Comment on the Decree of the National Bank of Ukraine № 863 of December 25, 2014 "On Approval of the Procedure for Determination of Systemically Important Banks"

Recently, the National Bank of Ukraine promulgated Decree number 863 of December 25, 2014 "On Approval of the Procedure for Determination of Systemically Important Banks." At first glance, the National Bank of Ukraine used the known solutions generally accepted in the international banking environment, which govern the behavior of the financial regulator concerning major players in the market during the crisis period, and this solution for today's Ukraine is the most actual.

However, after a thorough acquaintance with the aforesaid Decree the feeling arises that the concept of "systemically important banks" transferred on Ukrainian soil will only increase the chaos in the national banking sector, as the allocation of "more important" and "less important" for the country banks among more than 160 participants in the financial services market will only contribute to the destruction of anyway not too developed the principle of competition among the players of the banking sector and violate the principle of fair and open attitude of the financial regulator to the activities of national banks.

It is easy to predict the behavior of natural persons and legal entities that consume banking services with a desire to deal with a reliable and systemically important bank according to the opinion of the National Bank of Ukraine, they will choose deliberately "selected" banks, paying no attention to those who were not included in the list of systemically important ones. For other banks who care about the quality of their assets and services, but do not fall under the definition of "systemically important" banks, the introduction of this decree is not useful, because in the mind of a consumer of banking services it is engraved that "systemically important" by definition means "one that is supported by the state and the National Bank of Ukraine and receives preferential treatment, and one that does not belong to this cohort does not receive such support and preferential treatment".

We consider that after the enactment of this decree of the National Bank of Ukraine, we shall also see an increase in the number of risky lending operations carried out by banks recognized systemically important. This is very dangerous because, as we believe, small percentage of the largest banks in Ukraine, whose game on the market is significantly reflected in the financial market belongs to the category of systemically important.

In addition, we consider that the documents governing the activities of banks, namely the Law of Ukraine "On Banks and Banking Activities" dated 07.12.2000 № 2121-III, Decree by the National Bank of Ukraine of July 30, 2014 № 453 "On Approval of Amendments Methodology for Calculation of Economic Standards of Regulation of Banks in Ukraine " approved by Decree of the National Bank of Ukraine of June 2, 2009 № 315, Decree of the National Bank of Ukraine of August 28, 2001 № 368 "On Approval of Instruction on Regulation of Banks in Ukraine" with amendments, including those set out in Decree of the National Bank of Ukraine of December 25, 2014 № 862 "On Introduction of Amendments to the Instruction on Regulation of Activities of Banks in Ukraine", etc. adopted to improve the efficiency and sustainability of banks of Ukraine, described the detailed calculations of economic standards for activities of banks and control mechanism by the regulator for banks' compliance with these mandatory economic standards, which actually reflect the level of the financial condition of a bank of one kind  or another.

You must also remember that in order to track the dynamics of the banks to determine their significance and degree of influence on the stability of the banking system, to carry out the comparative analysis of activities of banks and distribution of supervisory functions and responsibilities between the central office and regional offices the National Bank of Ukraine carries out annually the distribution of banks into groups. Thus, using the requirements of the mentioned earlier regulations, the National Bank of Ukraine Commission on Supervision and Regulation of Activities of Banks approved for 2015 the distribution of banks by its decision of December 30, 2014 № 614, with distributing 163 Ukrainian banks in the market into 4 groups and highlighting 16 banks of I group that are leaders in the banking service market.

Although we understand the logic of the National Bank of Ukraine and its desire to focus on supporting a small number of banks that are most important for the regulator, the emergence of difficulties which affect the state of the banking system of Ukraine as a whole and form the credibility of the consumers of banking services, but stress the need to respect the important and generally accepted business principles (which, no doubt banking business is) as transparency, clarity and competition rules.