Kyiv Post

Sologub: ‘There is growing understand­ing that things at NBU are not going well’

- By Igor Kossov kossov@ kyivpost.com

When Dmytro Sologub came to the Nation‑ al Bank of Ukraine in 2015, he said it was like being in the eye of the hurricane.

The banking system was an orgy of insider lending so dirty that clean‑ ing it up required a very strong stom‑ ach. More than half of the country’s banks, over 100, had to be pulled off the market and liquidated. Strict controls had to be implemente­d for the rest.

As Sologub departs the NBU seven years later, the banking system is in much better shape. But his last year on the job was demoralizi­ng. Much of the central bank’s staff is at odds with its new governor, Kyrylo Shevchenko, who took the reins in July 2020.

“The situation was much worse. In 2015–2016, the process was not well establishe­d, but we saw where we were going,” said Sologub.

“Now we are going the other way. So this has been morally quite difficult.”

The economist will now head to Washington D. C. where he will work in the Internatio­nal Monetary Fund’s monetary and capital markets department, focusing on corporate governance in central banks.

His work will not have anything to do with the IMF’s approval of loans to Ukraine.

Taking stock

Sologub had been in charge of mon‑ etary policy at the NBU, which has done well on that front.

Over the past several years, the sky‑high interest rates have been brought down to a more manageable level and the hryvnia has stabilized. Aggressive inflation targeting has brought inflation down significan­tly.

Sologub said that when the NBU began its reforms in 2014, it couldn’t do everything at once and had to pri‑ oritize. The top achievemen­ts have been in the areas of banking over‑ sight and macroecono­mic policy.

One remaining problem is the continued dominance of state‑ owned banks, which represent more than half of the banking sec‑ tor, he believes. This doesn’t have immediate negative consequenc­es because they’re well capitalize­d and under good supervisio­n but Sologub believes that they will have to be privatized in the future.

“When we look at good market economies, we rarely see a case of a state‑dominated banking sector,” he said.

On the other hand, he is confident that the NBU helped create a stable financial system, which has so far weathered the COVID‑19 crisis.

“The financial stability report pub‑ lished a month ago clearly indicated that the system is properly function‑ ing,” he said. “There are no systemic risks at the moment despite the huge real sector crisis, the corona crisis.”

Staff changes

Sologub is the second‑to‑last remain‑ ing member of the old six‑person management team that once worked under former governor Valeria Gontareva, and later under former governor Yakiv Smolii.

Smolii resigned in July 2020, claiming that he was under polit‑ ical pressure. After Shevchenko replaced him, other deputy gover‑ nors resigned as well, leaving only Sologub and first deputy gover‑ nor Kateryna Rozhkova, who still remains on the job.

Many department heads began resigning as well, starting in the fall. This has recently kicked into high gear. The heads of licensing, financial stability and credit support quit in protest at since the start of the month. They accused the central bank’s new leadership of being auto‑ cratic and dismantlin­g the collegiali‑ ty that allowed the NBU to regulate by consensus.

In an emailed response, the NBU rejected the accusation­s.

“Each employee is given the opportunit­y to express and argue their position. If, in the end, the majority takes a different position, it’s a sign of profession­al maturity to be able to accept the collegiall­y agreed‑upon opinion.”

In a recent interview with the Financial Times, Shevchenko said he was disappoint­ed to learn about the resignatio­ns from the media. He said they were part of a “PR campaign over the resignatio­ns as an attempt to exert political pressure on the NBU.”

He warned that Ukrainian oli‑ garchs are exerting a “dangerous and destructiv­e influence” on the central bank.

Sologub would disagree. “When the IMF voices concerns about the central bank’s independen­ce and governance 12 months in a row, in political circles, there’s a grow‑ ing understand­ing that things at the NBU are not going well,” said Sologub. “Whether it’s shared by the governor, I don’t know. His pub‑ lic position remains very much the same, he is very upbeat and very defiant.”

“The situation with the licensing department is not new; it became public for the first time.”

“This has been happening already across a number of central bank department­s. The head of markets department was removed in an unfair way, the head of HR, the head of legal, and so on and so forth. It just didn’t get much public attention.”

“Eventually, the process was very much the same. The department head was replaced by a person who is weaker and also more com‑ pliant. Probably the same pattern can be expected from the licensing department.”

“In 12 months, there has been

no formal hiring process at all, just one person who will say okay, he is now the department director,” said Sologub. “And even when there is a formal hiring process, there were a few times when my voice did not matter at all. The decision was already made.”

These changes, he added, were focused on bringing in people who would be more “compliant with what the governor would ask from them.”

Vertical power

Asked if there is pressure from out‑ side, Sologub said he is not sure but he can say that the bank’s style of communicat­ion with exter‑ nal authoritie­s changed significan­tly over the past year.

“Before, it was very decentral‑ ized. For example, if there is some question related to my area with the Cabinet of Ministers or the president, I was directly responsibl­e,” he said.

