banks declare their readiness to resume issuing loans to individuals. The first portent is mortgage lending which has been always perceived as one of the most reliable types of loans for people.

Having analyzed the causes of problems with mortgages originated in 2007-2009, the Project has come to a conclusion that partially those problems result from customers’ unawareness about loan terms at the stage of loan agreement execution. Our studies have shown that borrowers not always understood not only the legal consequences of entering into mortgage and loan agreements but also the financial aspect of that matter – how much, when, whom and for what they would have to pay.

Anticipating the period of increased availability of mortgage loans and aiming to protect the interests of banking services consumers, the Project has initiated a campaign for raising the financial literacy of the Ukrainian public. The first and the key component of this initiative is awareness-raising work regarding borrower’s right for information, which in international practice is called simply and aptly ‘truth in lending’.

The Project has designed and presents to the wide public a mortgage calculator based on compulsory Rules for Ukrainian Banks on Informing a Customer About Lending Terms and Total Loan Costs. Project specialists have tried hard to explain every component of calculator’s table.

In the future, the Project intends to supplement the calculator with a search (selection) option of loan terms which suit the customer most.

Download a mortgage calculator:  (MS Excel workbook)

July 22, 2010

Survey Data Revealed Low Awareness of Pension Reform Issues by Ukrainians

On July 22, 2010 the results of a public opinion survey of Ukrainian attitudes toward retirement and pension reform were released at a presentation held at the President Hotel in Kyiv. Results of the survey spurred great interest - more than 100 participants took part at the presentation, including officials of the Cabinet of Ministers of Ukraine, the Verkhovna Rada committees, the Presidential Administration, central bodies of executive power, regulators, capital markets professionals, social partners, academics, international experts, and media representatives. Commissioned by the USAID Capital Markets Project and the USAID Financial Sector Development Project (FINREP), the survey was carried out in June 2010. Its most important topics included: retirement age and providing for retirement, public knowledge and opinions about pension reform, saving habits, financial awareness of Ukrainians and their confidence in state and private financial institutions. The survey was based on the responses of 2,007 Ukrainians, aged eighteen and over, from across all Oblasts and Kyiv City. 1,104 women and 903 men were asked their opinion on retirement and pension issues in 30 minute, face-to-face interviews. Within a general population of Ukraine, an age group of 18- to 36-year-olds who will be the age group targeted by the second pillar of the pension reform was over-represented. Characteristics of this group’s opinions and attitudes were of special interest to the USAID Capital Markets and FINREP Projects. The field research was conducted by the Ukrainian public opinion and polling firm, GfK Ukraine. Addressing the participants of the presentation with a brief speech, Director of the Office of Economic Growth of USAID Michael Martin said that USAID is pleased to contribute to the discussion of pension reform through its support for a national survey which asks Ukrainians about retirement and pension reform. “Informed public opinion helps to set the policy agenda and shapes the “art of the possible” for policy-makers facing difficult challenges such as pension reform”, - said Mr. Martin. The survey results were presented by Natalia Goryuk, the Project’s Senior Pension Lawyer. The survey revealed that most Ukrainians know little about the changes to the pension system introduced since 2004. Of those who recall a change, they remembered changes in the size of the pension payment. By comparison, only 2 percent of the respondents spontaneously cited Pillar II and Pillar III structural reforms, and another 2 percent mentioned non-state pension fund opportunities when asked what changes occurred in pension system since 2004. The survey also found that most Ukrainians (70 percent) do not believe that they will have sufficient income to finance their “golden years.” They also believe that providing for a secure retirement is the joint responsibility of the government and the individual (slightly more than 50 percent), and yet a majority of respondents (75 percent) plan to rely on a state pension in the future. According to the survey results, the majority of the population is strongly opposed to an increase in the retirement age (86%), and there is little support for limiting the payment of benefits to pensioners. This is true for all age groups and educational levels. The only exception to this is a strong preference to eliminate special pension benefits to high civil servants, judges, members of the Rada and some other persons. A separate survey section was devoted to the financial literacy of the population to determine the level of public trust to various financial institutions and instruments. The level of trust to most financial institutions remains very low. Government financial institutions are more trusted than private ones. The most trusted financial institution is the Pension Fund of Ukraine, followed by state-owned banks. The survey revealed that the level of public awareness of the pension reform remains very low and requires significant efforts from the Government to carry out an effective public information campaign. ‘What we have to do is accept the document (about the survey data) as a genuine expression of the concerns of the population and not as a criticism of what is proposed. We have to take answers to the survey questions, analyze them and use them as a basis for developing a program of public information campaign to explain to the population what will have to be done’, - says Greg McTaggart, Senior International Pension Reform Advisor of USAID Project. According to him, the survey data will provide the Ukrainian Government with important information to push forward an effective pension reform. Presentation Materials

