NBU head might be dismissed soon, media report

The president’s office is considering possibilities
regarding the dismissal of the governor of the National Bank of Ukraine (NBU)
Kyrylo Shevchenko, epravda.com.ua reported on July 26 citing its sources in the
office and the NBU. Media listed four reasons for dissatisfaction with
Shevchenko, including failure in negotiations with the IMF, the central bank’s
intention to cease long-term refinancing for banks, as well as individual
issues related to banks’ licensing and the intention of the president’s office
to dismiss the CEO of Oschadbank (OSCHAD). Shevchenko’s dismissal might happen
in September, when the new political season starts, epravda.com.ua wrote.
Earlier this month, Financial Times also reported on the possibility of
Shevchenko’s dismissal, citing its sources close to president Zelensky.

Shevchenko was elected as NBU governor in July 2020
after the voluntary resignation of his predecessor, Yakiv Smoliy, who explained
his exit by political pressure. Soon after
his election, Shevchenko managed to replace three (out of five) deputy NBU
governors thus securing a loyal majority in the NBU executive board (consisting
of the governor and five deputy governors). Meanwhile, two deputy governors who
retained their positions actively criticized Shevchenko, blaming him for the
concentration of power in the NBU and inefficient personnel policy. A new wave
of the conflict emerged in July, with the resignations of several NBU officials
who openly accused Shevchenko of concentrating power.

The need to “strengthen the governance” of the NBU is
among the remaining issues in Ukraine’s talks with the IMF, according to the
fund spokesman’s remarks of July 15.

By law,  the NBU governor has a seven-year tenure
with a limited number of reasons for dismissal during the term. Among the most
relevant reasons are: governor’s request for dismissal, loss of impeccable
reputation, or court ruling on a criminal offence.

Alexander Paraschiy: While some
of the reasons for the presidential office to be dissatisfied with Shevchenko
look solid (e.g. failure to get the IMF tranche), some others look strange
(e.g. appointing the Oschadbank top management, to which the NBU has no
relations at all) or unacceptable (e.g. wish of the the presidential office to
affect the NBU’s decision on banks’ refinancing). The presidential office has
no straightforward legal reason to dismiss Shevchenko, but there is still a
possibility that he could leave his position, possibly “voluntarily” following
pressure (as Smoliy did). We see such a probability as less than 50%.

The dissatisfaction of the IMF about “NBU governance”
suggests the fund won’t oppose a possible Shevchenko’s dismissal much, at first
glance. At the same time, taking into account that the initiative for
Shevchenko’s dismissal apparently comes from the presidential office, that
means the office is seeking a more loyal substitute to the NBU governor, which
is a reason to worry. That said, we see a risk of the NBU losing its
independence if a governor reshuffling happens. We therefore believe Shevchenko’s
remaining at his position would be a more beneficial outcome for Ukraine’s
financial stability.