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NBU Adopts Mechanism Aimed to Prevent Accumulation of Currency Imbalances in Financial Sector

8 January 2019

Press Release

 

In order to prevent the accumulation of systemic risks in the financial sector related to the capital inflows to Ukraine, the NBU has updated the reserve requirements for funds received by banks in foreign currency.

 

According to the NBU’s Macroprudential Policy Strategy, reserve requirement for short-term funds is a macro-prudential tool that helps to achieve two interim goals of this policy: prevent the accumulation of liquidity gaps and lower the level of dollarization in the financial sector.

 

The application of the reserve requirement for short-term external borrowings was previously regulated by the Rules for Provisioning for Deposits and Loans in Foreign Currency received from Nonresidents by Authorized Banks approved by NBU Board Resolution No. 171 dated 18 June 2008, that loses effect with the expiration of Decree of the Cabinet of Ministers of Ukraine No. 15-93 dated 19 February 1993 On the System of Currency Regulation and Currency Control.

 

The previous Rules will be replaced by a new NBU Regulation On the Procedure for Provisioning for Foreign Currency (Investment Metals) Deposits  and Loans Received by the Bank from Nonresidents. The document is of a preventive nature and will only be applied in the event of accumulation of currency imbalances in the financial sector and the adoption by the NBU of a respective additional decision to establish specific reserve requirements.

 

The NBU will still have the right to establish reserve requirements for foreign currency received by the bank under deposit and loan agreements from nonresidents and subject to repayment during the period up to 183 calendar days. According to the document, these requirements also apply to similar transactions with investment metals.

 

The approved Regulation also simplifies the procedure for the bank to provide information on the amounts of  provisioning for the transactions  of borrowing foreign currency or investment metals. In particular, the certificate previously provided by banks in paper form is replaced with statistical information in electronic form.

 

Application of reserve requirement for short-term external borrowings will allow NBU to prevent the accumulation of currency imbalances and systemic risks as a result of banks’ intensified short-term borrowings of foreign currency (investment metals)  provided as deposits and loans by nonresidents.

 

Regulation On the Procedure for Provisioning for Foreign Currency (Investment Metals) Deposits and Loans Received by Bank from Nonresidents approved by NBU Board Resolution No. 12 dated 3 January 2019.


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Last modification   08.01.2019