July 7, 2010

The FINREP Project Supported a Public Discussion between thee National Bank of Ukraine, Journalists and Representatives of Commercial Banks

“Though the banking system is gradually recovering, since the start of the year the volumes of loans granted are falling”, Vasyl Pasichnyk, a Deputy Governor of the National Bank of Ukraine, said opening a regular meeting of the financial press club which was held by the League of Financial Development with the assistance of the USAID FINREP Project. The subject proposed for a public discussion by journalists – how to increase the volumes of crediting the economy and to enhance reliability of the banking system – turned out to be crucial for the bankers and the mass media present there.

The banking system has yet to overcome despite the positive dynamics of macroeconomic indicators. “If you analyze the financial activity of banks, you will find out that for 6 months of the current year the first 20 top banks are losing assets”, Igor Yushko, CEO of the Sberbank of Rosiyi subsidiary, says. In his opinion, the main problem is that many banks have not managed to get enough “long” money. “They continue to raise expensive “short” liabilities repaying their old debts. At the same time banks do not credit new projects since there is a substantial deficit of high quality borrowers”, Igor Yushko says. For the last 5 months the revenues of the banking system have reduced by 11.3% and the financial result remains negative (-UAH 7.5 billion). “The liquidity crisis is being replaced by the crisis of profitability”, Yushko says.

The key point which participants of the discussion tried to clarify was: do commercial banks and the regulator itself exert enough efforts to increase reliability of the banking system in the new postcrisis conditions? As it tuned out during the roundtable meeting bankers and journalists unlike NBU representatives are not quite sure whether it will be possible to come out of the current recession very quickly. Some participants expressed opinions that the current arsenal of anticrisis measures of the central bank was not sufficient for a quick growth of the banking sector.

The published findings of the analytical group of the League of Financial Development confirm that many bankers believe that the current system of banking supervision is imperfect and does not make it possible to effectively protect the interests of common depositors. Francois Bernaroya, CEO of UkrSibank BNP Paribas, says that “today a great deal of not so stable and reliable banks have a license for attracting contributions from the population”. In his opinion, the existing legislative limitations for the banks which work with the population are evidently not enough effective since they “not quite efficiently protect clients from small unreliable banks which at the beginning raise funds at high interest and then declare themselves bankrupt”. Ruslan Chornyi, a Kommersant Ukraine journalist, believes that the problem is not in the context of licensing, but in the system of supervision over financial institutions. He is sure that under current conditions banking supervision should be “substantially” strengthened to improve the banking system resilience. “If the current banking supervision is not changed, again you will be able to see the old picture which we observed during the crisis – the situations similar to the bankruptcy of Ukrprombank where the money was removed from the bank very quickly and the bank was falling in front of your eyes”, he says. The crisis demonstrated that the current system of prudential supervision over the banking sector needs additional strengthening of evaluation of bank qualitative indicators. Anastasiya Tuyukova, a Dragon Capital investment bank analyst, believes that even this is not enough. In her opinion, it is required to enhance transparency of quality control of the bank risk management system by introducing compulsory disclosure of financial reporting of banks in compliance with and according to requirements of international standards.

Vasyl Pasichnyk tried to persuade participants of the press club meeting that everything was normal in banking supervision, though he agreed to the fact that “the sector needs continuous improvement”. “We lived through the crisis smoothly, we did not have so many bankrupts as our neighbors had”, Pasichnyk says, - and this is an indicator of high quality supervision. According to an NBU representative, the banking sector has already come to itself after the 2008 - 2009 crisis. In the opinion of the regulator, the improvement of the situation was promoted by the political stability and the current conjuncture of external markets. According to the Ministry of Economy, for the last three months a debit balance of payments has been preserved. This, in its turn, enabled the National Bank to replenish gold holdings. “Complete renewal of confidence is evidenced by the current dynamics of the increase in the number of deposits,” Mr. Pasichnyk assures. The average rate of the growth of deposits of individuals this year is plus 15%.

