INTERVIEW: Kyrylo Shevchenko, Governor of the National Bank of Ukraine

INTERVIEW: Kyrylo Shevchenko, Governor of the National Bank of Ukraine
When Kyrylo Shevchenko took over as Governor of the National Bank of Ukraine last year he walked straight into a major crisis. However, progress already made in cleaning up the sector meant the financial sector has weathered the storm comfortably and is now back in profit. / wiki
By Ben Aris in Berlin June 28, 2021

The National Bank of Ukraine's (NBU) clean-up of the banking sector and prudent monetary policy, have been some of the outstanding success of Ukraine’s battle to drive through comprehensive reforms and put the country on track for sustainable growth and prosperity.  

But Ukraine being Ukraine, the path is not straight and making changes is hard. Since the Revolution of Dignity in 2014 there have been three central bank governors and bne IntelliNews met with the latest, Kyrylo Shevchenko, who was appointed last summer, for his first interview with the international press.  

Since Shevchenko arrived on the job he went straight into crisis mode as Ukraine faced the double whammy of an oil price shock and the coronavirus (COVID-19) pandemic sweeping through the under-resourced country. At the same time, he needed to maintain the reform momentum built up by his predecessor.  

“Despite the heavy impact of the first lockdown, Ukraine weathered the crisis better than expected. The Ukrainian economy will return to steady growth starting in the second quarter. NBU expects that in 2021-2023 the economy will grow by about 4% annually,” Shevchenko said, speaking to bne IntelliNews by video link from the NBU headquarters on Instytutska Street in central Kyiv.  

A boom in commodity prices that started in about November brought much needed cash into the economy and has assuaged the impact of the 2020 crisis. Metal prices, a major export product, are at multi-year highs. And while Ukraine’s exports of grain last marketing year, just ended, were down by 22% year on year to 43.4mn tonnes, global food prices were up 40% y/y, more than compensating for the weaker harvest. This year the grain harvest is predicted to be a good one.  

In general, trade is going well and switched from perennial current account deficits to regular surpluses in the last year that are extending into this year as well, making the NBU’s life easier. The exports of goods were up by 16.7% y/y over the first four months of this year. Mining exports were up 85.4% y/y and metallurgical products up by 38.8% y/y, leading to a positive current account surplus and growing gross international reserves that has caused the hryvnia to strengthen. Shevchenko has an economy on an upswing to work with.  

The rate hike that didn't happen

The main problem the economy faces is a return of inflation. The NBU covered itself in glory in 2019 by not only controlling inflation, but crushing it completely. Inflation fell to 1.7% in 2019 – a post-Soviet low. That allowed the NBU to rapidly cut rates month after month, sometimes by full percentage points.  

That has changed recently thanks to the multiple economic shocks in the last year, and inflation soared to 9.5% in May from an already elevated 8.4% in April.  

Prime central bank interest rates for Emerging Europe (click on the region legend to include/exclude a region.)

The NBU was the first to act of all the central banks in emerging Europe by ending the easing policy and hiking rates in March (50bp) and April (100bp), but surprised the market by leaving them flat in June, when many analysts were expecting another 100bp hike due to the high rate of inflation the month before.  

“May inflation was driven by gas prices, food and especially sunflower oil price rises. But we are optimistic that we can hold these price increases in check,” Shevchenko said.  

The governor argues that inflation pressures have already peaked and there is no need to hike again. He wanted to keep some powder dry in case it is needed later. May’s high inflation was due to rising food prices, the feed-through from a devaluation effect from last year and a low base effect. All these factors are now fading: with the arrival of summer food prices are expected to start falling; the hryvnia has been appreciating strongly in recent months thanks to booming exports, and the low base effect will also wear off in the coming months. Still, Shevchenko says he is taking a wait-and-see approach.  

“In one month we will have more information and data. We still have the low base effect from May 2020 but those effects will fade as the year wears on,” Shevchenko says.  

Nevertheless, inflation will remain a problem for the rest of this year and into the next one.  

The NBU’s monetary policy is aimed at reducing underlying inflationary pressures caused by worsening inflation expectations and robust consumer demand, says Shevchenko. As a result, headline inflation is anticipated to be 8% y/y at the end of 2021, returning to the target range of 5% ± 1 pp in the first half of 2022. Thereafter it is forecast to hover at around 5%.

The FX exchange rate has been helped a lot by the popularity of the local debt market amongst international investors. Inflows into Ukraine’s Ministry of Finance hryvnia-denominated OVDP treasury bills (OVDP) have strengthened the hryvnia and also helped to keep inflation down.  

“The FX channel is one of the most important for bring inflation down and [in the] last weeks we have seen strong inflows into the bond market from non-residential investors,”

Indeed, the appreciation of hryvnia has been so strong that the NBU has intervened recently to keep the currency in check and bought $700mn to date, of which $500mn was in just the last month.  

Plenty in reserve

The positive trade balance has also helped ease another of Ukraine’s big headaches: the low level of foreign exchange reserves.  

