Ukraine Central Bank Plans Consumer Lending Rules

KIEV, Ukraine -- Ukraine's central bank plans to limit consumer lending by local banks to curb risks, it said on Thursday, but some bankers said the move would hurt economic growth by undermining domestic demand.

Ukraine's Central Bank

Under the proposed regulations, banks would have to either keep their consumer loan books (loans to individuals that are not mortgages) at a level not exceeding their share capital or meet tougher capital adequacy and liquidity requirements.

Banks in the former Soviet republic were hit hard by the global economic downturn, and the government had to take over several large lenders in 2009.

"We are limiting risks related to lending.

This is our goal," Viktor Novikov, the head of the central bank's legal department, told reporters.

He did not say when the proposed rules could take effect or how many banks would have to trim their loan books or adjust to new ratios.

According to the proposed regulatory changes, banks whose consumer loan books exceed their share capital will have to maintain a capital adequacy ratio of 20 percent as opposed to 10 percent for other banks.

Banks focusing on consumer lending will also have a limited ability to attract deposits.

The volume of outstanding consumer loans in Ukraine fell 0.7 percent in the first half of this year to 203 billion hryvnias ($25.5 billion).

Some bankers have objected to the plans, saying they would reduce competition on the market and hurt economic growth.

"This will hit banks hard because new regulations will require them to either raise fresh capital or abandon their business," said Volodymyr Lavrenchuk, the Chief Executive of Raiffeisen Bank Aval, a unit of Austria's RBI.

Lavrenchuk said the central bank could also be trying to achieve its macroeconomic objectives with the proposed rules, aiming to reduce imports and the widening foreign trade deficit.

Source: Business Recorder