On 1 December 2015, Governor of the National Bank of Ukraine, Ms Valeria Gontareva, held a monthly meeting with top managers of Ukraine’s 40 largest banks. NBU representatives at the meeting also included all the Board members: First Deputy Governor of the NBU Oleksandr Pysaruk, and Deputy Governors Vladyslav Rashkovan, Yakiv Smolii, Dmytro Sologub, and Oleh Churii.
Ms Gontareva updated the bankers on the NBU’s revised end-year international reserves forecast. “Under our ambitious plans, with the disbursements of the third and fourth tranches under the IMF’s EFF program, the international reserves were projected to have reached USD 18 billion. Under a more conservative scenario, with the disbursement of only the third tranche, the international reserves were expected to have increased up to about USD 15 billion. However, fresh tranches of funds are now less likely to be disbursed in the remainder of the year. Accordingly, the NBU had to revise its end-year international reserves forecast downward. We expect the international reserves to increase twofold in comparison with the beginning of the year, up to slightly over USD 13 billion. Such an amount of FX reserves is sufficient as it covers more than three months of future imports,” said the NBU Governor.
The stable foreign exchange market allowed the NBU to purchase about USD 1.7 billion in the interbank FX market. These funds were used to build up the international reserves. According to NBU Deputy Governor Mr Churii, since mid-September alone, when FX purchase and sale auctions were launched in the interbank market, the NBU’s net foreign currency purchases have reached USD 300 million.
“After a 6-month period of stability, the interbank market saw volatility pick up in late October and November. Temporary supply-demand mismatches in the FX market, which determine the exchange rate under a flexible exchange rate regime, exerted devaluation pressure on the hryvnia exchange rate. These short-term factors included growing uncertainty among economic agents in the run-up to the local elections, seasonal increase in demand for foreign currency, and a higher devaluation of select currencies from countries among Ukraine’s major trading partners. Furthermore, a deeper decline in world prices for key commodities exported by Ukraine, although partially offset by lower prices for imported energy resources, contributed to the downward pressure on the exchange rate,” stated Mr Churii.
With this in mind, the NBU took measures to accommodate short-term upsurges in demand for foreign currency. Thus, in late October and November 2015, the NBU held FX sale auctions. The market is currently balanced.
NBU First Deputy Governor Mr Pysaruk briefed the bankers on efforts to draft a regulation on credit risk assessment, saying, “We have held productive discussions with banks on the draft regulation. We have analyzed credit risk assessment models used by large Ukrainian banks. There is no striking difference between our approaches; the theory we have laid down in the regulation and the existing practice. Most constructive proposals will be taken into account by the NBU. A revised draft regulation will be available to banks by the end of the week, and the NBU will look forward to your comments on said draft regulation.”
He also said that during the previous week the Cabinet of Ministers of Ukraine approved a legislation package intended to support citizens and companies which had taken FX loans, including the Draft Law “On Restructuring Ukrainian Citizens’ Liabilities Under FX Loans Extended for Purchasing a Single Residence (Mortgage Loans)” and the Draft Law “On Financial Restructuring.” Both draft laws have been drawn up through joint efforts by the Independent Association of Ukrainian Banks (IAUB), the NBU, and the Ministry of Finance. This week a package of draft laws will be submitted to Parliament for consideration.
“We regard the draft law on restructuring liabilities under FX loans as reasonable and logical since it provides for a partial forgiveness of the debt owed by the most vulnerable. At the same time, it will not create an excessive burden for the banking system. Instead, we will finally resolve the problem of debt burden and assume part of it as our social responsibility. We have convinced the IMF of the necessity to pass this daft law, otherwise we would not be able to resolve this problem, as mandated by the Memorandum with the IMF,” underlined Mr Pysaruk.
Regarding the Draft Law “On Financial Restructuring,” according to the NBU First Deputy Governor, it will enable restructuring of corporate debt (by up to 25% according to preliminary estimates) through a mechanism offered by this draft law. Of course, it will apply solely to viable companies. The draft law is intended to help them get their businesses back on the path toward recovery and to boost lending in the economy.
Mr Pysaruk pointed out that the Verkhovna Rada has so far failed to proceed to vote on Draft Law №2449, which grants the option to refrain from declaring a bank as problematic or insolvent in the event that the deterioration in its financial standing has been caused by domestic currency devaluation and/or allocations to provisions to cover potential losses arising from asset-related operations.
“This structurally important draft law was developed as part of efforts to achieve the IMF program's objectives. Furthermore, it contributes to the stabilization of Ukraine’s banking system and stronger protection of other bank creditors,” emphasized Mr Pysaruk.
The NBU expects the Parliament to consider and adopt these draft laws as a matter of urgency.
In his turn, NBU Deputy Governor Mr Rashkovan congratulated the meeting’s participants on the complete adoption of International Financial Reporting Standards (IFRS).
“On 1 December 2015, Ukraine’s banking system switched over to international accounting standards. It is a landmark event that has been awaited by banks for the past 17 years,” noted Mr Rashkovan. To meet this goal, the NBU has implemented a pilot project and participated in two World Bank-led workshops since February 2015 designed to help accountants build the knowledge needed in IFRS. “We have also staged a conference for accountants, at which we received comments and feedback on the guidelines already adopted by the NBU,” added Mr Rashkovan.
Ms Gontareva congratulated the bankers on the election of a new IAUB Council, which includes representation of all bank groups. She expressed her hope that the Verkhovna Rada and the President would shortly approve new NBU Council members.