Banking Activities

The basic segments of the market of banking services are as follows: crediting, drawing in money deposits, rendering services in the sphere of settling and cash operations to customers, operations associated with foreign currency.

As of January 1, 1998, there were 227 banks registered in Ukraine. All of them, if licenses are granted by the National Bank of Ukraine, can potentially carry out the mentioned operations. The National bank of Ukraine, granting licenses, registering commercial banks, establishing economic standards of their activities, restricts opportunities for monopolizing the market of banking services. In other words, the market of banking services in the broad meaning of the words is potentially competitive.

Competition between banks has a specific nature because activities of banks are not possible without permanent cooperation, in particular without cooperation associated with inter-bank crediting, opening correspondent accounts, etc. This is favored by the inter-bank payment system that was established in Ukraine and that, being a natural monopoly, makes it possible to carry out bank clearing and to exercise control over clearing. Thus cooperation of commercial banks in many cases may not be considered to be unlawful concerted actions.

For the time being, the market of banking services on the whole has an oligopoly nature.

The tendency towards lowering the level of concentration of the banking sector for the recent years should also be pointed out.

The decrease in the level of concentration resulted, on the whole, from the establishment and active work of new commercial banks. Those banks were also predominantly branch ones, but at the same time those banks were the banks of a “new wave” Their development was accompanied by unlawful support on the part of ministries and agencies that actively “favored” forming assets of their banks at the expense of finances of their subordinate enterprises. Not the last role in that process was played by the fact that ministries and agencies drew in the new banks for the purpose of rendering services to newly established state extrabudgetary funds.

Some banks, owing to normative and legal documents, assumed exclusive powers.

At the Decree of the President of Ukraine of April 21, 1994 On the Introduction of Privatization Property Certificates into Cash Circulation provides for, the issue of privatization property certificates to citizens of Ukraine should be carried out by offices of the Savings Bank of Ukraine.

The cash fulfillment of the state budget of Ukraine is carried out by several authorized banks whose list is defined by a special joint resolution of the Cabinet of Ministers of Ukraine and the National Bank of Ukraine and is amended periodically.

Entry into the market and strengthening of the positions of some new banks was also favored by both tenders held by state agencies and their support.

In particular, the State Customs Committee of Ukraine held a tender to choose such a bank from among commercial ones that would be empowered to serve the customs system. The tender committee, by its decision, awarded the victory to the Stock Postal and Pension Bank “Aval” that in accordance with the general agreement with the State Customs Committee of Ukraine renders banking services to all customs offices.

The market of rendering services in the sphere of settling and cash operations to customers turned to be the most monopolized for the time being. The monopolization of the market is resulted from its regional nature because that sort of services is rendered at the places where customers reside. That is why, especially in rural districts, former state banks retained their priority owing to the great number of their offices and structural subdivisions. That sort of situation will exit for a certain period of time because new commercial banks are not yet able to maintain a significant network of offices under conditions of fierce competition.

In 1997, development of the banking sector was accompanied by active entry of large foreign banks into the Ukrainian market. Those banks are able to offer new qualitative banking products, which favors both strengthening of competition and introduction of international standards of carrying out banking operations.

Thus exercising control over the establishments and reorganization of commercial banks is of great importance to preventing monopolization of the market of banking services.

Ex. 1. Read and translate the text.

Ex. 2. Answer the following questions:

1. Which are the basic segments of the market of banking activities?

2. Can you explain a specific nature of competition between banks?

3. What did the level of concentraition of the banking sector result from?

4. What market in the phere of banking activities turned to be the most monopolized?

5. What was the effect of active entry of large foreign banks into the Ukrainian market?

Ex. 3. Read the following false statements and correct them:

1. National Bank of Ukraine doesn’t have the power to restrict opportunities for monopolizing the market of banking services.

2. The ministries and agencies of banking activies never rendered services to newly established state extrabudgetary funds for the banks of a “new wave”.

3. The cash fulfilment of the State Budget of Ukraine is carried out by the National Bank of Ukraine.

4. There exists an oligopoly in market of rendering services in the sphere of settling and cash operations to customers.

5. There has never been an active entry of large foreign banks into the Ukrainian market.

Ex. 4. Translate the text into Ukrainian:

In the nearest future, certain changes have to take place on the market of banking services due to the establishment of the Amalgamation “Liga Velykykh Bankiv Ukrainy.” The league is also a branch professional amalgamation of commercial banks, but differs from the association in its intention to take part in foreign economic activities and in the fact that it was founded by the five largest banks of Ukraine. In this connection, essential changes in the draft statute of the amalgamation were made by the founders at the Committee’s urgent request during the examination of the matter associated with the establishment of the league. As the constituent documents and the Committee’s order about giving its consent to the establishment of the league provide for, its members must refrain from such concerted actions that result in restriction of competition on the market of banking services (in particular, in the spheres of giving interbank credits, placing internal state-loan bonds, circulation of currency resources, servicing budget accounts) as well as such actions that restrict entry of other economic entities into the markets of banking services. Activities of the organization, however, remain under strict control exercised by the Antimonopoly Committee of Ukraine for the purpose of detecting and preventing negative impact on competition in the banking sector of the economy.

Taking into account the above information, one can state with certainty that during the next five years, alongside with the stoppage of the recession in production and the beginning of economic growth, competitive market of banking services will be completely created in Ukraine.

UNIT 32