Ukraine’s Cabinet of Ministers has introduced changes to a resolution on depositing funds from local budgets in commercial bank accounts, the Information-Analytical Bulletin of the Cabinet of Ministers of Ukraine informs.

Finance Ministry experts say the changes are meant to further the adoption of competitive principles to temporarily deposited local budget funds not less than 10 billion UAH, where the state directly or indirectly owns not less than 75% of the capital. Tender conditions stipulate that eligible banks not be under National Bank of Ukraine sanction, distressed or insolvent.

The reason for introducing such strict criteria for depositing local budget funds in banks is the negative experience previous years. There have been numerous serious conflicts between local authorities and the banks, where there is no participation of state capital. Some banks unreasonably denied the return of funds from deposit accounts, failed to pay interest on deposits and refused to pay the penalty for violating the terms of the deposit agreement. There were even cases when banks refused to perform even the decisions of the courts for the return of deposits.

These types of incidents forced the government in May 2012 to introduce more stringent requirements for banks to handle local budget funds.

Banking market analysts say such restrictions are justified, especially given the difficult situation in the world and the Ukrainian economy. They are designed to ensure the preservation of budget funds under any circumstances. Analysts say state-owned banks guarantee the return of local budgets funds.

Experts say two banks fully owned by the state meet the criteria the banking market: Oschadbank and Ukreximbank. The former has registered capital of 15.5 billion USD, and the latter 16.4 billion. Both banks are among the largest in Ukraine’s banking system, ranking second and third place in terms of assets. Both banks are stable and operate at a profit. Over the first 6 months of 2013, profit before tax amounted to 496 million UAH for Oshchadbank and 148 million UAH for Ukreximbank.

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