The National Bank of Ukraine has streamlined standard monetary instruments and liquidity regulation arrangements. On September 17, 2015, the Board of the National Bank of Ukraine has issued Resolution No. 615 On Approval of the Regulation On the Use of Standard Banking System Liquidity Regulation Instruments by the National Bank of Ukraine (hereinafter – Resolution No.615) to this effect. Resolution No.615 comes into effect from December 1, 2015.
The regulator has reduced refinancing loan maturities for loans provided through tenders. The maximum loan maturity shall be 90 days instead of the currently effective loan maturity period of 1 year. This move is a necessary prerequisite for the transition to an inflation targeting regime, which the National Bank of Ukraine intends to complete by the end of 2016.
With a view to enabling greater flexibility of the central bank's liquidity management operations, the National Bank of Ukraine has opted to allow banks to submit multiple bids to participate in tenders (both CD placement tenders and refinancing tenders). Until now, every bank has been limited to submitting only one bid. With Resolution No 615 in place, banks will be able to submit several bids with different parameters at a time.
The regulator has also revised the list of eligible collateral for refinancing loans, having removed financial instruments that are not widely used in the stock market. Among them, mortgage bonds, bonds issued by the State Mortgage Institution, municipal bonds, etc. Starting from December, only Ukrainian government bonds, certificates of deposit, five types of foreign currency (USD, EUR, GBP, CHF, JPY) and bonds issued by international financial institutions shall be accepted as eligible collateral for refinancing loans.
Resolution No. 615 approves a partial repayment and release of collateral. Earlier banks were able to partially repay their debt obligations. However, they were not able to release collateral until after the full repayment of all obligations. The move is aimed at enabling greater flexibility of the central bank’s liquidity-providing operations.
With the aim of lowering credit risk exposure, the National Bank of Ukraine has modified the methodology for calculating the value of collateral for loans and credit operations. The value of collateral shall be designated at fair value (in line with a market-based approach). To this end, adjusting factors (discounts) applicable for fair value measurement of collateral shall be applied depending on the characteristics of securities that are pledged as collateral. A new provision requiring banks to provide additional collateral in case of a reduction in the fair value of collateral below the required level is intended to mitigate credit risk exposure.
In addition, a single general agreement is required not only for overnight loans but also tender loans. Once resolution No. 615 comes into effect, individual loan agreements in respect of tender loans shall be abandoned. This will make it possible to simplify and speed up the process. The period from the announcement of a tender to the settlement date has been shortened from five to two days.