Business Update – March 6: 20% of Ukraine trade is illicit, Riaboshapka fired, land market uncertainty

Hours after Morgan Stanley warned investors of political instability in Ukraine, the parliament fired Prosecutor General Ruslan Riaboshapka. On March 5, the multinational investment bank had advised its clients to sell Ukrainian government bonds and buy Egyptian ones instead. The bank cited “pressure” on Riaboshapka and concerns over Ukrainian reforms as reasons for its warning. As the day ended with its prosecutor general ousted and other government roles vacant, Ukrainian bonds saw a second day of value depreciation. 

In a recent interview with the Kyiv Post, Riaboshapka had promised that Ukraine would have “no untouchables“ on his watch as he promised justice for businesses and impartial rule of law. “I enjoy the right to prosecute anybody who is guilty, even (Ihor) Kolomoisky, even (Rinat) Akhmetov, and any other oligarch,” he said then. President Zelensky is a former business partner of Kolomoisky and the new prime minister, Denys Shmygal, worked as an executive for Akhmetov’s energy company DTEK.

Riaboshapka walked out of the parliament before being formally fired, but gave a speech in which he predicted his sacking that day and also defended his few months in office. “The new Prosecutor’s Office has been living by the law for just three months out of its 28 years. This is why I’m now standing in this hall. This is why you’re considering firing me.”

The outgoing prosecutor general told lawmakers his office had worked to establish rule of law. Riaboshapka said that 27 new cases into alleged torture committed by law enforcement had been opened, 3,000 cases into illegal logging, 1,000 illegal gambling venues closed, and that 12 owners of formers banks linked to alleged fraud had been “held accountable” by his office. However, critics still say that Riaboshapka and others had continued with a program that was failing to properly investigate and prosecute serious corruption and fraud, including the alleged $5.5 billion fraud at Kolomoisky’s PrivatBank.

A new report reveals that nearly 20% of Ukrainian trade is illicit. Research on Ukrainian trade in 2008–2017 has found $15 billion worth of alleged trade fraud. Researchers say that faked business deals and misinvoicing in trade are being used to illegally shift money offshore or steal it outright. The Washington-based Global Financial Integrity organization reported that trillions of dollars’ worth of illicit capital is flowing around the world, affecting developing countries like Ukraine the worst.

The option to sell Ukrainian farm land to foreign entities should be decided in a national referendum, Prime Minister Shmyhal said on the Kolomoisky-owned 1+1 television channel. Opinion polls already show that the Ukrainian public largely opposes the idea of opening the land market for foreigners. Shmyhal said he’s supportive of a land market for the Ukrainian people, but also said that selling state land should be a question for parliament.

It is possible that the long-awaited lifting of a moratorium on farm land sales may not happen for some time. On March 6, lawmakers rejected 116 amendments to a bill on agricultural land turnover, Interfax-Ukraine reported. At the same time, the Ukrainian investment bank Concorde Capital stated that the cabinet reshuffle may indicate a “land market retreat“ on the horizon. The investment bank states that the loss of ministers Oksana Markarova and Tymofiy Mylovanov could delay or derail reforms in that area.

Ukrainian subsidiaries of two Russian banks in Ukraine have the worst loan portfolio performance, the National Bank of Ukraine has reported. As of February, the loan portfolios of Sberbank and Prominvestbank, subsidiaries of Russian state banks, have non-performing loan portfolios of 81% and 97% respectively, with debtors seemingly not servicing their loans there. This gives the two lenders the worst rate among the top 25 Ukrainian banks, and warps the overall picture for non-performing loan portfolios in Ukraine.

Russian Sberbank, Prominvestbank are no longer very active in Ukrainian banking, with experts saying their key value here in the country is held in their loan portfolios – even if they are non-performing – and in their underlying assets. Experts say that the Central Bank had pushed for voluntary liquidation at Sberbank and Prominvestbank, but the Russians have declined.

Some Ukrainian banks have been able to deal with the non-performing loan problem, the NBU also reported. Bank Credit Dnipro, owned by the oligarch Victor Pinchuk, decreased its non-performing loan portfolios by 4 percentage points (p.p.) this year, bringing it to 59.5%. The performance of loan portfolios is a key indicator of the health of Ukraine’s banking sector. The lowest rates in Ukraine as of February are mostly held by foreign subsidiaries: Citibank (1.2%), Bank Vostok (3.7%), ProCredit (4.6%), Credit Agricole (5.8%), Raiffeisen Aval (6.6%) and UkrSibbank (6.8%).

Source: www.kyivpost.com