“Illiquidity” observed now in the banking system (at present more than UAH 30 billion is on correspondent accounts of banks and about UAH 20 billion is in cash departments) has resulted major banks reducing the deposit interest rates gradually. “Big banks definitely will be also followed by other banks which will reduce the rates”, - CEO of the Starokievsky bank Yuriy Yaremenko assured those present. But there is the other side of the coin – the deterioration of imbalance between the structure and the price of assets and liabilities. In the opinion of Yuriy Skolotianiy, a journalist of the Dzerkalo Tyzhnia weekly, currently a considerable imbalance between expensive short liabilities raised by banks and the absence of real opportunities to invest in high quality assets has been formed. “This heightens the banking system risk considerably,” the journalist says.

That’s why some participants of the roundtable stated that for the sake of enhancing reliability of banks the National Bank should raise requirements to capital of the banks which are entitled to work with the population. But the majority of bank owners (except for foreign parent structures of major banks with foreign capital) are reluctant to invest big money in “their” banks. “Profits of the banking business remains negative”, Oleksiy Yankovyi, an Interfax-Ukraina agency correspondent, explains.

Despite the above problems Ukrainian banks faced, according to NBU, they managed to solve quite quickly one of the problems – restructuring of debts of problem clients. Thus, according to the data made public at the meeting of the press club, commercial banks have managed to conclude 187,000 agreements with individuals on restructuring debts for the total amount of UAH 21 billion.

Separately, in the course of the press club meeting journalists raised the issue of the NBU transparency. Mr. Yankovyi, for example, believes that NBU should publish more promptly the information on appointing provisional administrations in commercial banks and on decisions to suspend certain points of banking licenses. “Why should people receive this information when it is too late to do anything with deposits?”, the journalist stated as a rhetorical question. Dmytro Zinkov, OTP Bank CEO, also is sure of the important role of effective communications of NBU in improvement of the banking system indicators. In his opinion, it would be very good if NBU would carry out special explanatory work among depositors, publish reliability ratings and instructions for depositors which would describe quite clearly all risks of placing money on deposit with banks.

The discussion supported by the USAID Financial Sector Development Project had the primary objective – to give an estimate of the current situation which has been formed in the banking sector and offer to regulators quite specific instruments of regulation and supervision which would make it possible to considerably improve the financial sector resilience.

July 7, 2010

USAID FINREP Supports Top Level International Financial Reporting Standards Conference

International and Ukrainian top level financial and accounting professionals convened for a two-day conference to discuss the full adoption and implementation of International Financial Reporting Standards (IFRS) and International Standards of Accounting (ISA) in Ukraine. Organized by the International Business Conference, the event highlighted cooperation between the Institute of Certified Financial Managers (ICFM), the Ukrainian Auditor’s Chamber, and the Securities and Stock Market State Commission (SSMSC). It was supported by the USAID Financial Sector Development Project (FINREP).

The July 7 opening ceremony provided the ICFM with the opportunity to thank a number of participants for their input in helping Ukraine reform its accounting and financial standards. Mike Martin, Director of the Office of Economic Growth of USAID/Ukraine was presented with an award in name of USAID as the best supporter of the adoption and implementation of IFRS for the year 2010. FINREP Project also received an award as the Best Partner of the Year 2010.

USAID Acting Mission Director Robin Phillips took the floor on the second day of the conference to welcome participants. He stressed the importance of “Ukraine’s transition to IFRS and ISA” and noted that these international standards have become a global standard, implemented throughout the world. He also applauded the Ukrainian Government’s efforts to reform financial reporting in Ukraine. Speakers discussed the effect of IFRS implementation on attractiveness for investors, the role of auditors in ensuring economic stability by restoring investor confidence and responding to demands of accuracy in accounting. Chairman of the SSMSC Dmitry Tevelev made a case for the necessity of implementing IFRS in Ukraine. Other participants included Vasil Volga, Chairman of the FSR Ukraine, Natalia Ruban, Deputy Chairman of the State Tax Administration, Ivan Nesterenko, Chairman of the Auditors Chamber of Ukraine, and Vera Rychakovskaya, Chief Accountant, Director of the Accounting Department, and Member of the Management Board of the National Bank of Ukraine. International speakers included Arnold Schilder, Chairman of the Netherlands International Auditing & Assurance Standards Board (IAASB) as well as David Damant, Chairman of the United Kingdom’s IAASB. Michael Wells, Director of the UK IFRS Education Initiative, Wayne Upton, Director of International Activities for UK International Accounting Standards Board, and Garry Carter, Chief Executive of ICFM.