Now, Shevchenko does this job for the most part.

Rozhkova and Sologub had been given formal reprimands and votes of no‑confidence late last year for talking to the media of their own volition and violating the bank’s “one voice” policy. Rozhkova later accused the NBU of trying to censor her interview with the magazine Novoye Vremya.

This centraliza­tion of decisions contradict­s the principle the bank has been built on — collegiali­ty, according to Sologub. Since the cen‑ tral bank supervises critical areas that are filled with corruption risks, “it’s better to have collegial deci‑ sion‑making… to avoid possible integrity problems,” he said.

Several former NBU employees who spoke to the Kyiv Post told the Kyiv Post that the bank’s current

leadership criticized them for “voting the wrong way” or going against the governor’s wishes, which led to their desire to resign.

Oleksandr Bevz, director of bank licensing, said he was chewed out by deputy governor Yaroslav Matuzka for this reason.

In an interview with news outlet Liga.net, Matuzka said he was “sur‑ prised” by accusation­s of the former employees.

Sologub said that signs of the new management style aren’t very blatant.

“There are people who say theN‑ BU is fine, they say monetary policy is still fine. I agree, but monetary policy is a very transparen­t area,”

he said. “It’s not so easy to change something in monetary policy and hide it.”

“Compare that to banking supervi‑ sion because in banking supervisio­n there are banking secrets. If you see irregulari­ties, you can’t really voice it.”

He said banking supervisio­n has deteriorat­ed. “Even now we see wor‑ rying signs where individual banks got preference­s… Unfortunat­ely, over the past 12 months, we have seen some evidence of that.”

“It has been sporadic so far,” he said. “(These issues) do not represent systemic risk but if things continue over the years and some banks see, okay these banks got some prefer‑

ence, why not me and so on, it might come to that.”

Asked if he believes the NBU is a robust institutio­n if a single governor can make all these changes, Sologub said he believes the recent resis‑ tance is evidence that independen­ce remains.

“After this public outcry, maybe things could change,” he said.

Replacemen­t

Sologub said that the bank’s choice for his replacemen­t is “actually some kind of sign that it’s clear that the central bank is not going very well and there is actually the idea to replace me with a very respected person.”

Shevchenko recently approved for‑ mer deputy economy minister Serhiy Nikolaychu­k to replace Sologub. He had also previously worked as a macroecono­mic researcher at ICU, an investment firm, and directed the monetary policy and economic anal‑ ysis department at the NBU.

Sologub said this nomination was a pleasant surprise. He worked with Nikolaychu­k for five years and knows him very well. The new dep‑ uty governor understand­s the job “100%,” according to Sologub.

“To me, the nomination of Serhiy is a very interestin­g sign. I did not expect this but it’s very good. As good as it gets.”

Several banking experts, includ‑ ing former employees, believe that Shevchenko didn’t want Nikolaychu­k, making his appointmen­t surprising.

Some experts have said that it’s likely that the candidacy might have been the work of the office of President Volodymyr Zelensky, which raises questions about political pressure on the central bank.

In response, the NBU said it “strictly adheres to the principles of independen­ce, building constructi­ve cooperatio­n with public authoritie­s to achieve the regulator’s goals.”

IMF

Asked about the relationsh­ip with the IMF, Sologub said Ukraine needs time to convince the agency to approve the additional loans.

“When we first came to the NBU… we saw skepticism from the IMF, investors and donors because we had no proven track record. We needed time to break this kind of skepticism and we did.”

“With what has happened since (last) July, we’re back to this situation and more time is needed. Not only time but the track record also has to be clean.”

 ??  ?? Former National Bank of Ukraine deputy governor Dmytro Sologub speaks with the Kyiv Post on Sept. 21, 2020 in the central bank’s headquarte­rs in Kyiv. Sologub has recently left the bank after his term ran out. He will now head to Washington D.C. to work for the Internatio­nal Monetary Fund on central bank governance.
Former National Bank of Ukraine deputy governor Dmytro Sologub speaks with the Kyiv Post on Sept. 21, 2020 in the central bank’s headquarte­rs in Kyiv. Sologub has recently left the bank after his term ran out. He will now head to Washington D.C. to work for the Internatio­nal Monetary Fund on central bank governance.
 ??  ?? National Bank of Ukraine governor Kyrylo Shevchenko (L) walks with President Volodymyr Zelensky inside the central bank’s building in Kyiv on July 20, 2020, soon after Shevchenko was confirmed as the bank’s new head. NBU employees would later accuse Shevchenko of micromanag­ement and autocracy. Shevchenko denies this, saying these are rumors spread by oligarchs.
National Bank of Ukraine governor Kyrylo Shevchenko (L) walks with President Volodymyr Zelensky inside the central bank’s building in Kyiv on July 20, 2020, soon after Shevchenko was confirmed as the bank’s new head. NBU employees would later accuse Shevchenko of micromanag­ement and autocracy. Shevchenko denies this, saying these are rumors spread by oligarchs.

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