The NBU may legally ban the issuing of deposits

The NBU may legally ban the issuing of deposits
The NBU will disperse the clouds of depositors of commercial banks
Photo: Reuters

On Monday, the Cabinet of Ministers registered in the Verkhovna Rada bill No. 1564 on measures for the capitalization and restructuring of banks initiated by Premier Arseniy Yatsenyuk. In the document it is proposed to make amendments to the law on the National Bank of Ukraine. The drafters of the amendments want to legislatively empower the central bank to prohibit the issuing of bank deposits, effectuating transfers, settlements and hard currency transactions by financial institutions. The NBU will be granted such a function if it discovers signs of “the erratic state of the banking system, which threatens its stability and the interests of depositors and other creditors of banks”, it is written in the bill.

Same mistakes

Lawyers note that such a norm directly contradicts the Civil Code and limits the rights to private ownership. The bill does not change the norm in the Civil Code. The NBU should not intervene in civil legal relations between the bank and its clients. For this reason, a bank cannot refer to “certain restrictions of the NBU” as grounds for the non-return of deposits.

“The refusal of the bank to issue deposits upon the demand of depositors even if it is based on the ban of the NBU will be illegitimate and can be challenged in a court of law,” says lawyer of the law firm Ilyashev & Partners Oleksandr Vyhovskiy. Amendments to the Civil Code must be made in which it is clearly specified that term deposits in banks can be prematurely withdrawn only upon the bank’s approval, leading analysts of the Expert Rating agency Vitaliy Shapran agrees.

Meanwhile, the NBU is already drafting amendments to the Civil Code that will ban premature withdrawal of deposits. NBU Governor Valeria Hontareva stressed on more than one occasion that all deposits today are de-facto deposits on demand.

“The possibility of premature withdrawal of deposits is destructive to the banking system and the economy of Ukraine as a whole,” Managing Partner of the Capital Times investment company Eric Naiman believes. In January-November clients withdrew 30% of their deposits in hard currency accounts and 15% from hryvnia accounts.

Deposits are a source for the issuing of loans. For this reason we are observing a wave of premature withdrawal of deposits, which is creating an imbalance. “We must grant the NBU the right as the body responsible for the situation in the banking sector to introduce similar restrictions manually. To a great extent, due to the absence of such a right and the fear of NBU officials of violating the law we have what we have – a large number of problem banks and excess devaluation of the hryvnia,” says Naiman.

Special case

But at the moment civil rights are not very effective in Ukraine, experts noted. In order to stop the outflow of deposits the NBU already introduced certain restrictions. Today, up to UAH 150,000 can be withdrawn from hryvnia accounts per day and up to UAH 15,000 in the dollar equivalent from hard currency accounts only when the term of deposit expires.

“The bill should specify that the norm applies specifically to premature withdrawal of deposits or the approach should be from the perspective of the Civil Code that excludes the right of premature withdrawal of deposits. Even if this is not directly banned then the bill should envisage that only certain deposits can be withdrawn prematurely. Russia took this approach five years ago by adopting the corresponding amendments to the Civil Code,” Chairman of the Arbitration Court of the Association of Ukrainian Banks Anatoliy Zhukov underscored.

“Savings deposits can be made in Ukraine today, but they are called current accounts with accrual of interest. Interest on such accounts is around 10-15% and the money from such accounts can be withdrawn upon first request. The right of premature withdrawal should be preserved, but for long-term accounts such a right should be cancelled,” says Zhukov. If 20% of depositors want to retrieve their money simultaneously, then banks will become insolvent. I question the return of deposits in VAB Bank and Delta Bank.

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