July 6, 2010

Journalists of Leading Business Media Learn to “Read” Financial Reporting of Banks

The League of Financial Development with the assistance of the USAID Financial Sector Development (FINREP) conducted a second training for journalists who write on financial and economic subjects. This time Yuriy Blashchuk, Chairman of the Supervisory Board of Platinum Bank, held a training seminar called “Assessment of the Financial Situation of Banks of Ukraine or How to Read Financial Reports of Banks”.

Mr. Blashchuk explained to journalists how to analyze the structure of assets and liabilities of a bank and to evaluate the assets. He also explained how important reliability and liquidity indices are. Mr. Blashchuk also told in detail about rating systems used to evaluate the financial situation of a bank, and more specifically, about the CAMEL method of assessment which takes into account such indices as capital adequacy, quality of assets, bank management quality, the rate of return, and liquidity.

“We would like financial journalists to learn to work with information, to be able to analyze financial reporting of banks, and it seems to me we have managed to do it”, Yuriy Blashchuk said. The journalists then tested their skills and best “analysts” received awards from Platinum Bank.

June 24, 2010

Master-class in Bank Crisis Management for Media Held with FINREP Support

The League of Financial Development, a not-for-profit organization promoting quality coverage of financial issues in the media, held a master-class for journalists on bank crisis management, with the technical support of the FINREP.

The goal of the seminar was to give journalists insight about the principles and practices put in place by key retail banks to manage the consequences of financial crisis. Volodymyr Lavrenchuk, the Chairman of the Board of Raiffeisen Bank Aval met with a group of business journalists to share his experience of how Raiffeisen Bank Aval steered its activity and that of the institution’s hundreds of local branches through the 2008-2009 financial crisis.

The League of Financial Development organizes master-classes on a regular basis as part of its program to improve the local media’s understanding of the financial sector.

June 14, 2010

FINREP Supports Discussion of Capital Attraction and Revival of Lending to the Economy

The League of Financial Development with support from the USAID Financial Sector Development Project (FINREP) held a press club meeting titled External Resources: How to Attract and Make Them Work for the Economy? The event was attended by the NBU Executive Director Anatoliy Baliuk and the bankers: Roman Shpek, Vice President of Alpha Bank Ukraine; Pavlo Tsetkivsky, Acting Chairman of Erste Bank; Maryna Bykova, Deputy Chairperson of Sberbank of Russia Subsidiary), and 15 reporters of the leading business mass media.

In their discussion, the bankers and the reporters focused on how banks and the economy can quickly draw foreign and domestic resources for efficient lending. The regulator, financial market participants and the reporters fervently discussed, what it is that currently hampers the growth of lending and further growth of the economy. Some participants believed banks had no problems with resources and very soon they would face the impact of holding an excess of expensive liabilities and a deficit of top quality suppliers, while the others saw the problem in the urgent need for drawing new additional resources to the Ukrainian economy and said the Government and the NBU were to take some serious steps to strengthen lending capacity of banks.

Separately, the participants talked about macroeconomic tools used by the NBU and the MoF to facilitate lending in the country, such as interest rate, monetary, reserve and currency policies. According to Roman Shpek, any lending requires efficient monetary and lending regulation. However, high quality and predictable policy provides for a fairly limited influence of the Government on the lending market. Mr. Shpek hinted that MoF’s actions hampered lending: “The Government (MoF) has already taken about UAH 60 bn away from the market through the issuance and sale of government bonds. This left the banks with fewer lending resources.”

The roundtable was first to discuss the Law of Ukraine #6337 newly signed by the President which provides for a significant cut of provisioning requirements for banks that provide foreign currency denominated loans to their borrowers. The approval of this document may encourage the growth of lending. Maryna Bykova believed stable currency to be one of the key factors behind further growth of lending. However, stable currency alone is not enough to allow banks draw external resources more intensely and channel them into the economy. Roman Shpek was convinced that financial resources were not coming into the economy for a very different reason which was the weakness of borrowing companies. According to the bankers, the Government might help companies, for instance by paying VAT back without delay. In that sense, the issuance of VAT bonds was a good step by the Government. “We expect the Government to play by the rules and repay its debt online, - Roman Shpek said. – New cash flow will increase the capacity of businesses to take new and bigger loans.” At the same time, Pavlo Tsetkivsky saw the problem not so much in the borrowers or state regulation only, as in banks too. “Banks used to enter the market very aggressively ignoring currency risks completely. Now, they learned a very good lesson from the crisis”, the banker said.

