Ukraine parliament fails to improve state bank governance

Ukraine’s parliament failed to approve a bill on March
20 that changes the principles of supervisory board formation in state-owned
banks. Only 187 lawmakers voted in favor of the draft in first reading, while
226 votes were needed. Prepared by Finance Ministry, the bill called for the
supervisory board of state-owned banks to consist of seven members, including
five independent members and two appointees by the president and Cabinet. According
to the current legislation, the boards of state-owned banks (Oschadbank and
Ukreximbank) consist of 15 members, with equal representation of appointees
from the Cabinet, president and parliament.

Such changes were a part of a strategy of reform of
state-owned banks, presented by MinFin last month,
and were aimed at making the banks independent of power brokers. To solidify their
independence, the draft also stipulated that trying to influence board members
is a criminal offence.

Alexander Paraschiy: Failure to
change the corporate governance rules of Oschadbank and Ukreximbank will likely
delay their reform, as well as MinFIn’s plan to invite the participation of
international financial organizations into the banks’ equity. The failure of
lawmakers to gain enough votes for the bill even from the two coalition factions
(43 of present factions’ members simply didn’t vote, while the bill lacked 39
votes for approval) indicates little political will to truly make the state
banks independent on politicians.

This is not encouraging news for the future
cooperation of the Ukrainian government with IFIs, but it is unlikely to
undermine such cooperation. This event is neutral for the bondholders of
Oschadbank (OSCHAD) and Ukreximbank (EXIMUK). The banks will just remain an
integral part of the Ukrainian government, with their risk being on par with
sovereign risk.