The National Bank of Ukraine continues to take measures aimed at stimulating bank lending. One of the reasons why banks refrain from ramping up lending (especially long-term lending) is their uncertainty about the ability to maintain their own liquidity given growing volatility in external markets that might affect the domestic financial market.

In view of the above, the Council of the National Bank of Ukraine has recommended the Board of the National Bank of Ukraine “consider the possibility of extending the term for granting refinancing loans to 360 days in order to provide liquidity support to banks in the context of limited access to external funding sources. Given the need to avoid risks to financial and monetary stability, it is deemed expedient to provide such support only to the banks that adhere strictly to all the NBU regulatory requirements”.

In accordance with Item 1.11 of Chapter 1 of Section I of NBU Regulation On Regulating Liquidity of Ukrainian Banks by the National Bank of Ukraine approved by NBU Board Resolution No 259 of 30 April 2009 registered with the Ministry of Justice of Ukraine on 6 May 2009 under No. 410/16426 as amended (hereinafter referred to as the Regulation), the National Bank of Ukraine has the right to impose additional requirements on banks by issuing order documents depending on instruments, refinancing terms and the type of collateral against which refinancing is provided.

Taking into account all the above mentioned and in order to use the monetary instruments efficiently, the Board of the National Bank of Ukraine approved Resolution No. 393 “On Certain Issues related to the Money Market Regulation” (hereinafter referred as the Resolution) endorsing additional requirements to be imposed on the banks participating in tenders for the provision of liquidity support for the term of over 90 days.

The Resolution, in particular, stipulates that the National Bank of Ukraine may adopt the decision to provide liquidity support to the bank through tenders for the term of over 90 days on condition that in addition to the requirements set forth in Item 1.1 of Chapter 1 Section ІІ of the Regulation the bank abides by the following additional requirements:

• ensures compliance with the requirements to the formation of mandatory reserves during six reporting periods prior to the date of submission of bids to participate in the tender;
• adheres to the economic ratios and the limits set by the open foreign exchange position during six months prior to the date of submission of bids to participate in the tender;
• ensures full adherence  to the NBU requirements to the formation of provisions against possible losses under active transactions during six reporting periods prior to the date of submission of bids to participate in the tender;

As set forth in the Resolution, credit agreements to be concluded with banks for the provision of refinancing loans for the term of over 90 days through tenders stipulate that the National Bank of Ukraine reserves the right to unilaterally and prematurely terminate the credit agreement upon the occurrence of any of the following events: 

• the revelation of facts that could constitute evidence of submitting false, inaccurate information (including financial reporting) by the bank that has exerted a significant influence on the decision to accept the bank’s bid and provide a refinancing loan for the term of over 90 days;
• failure to comply with NBU requirements imposed on banks with regard to the formation of mandatory reserves and provisions against possible losses under active transactions, failure to adhere to the economic ratios and limits set by the open foreign exchange position during the life of a credit agreement;
• a reduction of 10% and more during the reporting month in the size of the regulatory capital and/or capital ratios established by NBU regulations.

During the life of credit agreements for the provision of refinancing loans for the term of over 90 days through tenders the National Bank of Ukraine shall carry out monitoring of banks’ activities to ensure their compliance with the requirements set forth in the Resolution.

In case of the violation of these terms and conditions, the decision to terminate the credit agreement unilaterally shall be taken by the Commission of the National Bank of Ukraine on Banking Supervision and Regulation (regarding Group 1 and Group 2 Banks, as well as Group 3 and Group 4 Banks operating in the Kyiv region) or by the respective Commission of the National Bank at the Regional Branch Office (regarding the remaining Group 3 and Group 4 Banks.