Another problem was that both banks and their clients still did not have a chance to actively use complex financial instruments that allowed to cut interest and currency risks (swaps, derivatives, futures and options). “The Government and the NBU must increase foreign currency denominated investment into Ukraine without creating extra hryvnia devaluation risks”, said Anatoliy Baliuk. He promised all roundtable participants that the NBU had enough resources in its reserves to keep the currency stable. The reporters in their speeches said the NBU was not transparent enough. “Only transparency can bring new capital to the country,” Natalia Zinets, the Reuters reporter, commented. This rule works both for individual financial institutions, and for the whole countries.

June 11, 2010

USAID FINREP Supports Ministry of Finance Professionals’ World Bank Training in Debt Management

The World Bank Treasury held a seminar from May 30 to June 11, 2010 in Vienna on debt management strategies for finance ministry and central bank staff from over a dozen countries. The World Bank treasury - which manages funds and provides expertise for the World Bank Group -invited two Ukrainian Ministry of Finance professionals, Yury Drachuk, Deputy Head of Debt Division, and Oksana Bura of the Debt Management Strategy Department, to attend two workshops, one on “Designing Government Debt Management Strategies” and another on “Implementing Government Debt Management Strategies”. USAID FINREP provided technical assistance to the Ukrainian participants. They were accompanied by FINREP Government Debt Expert Paul Roberti.

The seminar was held at the Joint Vienna Institute (JVI), a centre that provides training to officials and managers from countries in central, eastern and southeastern Europe, the Commonwealth of Independent States, and Asia that have made or are making the transition from centrally planned to full market-based economies.

The workshops are designed by the World Bank Treasury tailored to the needs of management staff who are directly involved in the design or implementation of debt management strategies. Its goal is to provide participants with hands-on experience of best practices in the sector of debt management.

Earlier this year, FINREP provided technical assistance to MoF in drafting the Ministry’s first debt management strategy. The WB seminar is meant to enhance the capacity of key MoF counterparts to create and implement a debt management strategy.

The workshops are structured around presentations and practical assignments in groups. Welcoming remarks were presented by World Bank Treasury’s Lead Financial Officer Elizabeth Currie. The organization’s capital markets practitioners introduced mathematical models and metrics as tools to establish a debt management strategy. Seminar participants then used these tools in practical exercises that demonstrated the scenario modeling that Turkey recently adopted to create a debt strategy. The WB team later guided exercises that demonstrated implementing the created debt strategy through issuance of securities, highlighting various methods of financing internal and external debt through different types of instruments, maturities and structures. The team also learned how to evaluate positives and negatives of various decisions, such as introduction of a primary dealer system.

June 7, 2010

FINREP Supported Discussion Between National Bank, Journalists and Bankers

The League of Financial Development and the Weekly Mirror Newspaper conducted a session of the Financial Press Club, an joint initiative of the banking industry and financial journalists to promote an improved understanding of financial sector issues by the general public. The press club meeting which focused on “How to Balance Interests of Banks, Government and People”, received technical support from the USAID Financial Sector Development Project (FINREP). The Press Club discussion was devoted to a set of amendments drafted by the National Bank of Ukraine (NBU) together with the banking sector to increase the protection of lending institutions. The Draft Law of Ukraine On Amending Some Laws of Ukraine (Relating to Creditors Rights Protection) is currently being reviewed by the Cabinet of Ministers. Ukraine’s leading financial journalists crossed swords with the initiators of the law, arguing that some of the proposed amendments violate consumer rights.

The Press Club discussion brought together Victor Novikov, Legal Department Director, National Bank of Ukraine, and, representing the banking industry, Serhiy Naumov, Supervisory Board Chairman at Ukrsibbank, and on the press side, Ruslan Chornyi (Kommersant Ukraine), Boris Davydenko (Delo), Vlad Golovin, (Livyi Bereg), Olha Halytska (Economicheskie Izvestia). 25 journalists and 7 TV channels attended the event.

The most contentious provisions of the bill concerned the foreclosure procedure, debt modification rules, and the scope of consumers rights protection vs. “bankers’ rights” protection.

Naumov insisted that the banking community needs to push through the urgent amendments, arguing that banks, not consumers, were insufficiently protected. He argued that banks do not pursue the goal of mass defaults and do not want to deal with selling off property, and therefore systematically do try to accommodate what he called “honest” borrowers. Some elements of lending rules that the industry wants to see changed are: the procedure for borrowers’ debt repayment, the foreclosure procedure and the operation procedure for the bailiff’s office and notary in enforcing court rulings on mortgage delinquency. For instance, the draft law proposes to deprive borrowers of the right to dispose of collateral should they have more than two months loan delinquency and to let courts issue rulings allowing eviction of people from the mortgaged apartments based on banks applications. It also provides for a ban on a popular scheme of bankruptcy recognition for individual entrepreneurs.

