Ukraine: NBU governor resigns amid scandal, Oct 2022

On October 4th, Kyrylo Shevchenko, the governor of the National Bank of Ukraine (NBU, the central bank), announced his resignation, which was formalised by the finance committee of the Verkhovna Rada (parliament) shortly after. Mr Shevchenko has been in the post since July 2020. Volodymyr Zelenskyi, the Ukrainian president, proposed Andriy Pishnyi, another career banker, to replace him, and this was confirmed by the Rada on October 7th.

The consolidation and strengthening of the banking system in 2014-16 under the leadership of Valeriya Hontareva was one of the main policy achievements of the immediate post-Euromaidan era. Since then, however, as in many other areas of reform, there has been some back-tracking, with both Hontareva and her successor, Yakiv Smoliy, subjected to political pressure by vested business-political interests, raising concerns about the bank’s independence.

In his resignation statement, Mr Shevchenko, 49, said that he was stepping down as NBU governor owing to health concerns. He stressed the positive role of the NBU during his tenure in preventing destabilisation of the financial system and keeping the banking sector operational amid the onset of full-scale war with Russia. In fact, by restraining the scale of capital outflows, and preventing a collapse of international reserves and the exchange rate, the NBU’s role has been vital to the continuation of domestic economic activity, itself necessary to support the conduct large-scale military operations.   

However, contradicting Mr Shevchenko’s version of events, the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialised Anti-Corruption Prosecutor’s Office (SAP), the two key bodies within Ukraine’s legal system charged with tackling graft in public life, have since said that Mr Shevchenko had been informed of suspicion of his involvement in a long-running embezzlement scheme at Ukrgasbank, one of the largest Ukrainian banks, which is almost wholly state-owned.

In particular, according to these bodies, by means of access to the service contracts of large private and public corporations, between late 2014 and 2020, the management at Ukrgasbank, where Mr Shevchenko was chair before he became NBU governor, paid HRN206m (around US$7bn-8bn at the average exchange rate over the period) to 52 agents for attracting big clients to the bank, when no such agents existed and no such services had been provided.

On the one hand, the resignation of Mr Shevchenko could raise concerns in financial markets about the dangers of political interference in the NBU, just as the military conflict with Russia seems to have entered its most dangerous phase. On the other hand, a credible central bank led by a credible top management team remains essential, both to maintain the stability of the banking sector—which in Ukraine, as in many emerging markets, makes up the bulk of the financial sector—in wartime, and to steer the Ukrainian economy successfully towards recovery, post-war.

 

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