On 12 January 2016, Governor of the National Bank of Ukraine, Ms Valeria Gontareva, held a monthly meeting with top managers of Ukraine’s 40 largest banks. “We have recently taken stock of the last year's results and outlined our achievements and challenges. Needless to say that last year's major achievement was securing the financial stability in Ukraine. This was made possible only through our concerted efforts,” said NBU Governor Ms Gontareva, addressing the bankers.
In the first part of her speech, the NBU Governor took stock of last year's results. One of the NBU’s key decisions in 2015 was to maintain a flexible exchange rate regime and irreversibly abandon a fixed exchange rate regime. “During the year, the speculative component of the hryvnia's exchange rate was offset through administrative restrictions and the country's balance of payments became a key driver of the exchange rate,” said Ms Gontareva.
This, along with the move away from fiscal dominance, has created prerequisites for the adoption of an inflation-targeting regime scheduled for the current year. “Fiscal policy will no longer exert a dominant influence on monetary policy. In particular, energy sector reforms enable the NBU to cease supporting Naftogaz of Ukraine NJSC through the monetization of domestic sovereign bonds. The Deposit Guarantee Fund will not require considerable funding given that the banking system was largely cleaned up in 2015,” said the NBU Governor.
Last year the banking system’s liquidity reached record highs. At year end, the amount of liquidity exceeded UAH 100 billion, of which UAH 87 billion was invested in NBU certificates of deposit. “We expect banks to resume lending to the economy. We need to restart the banking system and enhance the protection of creditors’ rights to encourage the resumption of lending. Furthermore, judicial reform needs to be implemented,” said Ms Gontareva.
After reviewing last year's results, NBU representatives outlined the NBU’s plans and challenges facing the regulator and the banking sector in 2016. NBU Deputy Governor Mr Yakiv Smolii informed the bankers that the NBU’s subdivision responsible for overseeing payment systems became operational last year and provided an update on its oversight activities. On 5 January 2016, the NBU terminated funds transfer transactions performed through the domestic payment system until the latter remedies violations of applicable laws revealed by the regulator.
He added that in 2016 the regulator would tighten capital requirements for financial institutions intending to provide funds transfer services and require the disclosure of beneficial owners of payment systems, financial institutions, and payment system participants.
Mr Smolii said that the NBU would remain involved in efforts to upgrade the National System of Mass Electronic Payments (hereinafter the NSMEP). “Our main tasks are to engage banks as issuers of NSMEP cards, increase the issuance of these payment cards, and review fees. We also plan to expand the network of ATMs and POS-terminals accepting upgraded NSMEP cards.”
Mr Smolii also encouraged the bankers to engage in the distribution of commemorative coins. According to Mr Smolii, the NBU has already held several consultations with professional numismatists. Following these consultations, the regulator intends to offer efficient and transparent distribution arrangements for commemorative coins.
NBU Deputy Governor Mr Vlad Rashkovan pointed out that in 2016 the NBU’s responsibilities would be expanded to include the regulation of the non-bank financial services market. "At one of the last meetings of the National Council of Reforms, all of the stakeholders backed draft laws on splitting the functions of the National Commission for Regulating Financial Services Markets between the NBU and the National Securities and the Stock Market Commission. I hope that these draft laws will soon be adopted by parliament,” said Mr Rashkovan. “We are ready for fruitful cooperation with industry associations for insurance and leasing companies, credit unions, and credit bureaus.”
Mr Rashkovan also called on bankers to maintain a professional dialogue with audit companies to secure NBU approval of annual reports compiled in accordance with IFRS. “I advise you to engage with audit companies that will perform an independent external audit of your business operations. Banks will primarily benefit from such professional cooperation with audit companies. I would like to stress once again that the NBU examines all annual reports and verifies information presented therein,” said Mr Rashkovan.
Director of the Banking Supervision Department, Ms Kateryna Rozhkova, briefed the bankers on the stress tests of the 20 largest banks. “We have completed the diagnostic studies of the 20 largest banks. So far the findings of the diagnostic studies have not been approved for three banks. These findings will be presented at a Board meeting this week. Four banks out of the 20 banks that have undergone stress tests are not required to increase capital. Another five banks have implemented their 3-year recapitalization plans,” said Ms Rozhkova.
According to her, talks are under way with six banks. They will be joined by another three banks once the findings of the diagnostic studies are approved by the Board. Two banks are in the final stage of the approval of their recapitalization plans.
Among the tasks facing the regulator in 2016, Ms Rozhkova mentioned diagnostic studies of the next 40 largest banks scheduled for May and diagnostic studies of banks’ related party transactions across the banking system. According to Ms Rozhkova, the NBU expects banks to return to operational profitability in 2017. Additionally, the adoption of consolidated supervision will be one of the major areas of focus in 2016.
“We have already launched efforts to ensure the transparency of the ownership structure of non-bank financial institutions. I believe that in 2016, not only the banking sector will be transparent, but also the entire financial sector,” added Ms Rozhkova.
Wrapping up the meeting, the NBU Governor welcomed the M&A market recovery and pointed out the NBU is engaged in efforts to create a competitive environment in the banking sector. “In particular, the NBU, jointly with the Ministry of Finance of Ukraine, is devising a development strategy for state-owned banks until 2020, which envisages that Ukreximbank and Oschadbank will operate on a competitive and commercial basis.
The bankers, in their turn, acknowledged the restoration of depositors' confidence in the banking sector and projected stronger deposit growth and the resumption of lending to the economy.