However, the journalists argued that the proposed bills may infringe people rights. “It’s a harsh bill and so far it’s not clear who would protect borrower-consumers,” Boris Davydenko, the Delo Newspaper correspondent, remarked, supported by Anton Odaryuk, Editor of Yours Section in the Segodnya Newspape. Odaryuk added that banks had abused their rights by unilaterally increasing interest rates under their credit agreements. He also pointed out that by not returning people’s deposits, banks violate Article 1060 of the Civil Code of Ukraine (which guarantees people immediate withdrawal of their banks deposits on their first demand). Journalists remarked that the adoption of such important bills must follow an open debate to minimize possibly abusive clauses.

Naumov argued that the Draft Law simply “implements European standards of mortgaged property write-off”.

Meanwhile, Victor Novikov, Legal Department Director, National Bank of Ukraine assured the press club participants that the National Bank supports not only banks but also consumers. He underlined that the NBU has never participated in the court hearings on the part of banks which practiced unauthorized increase in credit interest rates. “However, we do not want certain unscrupulous borrowers to use the loopholes in the legislation for their personal enrichment and fraud”, he added, arguing in favor of the Draft Law.

Novikov also said that the National Bank is drafting separate bills on the protection of financial services consumers’ rights. “We already have the European laws and directives on consumers rights protection translated. We will gradually implement them in Ukraine”, he assured.

Financial Press Club: Materials

May 26, 2010

USAID FINREP Co-hosts High-Profile Round-table on the Mortgage Market in Ukraine

May 14, 2010

FINREP Offers Weekly Updates about Domestic Government Bond Market Trends

A healthy domestic government debt market has established itself as a traditional source of financing for governments. It also tends to help foster the development deeper capital markets. As part of its mission to assist the Ministry of Finance, the Securities and Stock Market State Commission, and other financial market participants to develop the domestic securities market, FINREP is launching the “FINREP Focus”, a bulletin dedicated to developments on the Ukrainian government domestic debt market. As in most investment sectors, information is a key element in building sound securities markets. That’s why every week FINREP experts will analyze and compare relevant information concerning Government-issued securities. The weekly Focus will inform readers about:

• how much funds were raised for the State Budget through the auction of bonds;
• the average yields and maturities of the bonds sold;
• who is buying and eventually holding this public debt;
• Levels of debt repayment; and
• and interest rate trends and yield curve.

Please give your comments and stay tuned for the next issues.

May 13, 2010

The USAID Financial Sector Development Project Supported the Initiative of Journalists

On May 13, the USAID Financial Sector Development Project entered into an agreement on cooperation with the League of Financial Development (LFD) on support of information round-tables on financial sector reform and the subjects pertaining to financial literacy. A Protocol on Cooperation was signed by Ms. Ann Wallace, FINREP Chief of Party, and Mr. Volodymyr Scherbak, LFD’s Executive Director.

The League of Financial Development (LFD) is an independent non-government public organization, the goal of which is the development of the financial system of Ukraine in the interests of all participants – the state, financial institutions and citizens. The lead financial journalists of Ukraine have become co-founders of the League of Financial Development. The initiative on establishing the League is supported by representatives of several international organizations, experts groups, and people’s deputies. “Observing the problems that arose in the financial sector over 2008-2009 we understood that one of the main crisis factors had been an extremely low level of trust of the population in banks and their regulators”, journalist Yuriy Skolotianyi, one of its initiators, says. “In order to amend the situation it is required, first of all, to initiate an open and frank dialogue between all interested parties. That is exactly why we decided to set up such a discussion platform – the Financial Press Club, one of the projects of the League of Financial Development. Mr. Volodymyr Scherbak, LFD’s Executive Director, assures that the League will uphold establishing civilized and transparent rules of the game on the financial market, facilitate post-crisis reforming and strengthening of the financial system.

“We hope that our support of public discussions between government officials, market participants and the mass media that the League of Financial Development (LFD) is introducing will accelerate a renewal of trust of the population in the financial sector. This is also one of the tasks of the FINREP Project”, Ann Wallace, FINREP Chief of Party, says.

