Safe-Deposit Box Craze Lays Bare Ukraine Woes After Vote

File Photo of Cash, Coins, Line Graph

(Bloomberg – bloomberg.com – Daryna Krasnolutska – October 29, 2014) Wary of banks and alarmed by armed conflict around her parents’ town, Daria Demianenko joined Ukraine’s rush to an old-fashioned way of squirreling away cash.

More commonly known as a home for fancy jewels and ill-gotten gains, safe-deposit boxes are swallowing a growing chunk of regular savings in Ukraine. For Demianenko, a 32-year-old accountant, the box she rents for $8 a month means capital controls can’t block her family’s access to money.

“The central bank is tightening the screws — you can withdraw less and less,” she said by phone after stashing more than 10,000 euros ($12,700) in the Ukrainian capital, safely away from the eastern unrest. “We had to visit many banks in order to find a box. There’s a craze for them now in Kiev.”

The dash to this outmoded means of hoarding savings highlights the economic challenge facing Ukraine’s newly elected parliament. Already grappling with the fragile truce in the eastern insurgency, lawmakers chosen Oct. 26 must also rebuild confidence in the financial system to rescue this year’s worst-performing currency, keep a $17 billion bailout flowing and revive an economy forecast to shrink 10 percent.

The turmoil has sent the hryvnia plunging 36 percent against the dollar in 2014. While it gained 0.8 percent today in Kiev, its weakness has helped to erode faith in banks. Ukrainians have withdrawn about a third of retail deposits, exceeding 100 billion hryvnia ($7.7 billion), central bank Governor Valeriya Gontareva said last month.

Russian Losses

To stem the hryvnia’s dive, the monetary authority has limited withdrawals from deposit accounts based in foreign currencies to about $1,150 a day. It’s also set a $200 ceiling on individuals’ daily currency exchange and made it harder to close fixed-term deposits early. Some banks have stricter rules.

Ukrainian lenders are suffering. Stress tests on the biggest 15, which include state-owned Oshchadbank and Raiffeisen Bank Aval, have already found nine must raise 56 billion hryvnia in capital. Some may be provided by the state, the central bank said last month, without disclosing the names of the lenders in question. A broader health check is almost complete, Finance Minister Oleksandr Shlapak said yesterday.

Russian banks estimate losses in Ukraine may reach $25 billion, the Kommersant newspaper reported today, citing unidentified people from the industry.

‘Hard Road’

“A long, hard road lies ahead for the new government,” Liza Ermolenko, an analyst at Capital Economics Ltd. in London, said yesterday in an e-mailed note. She cited “the collapse of the economy and an extremely fragile banking sector.”

President Petro Poroshenko says his party, which partial results show is set to win most seats, will build a new ruling coalition. The alliance, to also include Prime Minister Arseniy Yatsenyuk’s People’s Front, will ensure funds continue to flow from the International Monetary Fund amid efforts to overhaul the economy, according to the president.

Meanwhile, the shift out of deposit accounts to safe-deposit boxes has overwhelmed some lenders. In central Kiev, Lviv and Kharkiv, almost all boxes at the Ukrainian unit of UniCredit SpA (UCG) have been snapped up, while less than a third are still available across its branch network, according to Iryna Strepetova, UniCredit’s head of deposit products and accounts.

“Demand has been strong this year,” said Dmytro Havrikov, head of retail business at Kiev-based PUAO Fidobank. “Clients are pulling out deposits and putting them into safe-deposit boxes as they wait for better times.”

Alarms, Locks

Another reason for making the switch is crime. Outside the battle zone, some people have taken money from banks to keep at home, a common sanctuary for wealth after communism’s demise when many lost their savings to collapsing banks. That behavior has prompted a spike in apartment robberies.

Such crimes jumped by almost a third from a year earlier in the first nine months, according to data from the Prosecutor General’s Office. Police in Kiev are urging citizens to install alarm systems and fit stronger locks. In a statement on their website, they warned that thieves swiped 100,000 hryvnia and $3,000 in cash from an apartment in the capital on Oct. 17.

For Demianenko, the accountant, it’s the unrest in Ukraine’s east that shapes her decisions. Her parents’ town of Shchastya is on the front line of a conflict the United Nations estimates has cost more than 3,700 lives. While Poroshenko has pledged to bring peace, there are few safe havens for her cash.

“I could give my money to my parents to keep at their house,” Demianenko said. “But it’s impossible to keep savings at home in the east because of the war.”

Article ©2014 Bloomberg L.P. All Rights Reserved. Article also appeared at bloomberg.com/news/2014-10-28/safe-deposit-box-craze-lays-bare-ukraine-woes-after-vote.html

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