Zelensky openly pressures Ukreximbank, promises to make all banks to lower rates

Ukrainian President Zelensky indulged in his latest populist
political stunt in recent days, this time drawing heavy criticism for his
ignorance of banking and corporate governance rules in attempting to interfere
in the operations of a state-owned bank.

During a recorded meeting with regional businessmen in
Khmelnytsk on June 3, the president heard complaints from local entrepreneurs
that they are unable to extend their loans for one year in Ukreximbank
(EXIMUK). Reacting to this, he placed a phone call to the newly appointed bank
CEO Yevhen Metzger, asking him to “solve this issue” and offer a broad solution
“so that people can repay their borrowings in one year.” The next day, he told
another meeting in the region that “we will pressure lenders in any case” so
that borrowing rates will be “maximum 5-6%” in the local currency. He said that
this will be possible after the central bank reduces its key rate.

Alexander Paraschiy: Zelensky’s
latest political stunt may feed his positive image and improve his popularity
among the masses (as it works in Russia and Belarus), but it won’t improve his
credibility at the international level, particularly in the finance community.
In particular, it illustrates how Ukrainian many leaders still haven’t grasped
corporate governance reform of state-owned enterprises, including the reform of
the state bank and the reform of Naftogaz, which reportedly is part of Ukraine’s commitments under the new IMF
program.

Zelensky’s professed goal of banks offering individual
loans at 5-6% does not look feasible, given the central bank’s mid-term
expectation of a key rate of 7% and its mid-term inflation target of 5%. As the government is borrowing today at 10%-11% in local
currency, bank loans at 6% are possible only under state
subsidies to the banks.

All this illustrates the high necessity of keeping the
central bank independent of the president in the long-term, as the IMF is
repeatedly insisting upon.

For the state-controlled banks, we see no negative
implications from Zelensky’s approach. There is nothing new there in the
Ukrainian political tradition, and secondly, the state banks will continue to
work closely with the government under any circumstances. That is, they will
help to finance the state budget when it’s possible, and the government will
continue to contribute to the banks’ equity in accordance with their needs.
This confirms our position that state banks bear the same default risk as the
government.