The League of Financial Development implements its projects in several formats – press clubs, roundtables, conferences, Internet conferences. These are different forms of discussion platforms for public discussions of urgent economic and financial subjects between representatives of banks, market regulators and the mass media. The League also plans to establish an Independent analytical center and an Expert council of economic scholars. The Council will include representatives of scientific circles, experts of international organizations, and financial analysts. Expert examination and an analysis of proposals on amending the regulatory and legal framework will be the main task of the Council. In May the League will initiate cooperation with the organizations which deal with protection of the rights of financial services consumers. On its part, the FINREP Project will actively contribute to an unbiased discussion of the problems of protection of the rights of financial services consumers; it is especially related to the improvement of the methods of restructuring credit commitments of borrowers who suffered from the financial crisis.

To effectively develop financial markets it is important that any legislative initiatives should undergo a public examination by experts. Establishment and development of nongovernment public organizations that would conduct a high quality and unbiased examination of actions and decisions of the authorities suggesting alternative decisions are an extremely critical precondition of the formation of a full-fledged dialogue between the state and the public.

March 26, 2010

Bankers Unite their Efforts in Renewing Trust to the Banking System

FINREP acted as a co-organizer of the roundtable “Renewal of Banks Credibility” held under the auspices of the Association of Ukrainian Banks on March 26. This workshop was attended by representatives of 27 commercial banks, including four regional banks. This has been the first frank discussion among the marketing units of banks on how banks can enhance their reputation in the eyes of the population.

“The task of restoring banks’ credibility is the corner stone of enhancing the banking system”, said Mr. Serhiy Shumylo, AUB Press Secretary. “This event is our attempt to organize a forum for bankers to exchange their experience”. The primary goal of the workshop was strengthening the role of the financial sector and uniting the efforts of banks in the post-crisis period. About USD 20 million was spent by banks for advertising in 2009. Nevertheless, no more than between 7% and 10% of the population have trust in banks today. This has not been exclusively due to the fact that some banks had a liquidity crunch during the financial crisis and were unable to meet their obligations. The problem is that banks were promoting their individual brands, and nobody is concerned about the image of the banking system as a whole.

This workshop has been the first frank discussion in a format “without press” about the ways to restore banks’ credibility. The workshop participants discussed the issues of banks’ integrity and fairness in customer relations, as well as the motives of customers when selecting particular banks. Mr. Volodymyr Leonov who had worked as a Communication Director of Ukrgazbank for more than 10 years and is presently the Director of the “Center” analytical group, made a presentation entitled “Peculiarities of the Behavior of Clients in the Crisis Period”. He analyzed the factors influencing the behavior of clients in the crisis period. The most valuable points in his report was the record of the bank’s work with the new media forms, such as web sites, portals and blogs, having an impact on the reputation of banks.

A separate part of the workshop was dedicated to bank strategies as regards relations with the traditional printed media in the crisis period. Ms. Yelena Derevianko, Vice President of the Ukrainian PR League, shared her PR recipes for improving positive perception of banks by customers. In her opinion, the mechanism of cultivating positive expectations by customers with regard to financial institutions is based on the following four pillars: the customers’ perception of a bank’s trustworthiness (including its reputation, business processes application practices, and its promo activities); customers’ loyalty; the level of financial literacy, and trust culture in society. Mr. Stanislav Dubko, Director General of Credit Rating, an independent rating agency, is certain that no inflow of new customers is possible unless the banks disclose their information and take special care of their transparency. He also spoke about the relationships between the credit ratings of financial institutions and banks credibility with customers. Ms. Antonina Armashula, Marketing Director of Mark Tapley, presented a review of international practices of building up long-term relations with clients by such banks as First Direct, Сhe Banka, MoBank, and Virgin Money. She also spoke about the significance of the new media impact on the cultivation of trust based customer-bank relations.

“Internet, forums and social media are becoming ever more important as an element of the bank’s image. Obviously, one needn’t respond to each wild accusation and try to exonerate oneself, but it is necessary to keep record of what people say about you”, Ms. Armashula went on to say. First Direct Bank (http://www1.firstdirect.com/1/2/), for instance, has created a special news aggregator on its site, with the home page of the bank’s portal posting information on what is being said about the bank in the Net.

Going forward, FINREP intends to co-organize more discussion events aimed at enhancing the financial sector credibility and improving the quality of banking services.

