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National Bank Against Coronavirus

Coronavirus infection is first of all a threat to health and lives of our citizens. Also the spread of this infection can have negative consequences for the economy and the Ukrainian financial system. To prevent this, the NBU has introduced a system of anti-crisis measures for the period of quarantine in the country and regularly informs the public on the developments in the economy on its website, social network pages, as well as the media. The NBU is certain that all these measures will mitigate the effects of coronavirus infection on the public and business, and ensure quality and continuity of the financial system operation.

How do banks operate during quarantine?

The banking system continues to operate as usual. The NBU does not introduce any restrictions on bank operation or bank transactions, like payouts on deposits, issuing loans, foreign exchange, ATM operation etc.

The NBU has agreed with large banks that account for over 50% of the branch network in the banking system on full servicing of all regions. However, the NBU has advised banks to close branches with low customer traffic or located in big retail centers and buildings closed during quarantine. This is an important preventive step against the spread of coronavirus.

Thus, headquarters, branches with high customer traffic and offices in residential districts remain operational in the banking system. At the same time, the Ukrainian banks have sufficiently developed digital services and the majority of customer servicing can be done on-line. It’s up-to-date and safe.

The NBU has reduced the administrative load so that banks could devote more time to customer communication. In particular, stress testing and implementation of capital buffers were postponed and on-sight inspections were cancelled. Also, banks will be permitted to submit the annual financial statements later and business models assessments were postponed.

What’s happening on the FX market?

The spread of the coronavirus infection throughout the world deteriorated global business sentiments. Stock market indicators fell, prices on commodity markets changed drastically, and most global currencies depreciated. Those were the currencies of both our geographical neighbors, Poland, Turkey, Russia and others, as well as, the currencies of developed countries as Australia, Norway, and the UK.

Sentiments deteriorated also on the Ukrainian market. The coronavirus infection outbreak spiked demand for foreign currency in Ukraine. However, the NBU smoothed out excessive exchange rate fluctuations and conducted FX intervention on selling currency on the interbank FX market. This cooled down the heated demand caused by psychological rather than economic factors.

NBU FX market policy remains the same throughout the recent years. The regulator does not interfere with the market trends, but rather alleviates excessive fluctuations. For example, last year, the situation on the FX market was favorable: supply exceeded demand, and the NBU bought the surplus for reserves to raise a security buffer. At the same time, when the regulator bought currency, it did not impede the market trend of hryvnia strengthening but rather smoothed out fluctuations, made the developments more gradual, so that both business and the public could plan their transactions. In general, last year, the NBU bought from the market almost USD 8 billion. When the developments move in another direction, the regulator does not try to fix the hryvnia exchange rate, but conducts interventions on selling foreign currency and alleviates the exchange rate fluctuations. So, NBU FX market policy is consistent and independent from the exchange rate trends.

If necessary, the NBU will continue FX interventions to smooth out fluctuations. The NBU has no reason to either introduce currency restrictions or radically change the policy.

First, the NBU has sufficient reserves, i.e. about USD 25 billion.

Second, the regulator expects the conclusion of a new IMF program in the following weeks after the Verkhovna Rada votes for the drafts required. IMF funding also gives way for other official funding sources from the EU and the World Bank.

Third, the NBU has another hidden reserve in the form of a compensation paid out by Gazprom to Naftogaz. These funds will gradually land in the international reserves.

Fourth, exports generate stable FX inflows to Ukraine. The impact of coronavirus on the foreign trade is mostly neutral.  Some drop in prices for Ukrainian export goods is compensated by the growth of shipments and lower energy prices, i.e., oil and gas, which are Ukraine’s main import items.

How loans are repaid and what changed in relations between banks and borrowers?

Considering the difficult conditions for business and the need for remote work, or even unpaid leaves for individuals, the NBU offered banks to introduce a special grace period for loan servicing during quarantine for both households and businesses (loan repayment holidays).

The grace period on loans can be granted to households and businesses going through financial difficulties due to quarantine. Meaning everyone, who lost their income and job in part of in full. Banks were suggested some options for restructuring such loans. They can grant full or partial relief from repaying the principal during quarantine with the respective extension of the loan. Also, capitalization of interest may be suggested. It all depends on the specific situation and arrangements with the bank.

Following NBU initiative, the Verkhovna Rada of Ukraine has prohibited to increase the interest rate on consumer loans from 1 March to 30 April for reasons other than the change in the floating rate under the agreement. These changes apply to all retail loans. Also, all kinds of liability were lifted (fines, penalties, etc.) for past due discharge for the period from 1 March 2020 to 30 April 2020.

Individual approach will be applied to medium and large businesses. A special approach is needed to those economic sectors that are completely losing their income and don’t operate at present, as well as temporarily nonworking individuals due to quarantine measures and ceased operation of some companies.

Will depositors have any issues regarding payout of bank deposits?

The NBU did not introduce any restrictions on types and amounts of deposit payouts upon maturity. At present, banks have more than enough funds to meet customer demands both in branch cash desks and in ATMs.

Continuous cash servicing and ATM replenishment will be ensured at all times. If banks become in need of liquidity, the NBU is ready to provide all the necessary assistance. However, there is no such need at present. The banking system has sufficient capital and high liquidity.

What is the best way to transact payments?

The NBU recommends the public to resort to remote banking as much as possible. Today, visiting crowded places (bank and postal offices, and other institutions) poses risk both for customers and respective employees.

Present day technologies offer the option of ordering and paying for food and products online. Also, there is no need to visit a bank office to pay for utilities or exchange currency. All this can be done without leaving home.

To make noncash payments even less expensive and more accessible, the NBU has cancelled tariffs of the System of Electronic Payments (SEP) for the quarantine period.

Banks News

Banks need to pay a lot of attention to communication with their clients to smooth negative effects of coronavirus. 

Banks should inform clients of a grace period for loan servicing during quarantine for both households and businesses. They should tell them how to use online services or how to remotely extend the card. This communication is important to preserve financial stability. 

Ukrainian banks follow these NBU's recommendations.