July 5, 2018 / 11:57 AM / 9 months ago

Ukraine passes IMF-backed law to make banks more independent

KIEV, July 5 (Reuters) - Ukraine’s parliament on Thursday passed a law requiring state-run banks to appoint a majority of independent members to their supervisory boards, a commitment made to the backers of its $17.5 billion bailout.

The law aims to bring corporate governance at the banks into line with international standards and help the lenders resist political pressure, the finance ministry said in a statement after the vote.

The International Monetary Fund has propped up Ukraine’s war-scarred economy with an aid programme since 2015, though the Fund has not disbursed any money since last year as the pace of reforms slowed.

It has pressed the government to clean up a financial sector where non-performing loans make up more than 60 percent of portfolios in state banks as a result of risky and opaque lending practices.

“We currently do not have effective control under hundreds of billions of hryvnias that we send from the state budget in order to support state-owned banks. We have to bring order here and the law will help,” Mykhailo Dovbenko, head of a parliament committee on banking, said before the vote.

Ukraine has closed two-thirds of its banks since 2014 as part of a clean-up of the financial sector and in 2016 nationalised the country’s largest lender, PrivatBank.

The government says 85 percent of PrivatBank’s portfolio is made up of non-performing loans, though PrivatBank’s former owners dispute this assessment and are contesting the decision to nationalise it.

After PrivatBank was taken into state hands, the market-share of state-run banks doubled to 55 percent, increasing the need for better management at such banks, the central bank said.

The new law says that six of nine members of a supervisory board of a state-owned bank are to be chosen via an open contest by a recruitment company with at least ten years of international experience. The president, government and parliament will appoint the other three members. (Editing by Matthias Williams and John Stonestreet)

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