Ukraine was scraping along the bottom with enough reserves to cover barely three months of imports, regarded by economists as the minimum necessary to ensure the stability of the currency. But as the trade balance has been positive for most of the last year the reserves have increased to $27.8bn in May, or 4.4 months of import cover.

There is still problems ahead, as Ukraine has a heavy debt redemption schedule this year of some $16bn, which peaks with $11bn coming due in September. But Ukraine has had some luck here too as the International Monetary Fund (IMF) is due to give the country the equivalent of $2.7bn as part of its SDR transfer programme to boost the post-coronacrisis growth of weaker economies around the world. Shevchenko says that all that money will be sent to the reserves and that the continuation of the currently frozen IMF $5bn stand-by agreement (SBA) is the NBU’s basic assumption.  

“We haven’t considered another scenario. There is the $700mn tranche outstanding, but it's not just about the money; it’s also about trust,” says Shevchenko. “Co-operation with the IMF brings much more than money. It brings confidence and much cheaper rates on the international capital markets.”

Shevchenko says that one of the major benchmarks to be met to restart the SBA is to pass a new set of banking laws that will bring the sector into line with international norms. The draft bill has already passed two out of its three readings.  

“The law passed the first reading in November and it wasn't easy,” says Shevchenko. “Between the first and second reading there were 1,252 new amendments added to the bill. It was a huge battle but we expect the third and final reading to happen by July.”

Oligarchs and staff rows

While the NBU is dealing well with a regulator’s nuts and bolts issues, there is a big red question mark floating over the bank: Ukraine’s Oligarch Problem, and the former owner of PrivatBank Ihor Kolomoisky in particular. The IMF has raised the issue of the NBU’s independence repeatedly in its statements and has said it is a red line issue.  

The bank and the staff have come under repeated attack in what former governor Yakov Smolii described as a campaign of terror. Kolomoisky and his partners have brought hundreds of lawsuits against the NBU, and the staff of the national bank have been physically attacked, including ex-governor Valeriya Gontareva, whose house was burnt down in an arson attack.  

The question of the bank’s independence was reinforced by the sacking of former governor Yakiv Smolii last summer, who claims he was pushed out under “intense political pressure.”  

“My role at the NBU is to ensure the bank operates on an independent basis,” says Shevchenko, who ran the state-owned Ukrgasbank and worked in banking for  27 years before appointed governor of the central bank.

“There has been friction and there [is] political pressure to undermine the independence of the central bank but the continued independence of the NBU is no longer one of the IMF's concerns,” says Shevchenko.  

“My priorities are to ensure the independence of the NBU as an institution and operationally. Also to ensure its financial standing and from the personal ambitions of the personnel,” the governor added.  

The change at the helm has not gone smoothly, as Shevchenko got into an ugly public fight with two of his deputies, as he took personal control over the bank sector clean-up process.  

“To have personal control is important but the decisions made are not personal decisions but the decisions of the NBU made on a collegial basis. What conflicts there have been are behind us,” Shevchenko said. “Ukraine is a democratic country and we are proud of it. It is represented in the authority of our president and Rada. The independence of the NBU is also an aspect of this democracy. The difference is we have clear rules on how to operate. We are a technocratic organisation and so we try and keep away from politics.”  

The two deputy governors – Kateryna Rozhkova and Dmytro Sologub – conducted much of the bank sector clean-up work under the previous governors, Gontareva and Smolii, but have been sidelined by Shevchenko, who also caused a scandal by publically rebuking them.  

“Some members of the NBU had personal political agendas that was incompatible with the NBU’s work. It doesn't help the Ukrainian financial system,” says Shevchenko.  

The NBU’s Council decided not to prolong Sologub’s five-year contract on June 24, which caused consternation amongst analysts, as he was well respected. Rozhkova remains in place for now, but there is little love lost between her and her new boss.  

However, Shevchenko says these rivalries are a distraction from the task of cleaning up the non-bank sector, which will not be any easier than cleaning up the banks.

Bank reforms back on track

The banking clean-up that was carried out over the last six years has been one of the greatest reform successes of the post-Maidan revolution and allowed the banking sector to get through the pandemic shock with little damage.  

“Despite the heavy impact of the lockdown the crisis went well for the banks. In 2020 the NBU released an anti-crisis package of things like long-term refinancing of debt and interest rate swaps. It was a success,” says Shevchenko. “This year we have an exit strategy from these anti-crisis measures and will do it soon, but if the COVID problem returns or another threat appears we can immediately roll these measures out again.”

Nearly a hundred dodgy banks were closed down and the looting of depositors’ account via related-party loan scams largely ended. Bad debt and problem loans have all been provisioned for and regulatory control and inspection of the sector beefed up and made effective.  

Today the banking sector is sufficiently capitalised and profitable. As bne IntelliNews has reported, the banking sector’s profits in April have returned to their 2019 level – the first year of strong growth post-revolution – but are still behind the first quarter of 2020, when banking sector growth was accelerating again. The banking system today has high liquidity – about $7bn. In 2020, banks' profits amounted to over UAH41bn ($1.4bn), the NBU reports.  

