Russia’s annexation of Crimea leaves peninsula’s population in financial limbo
Ukrainian banks have hard time collecting loans from Crimean customers
Sevastopol resident Olena Sokolan faces a dilemma. She refused Russian citizenship, but the Ukrainian national bank now treats her financial transactions as those of a non-resident.
No longer able to access her Hr 100,000 deposit at Ukrsibbank from Crimea, she must reregister her account with a friend in Kyiv or take the money back to Crimea and bank as a Russian national.
“I don’t understand why I have to change my registration and be ashamed of my birthplace?” she told the Legal Quarterly. “I’m a Ukrainian citizen and no bastards can blame me for occupation.”
Lawyers say that even if Sokolan and others don’t recognize the Russian authorities in Crimea, ultimately they have to live there under Russian laws.
“Residents of Crimea should realize the outcome of annexation,” said Roman Stepanenko, head of banking & finance practice at Egorovpuginskyafanasiev& Partners, a Ukrainian law firm.
As Ukraine no longer has control over Crimea, the National Bank’s decision to grant people living there the status of non-residents was the only possible option for the Ukrainian government, Stepanenko added.
When Crimean banks started the transition to Russia’s banking system in April, some were easily re-registered in compliance with the
Russian laws. Morskoy Bank, a popular lender belonging to Russian businessman Aleksandr Annenkov, had little difficulty taking this path.
However, Ukraine’s biggest bank Privat, controlled by Dnipropetrovsk Governor Igor Kolomoisky, left the peninsula after its operations in Crimea were shut down. Sokolan is glad she didn’t have an account at Privatbank. Her friends had to wait a month to withdraw money from current account cards issued by Privatbank, while getting back a savings deposit is even more difficult.
Anna Tkachova, an associate at Kyiv-based legal services provider, told the Legal Quarterly that the assets of Privatbank have now been taken over by Deposit Protection Fund, an arm of the Russian Deposit Insurance Agency.
“Russia declared Privatbank a bad bank and nationalized its Crimean assets – apparently in order to pay Crimeans their money back,” Tkachova said.
Oshchadbank, a major state-run lender that used to have the biggest network of branches on the peninsula, suffered an even more disturbing fate. Armed men came to the bank’s offices and took them over.
“They took away all the network of bank’s branches, the armored cars, the ATMS,” lamented Andriy Pyshny, head of Oshchadbank. The bank lost an estimated $909 million and is filing a lawsuit against Russia as a result.
Given the situation, the National Bank of Ukraine instructed all Ukrainian banks to cease operations in Crimea on May 6. Since then the banking sector has been struggling to reclaim loans previously issued to Crimean residents, totaling $1.8 billion. The residents, in turn, have been unable to claim their deposits.
The National Bank lost the equivalent of almost $355 million in hryvnia reserves kept in Crimea. In October, central bank governor Valeriya Gontareva met her Russian counterpart Elvira Nabiullina in Washington D.C., who promised to return the reserves. Nabiullina also promised that Ukrainian commercial banks will get their assets back too.
But Crimeans, encouraged by the Russian authorities to forget their liabilities, have little incentive to repay debts to Ukrainian banks.
When Russian President Vladimir Putin visited the peninsula in April, a man approached him and asked what he should do about his car loan. “Use the car and don’t worry,” Putin answered.
By November Russia had changed its tone, with Mikhail Sukhov, deputy head of Russian central bank, saying the Crimean residents will have to pay their debts “sooner or later” and suggested doing it through Russian banks, though it remains unclear how the money will get to Ukrainian banks.
After Sukhov’s statement, Crimean borrowers are unlikely to run the risk of settling their debts with Ukrainian banks via international payment services, only to face the Russian Deposit Protection Fund approaching them with a demand to pay it too.
Conversely, if a person pays a debt to the Russian fund – his or her obligations to the Ukrainian bank doesn’t disappear, said Tkachova from Asters. “Unfortunately, both options leave too many loopholes for bad faith lenders to obtain double satisfaction and provides no protection to good faith Crimean clients,” she said.
Complicating the matter still further, Anna Pushkaryova, senior associate at Lavrynovych & Partners law firm, said Ukrainian banks are now selling their loan portfolios to Crimeabased or Russian debt collection companies, sometimes at a very substantial discount, to get at least part of their money back. For Sokolan and her fellow Crimean residents, financial stability won’t be arriving any time soon.