December 16, 2009

FINREP Experts Participated at Insolvency Reform Workshop

On December 16, 2009 FINREP experts participated at the workshop on insolvency reform organized under the auspices of the Ministry of Economy of Ukraine with support from the IFC.

The workshop was focused on the potential for reform of Ukraine’s bankruptcy system and, more specifically, for streamlining the regulatory framework for insolvency administrators and for the development of rules and tools for out-of-court workouts. More than 100 participants, including high level government officials from the Ministry of Economy of Ukraine, the State Department of Bankruptcy, representatives of international donor community, foreign and local law and bankruptcy experts and think tanks discussed the issues of the economic and financial perspective of non-performing loans in the corporate sector, consequences of corporate distress on financial institutions as well as practical impediments to successful insolvency proceedings in Ukraine.

Speaking at the workshop were international experts from the World Bank, IFC, International Monetary Fund, EBRD, United Nations Commission on International Trade Law (UNCITRAL), and the Professional Association for European Restructuring and Insolvency Specialists (INSOL). They shared their experience on tackling the key issues of insolvency reform and presented an overview of international experience on the role of out-of-court workouts and expedited (pre-packaged) bankruptcies in a modern insolvency framework.

The workshop was a very practical and timely event that provided international expertise to facilitate resolution of problems in Ukraine as result of the crisis.

December 11, 2009

FINREP Specialists Attended Debt Restructuring Seminar

On December 11, the World Bank and IFC hosted a seminar on debt restructuring in Ukraine. It brought together representatives of commercial banks, banking associations, non-government research organizations, and international organizations, including FINREP experts to discuss the complex and critical issue of bad loans in Ukrainian banks.

Participants of the seminar also raised concerns as to the magnitude of bad debt and discussed the issues of non-performing loans (NPLs) treatment and assets disposal, legal framework for efficient bad debt workouts as well as the role of asset management companies in debt resolution. At the seminar there were presented proposals to simplify handling of distressed hard currency denominated retail debts, and recommendations as to the changes to the current legislation on judicial debt resolution.

December 3, 2009

USAID Announces Launch of the FINREP Project at the Bank Transparency Presentation

On December 3, international rating agency Standard & Poor’s presented the results of the study “Transparency and Disclosure by Ukrainian Banks 2009” together with representatives from the National Bank of Ukraine, the Securities and Stock Market State Commission and USAID.

The survey, a joint research project by Standard & Poor’s and the Financial Initiatives Agency, a private independent Ukrainian think tank, was supported by the USAID Capital Markets Project.

According to the survey, the transparency index increased to almost 49% from 45% in 2008. Of 28 banks surveyed both in 2009 and in 2008, 16 showed an increase in transparency with an average improvement of some 11.2 p.p., and 12 banks showed a weaker performance, falling 5.5 p.p. on average in 2009. Though there was an improvement by 4% of the overall transparency index, this result still falls significantly short of international norms, and Ukraine needs to do more.

The study was based on public information alone. Its methodology, developed by Standard & Poor’s, is based on 116 criteria of disclosure grouped in three blocks: ownership structure and shareholder rights, financial and operational information, and board and management structure and processes.

The study showed that the extent of disclosure was the greatest in matters pertaining to ownership structure and shareholder rights (56.6%). “As in previous years, disclosure of the supervisory board and management structure and processes showed the poorest results, “releasing only 41.9% of the information needed by investors,” remarked Alexei Kutsenko, an analyst from the Financial Initiatives Agency, presenting the research. As for the transparency champions, there have been some changes in the top three banks since 2008. VAB Bank came in first with a score of 71.4%, after ranking third in 2008. Forum bank was second in 2009, with a score of 68.8%, having failed to even break into the top ten in 2008. In third place was 2008’s winner, Ukrgazbank, which saw its score fall to 66.2% from 71.2%.

Speaking at the presentation, USAID Acting Office Director of the Office of Economic Growth Paul Richardson seized the opportunity to announce the launch of FINREP,a new 13 million dollar financial sector development program for Ukraine by USAID. The project focuses on the goal of assisting Ukraine in developing a more transparent and resilient financial sector.

The three-year project will continue USAID’s work in capital markets. It will pursue four main goals: strengthening the legal and regulatory environment for banking and the capital market; enhancing organizational capacity of financial sector institutions to implement reforms; assisting vulnerable Ukrainians with financial relief planning; and expanding the domestic securities markets to mitigate financial stress and broaden the financial base.

FINREP will be implemented in close coordination with a wide range of Ukrainian partners, as well as international partners (the IMF, the World Bank and other donors).