“The banking sector is sufficiently capitalised. The regulatory capital adequacy of the sector for the second half of 2021 remained significantly higher – about 23% against 10% of the minimum required level. This allows banks to maintain their ability to absorb losses and continue lending to households, SMEs and large businesses during the crisis,” says Shevchenko.  

Now the clean-up of banks is largely finished, the focus is shifting to the non-bank entities.  

“A lot of work has been done but there is still a lot of work to do. Before the focus was on cleaning up the banking sector,” says Shevchenko. “Since the start of this year we have started to focus on the non-banking sector, where there are over 2,000 entities. It will not be less difficult than cleaning up the bank sector.”

“Now we are starting on cleaning the non-banking sector we are facing pressures and there are a lot of players here that have vested interests,” added Shevchenko.  


But there is still a long way to go before Ukraine’s banking sector can get a clean bill of health. Despite all the progress non-performing loans (NLPs) remain a huge problem. When the reforms started in 2014 Ukraine’s banks had the highest share of bad debt in the world. And it is still high, but falling steadily.  

Today the aggregate level of NPLs in the sector is 40%, down from over 50% at the start of last year. But the spread is uneven. The privately owned banks have NPLs of 13%, the foreign-owned banks have 27%, but the state-owned banks have 43% and Kolomoisky’s former bank PrivatBank has a massive 72.5% of its loan book as bad debt – the legacy of the related-party loans the bank made to companies affiliated with Kolomoisky and his partners that have never been repaid.

NPLs % of loan book


Apr 19

Apr 20

Apr 21

ratio of non-performing loans, %




incl. banks:


with state participation, of which:








state banks ex-PrivatBank




Foreign owned




Privately owned








Source: NBU


It will probably take years to clean up the balance sheets of the state-owned banks, but Shevchenko says the plan is to get these banks into a state where they can be sold as fast as possible.  

“For me the priority is the future privatisation of the state-owned banks. Today the state-owned banks hold some 55% of banking assets. It is a huge risk for the banking system and the country has been the world leader in the number of NPLs – over 50% of all loans,” says Shevchenko. “To privatise we should concentrate on two aspects: corporate governance and NPLs. There is no doubt good corporate governance: an independent board of directors and the best practices are needed for a successful privatisation. At the same time, no private investor will buy a bank loaded down with NPLs, even if all those loans are provisioned for.”

The first steps in banking privatisation have already been taken. In February the IFC provided a convertible loan to Ukrgazbank, which Shevchenko ran for over 20 years before becoming NBU governor, as a first step to privatising the bank. The NPLs at the bank are a manageable 12% of the book and Shevchenko says it is a “positive first step” towards the eventual privatisation of the bank.  

But the big fish is PrivatBank. Now the largest and most profitable bank in the country, the management has been changed and a new CEO recently appointed, but with an NPL level of over 70% it will need a lot more work to get it into a state where it can be sold.  

“It would be better to sell this bank as soon as possible. We have submitted a strategy to the Cabinet of Ministers and we have to wait for the decision by the shareholders,” says Shevchenko.  

Gorilla in the room  

But Kolomoisky remains an issue for most onlookers. Ukrainian President Volodymyr Zelenskiy launched an anti-oligarch campaign with his oligarch speech in March and the IMF insisted on a new banking law that bans returning banks to their former owners if they have been nationalised last year – dubbed the “anti-Kolomoisky banking law.”

In addition, the US broke new ground by imposing sanctions on Kolomoisky in March and opening a Grand Jury investigation into alleged money laundering operations in the US. But at home the legal fight with Kolomoisky is difficult, and made harder by the venal state of Ukraine’s courts.  

“There are over 100 court cases that have been brought against the NBU by the former owners of PrivatBank that are attacking the nationalisation of PrivatBank. We are fighting these cases in the high courts of London and the US,” says Shevchenko.  

Three years ago there was a case to recognise the legitimacy of the nationalisation of the bank that was finally confirmed on May 14 and is a major step forward, as it clears the way for international arbitration courts to rule on the Kolomoisky case and the allegations that he whisked some $5bn of PrivatBank’s money offshore.  

“Ukraine has no chance of losing this fight. But the question is, how do we avoid these fights in the future?” says Shevchenko.  

The governor points to the NPLs as the main issue and highlights the progress that has already been made in cleaning out the bad debt from existing banks and changes to the regulation of the banks to prevent their build-up again in the future.  

“It is outside the mandate of the NBU, but we need strong anti-corruption framework. That is crucial. Without this, the battle against NPLs will be very hard,” says Shevchenko.  

Shevchenko has called for the creation of a special court for the financial sector, similar to the anti-corruption court (ACC) that has already been set up at the IMF’s insistence.  

“Why do we need this special court? The judicial system is unreformed. So how can we prevent NPLs? With a special court focused on the financial sector,” says Shevchenko.  

The bank has sent its concept of the court to the Cabinet of Ministers, the European Bank for Reconstruction and Development (EBRD) and European Commission for consultations, and work on the idea is ongoing.  

“We have a good and clean bank system. Fighting corruption is outside the NBU’s mandate but we cannot wait for the whole judicial system to be reformed. We have to have strong creditor rights protection to ensure the health of the sector in the future,” Shevchenko said.