Ukraine approves state guarantee for all state bank deposits

Ukraine’s parliament approved on Dec. 20 a bill that fully guarantees the individual deposits of all state banks. Before that, only state Oschadbank (OSCHAD) offered a 100% state guarantee on deposits, while depositors of other banks could only rely on guarantees from the State Deposit Guarantee Fund (in the amount up to UAH 200,000). The new law stipulates that part of a state bank deposit that exceeds the Fund’s guarantee will be guaranteed by state.

Alexander Paraschiy: As we reported earlier, the bill was initiated by President Petro Poroshenko to calm panic related to the nationalization of Privatbank (PRBANK) and deposit outflow from the bank. Clearly, such a guarantee implies a potential risk for the state budget, but in fact it will have no effect on public finances (no one is going to liquidate state banks).

The fallout from this bill could be on Oschadbank, which lost its exclusivity in offering a full guarantee on deposits (which it considered to be an advantage). Now we expect some outflow of deposits from Oschadbank to Privatbank, which is now de facto a state bank and is much more customer-friendly.

The explicit state guarantee will also create non-competitive advantages for state banks over private institutions, which doesn’t help Ukraine’s crippled banking system. The share of state banks (including Privatbank) in total individual deposits in Ukraine was 59% as of end-September, and there is a risk that it will growth further in the mid-term.