On 25 April 2016, Governor of the National Bank of Ukraine, Ms Valeria Gontareva, conducted a meeting with top managers of Ukraine’s 40 largest banks. NBU representatives at the meeting also included NBU Deputy Governors Yakiv Smolii, Kateryna Rozhkova, Dmytro Sologub, and Oleh Churii.
Ms Gontareva briefed the bankers about the outcome of the meeting with IMF and World Bank senior officials held in Washington. “The NBU’s priority is to stay on the course of reforms set out in the IMF-supported program,” was the key message delivered by the Ukrainian delegation. During a meeting with Ms. Christine Lagarde, IMF Managing Director, we confirmed Ukraine’s strong commitment to the IMF-supported program, saying that the new government is set to push forward cooperation with the IMF,” said the NBU Governor. Ms Gontareva said that the IMF reaffirmed its readiness to continue to support Ukraine in its efforts to move economic reforms forward and that an IMF mission will visit Ukraine in the near future.
NBU Deputy Governor Mr Sologub informed the bankers that the NBU has reviewed its macroeconomic forecasts for 2016 – 2017, taking into account recent economic developments and future risks. After careful consideration of the factors involved, the regulator has left most of its projections unchanged (in particular, its inflation projections and projection for real GDP growth). According to Mr Sologub, current economic developments are in line with the assumptions in the NBU’s baseline scenario. In the first quarter of 2016, a slowdown of inflation proceeded faster than it was projected in January. However, the NBU expects inflation to return to the target (12%) by the end of this year. These developments have enabled the NBU to resume monetary easing by cutting the key policy rate to 19%. Should risks to price stability abate further, in particular, following the successful completion of the second review under the Extended Fund Facility with the IMF, the NBU may move ahead with the monetary easing.
NBU Deputy Governor Mr Oleh Churii dwelled on the new operational framework of monetary policy approved by the NBU Board on 21 April 2016. Mr Churii pointed to the advantages of the new operational framework, among which stands out simplicity. What is more, this operational framework enhances the clarity of monetary policy communication, making it unambiguous. From now on, when the NBU changes its policy rate, all market participants will have a clear understanding all market participants all market participants will have a clear understanding of how the market will react based on how other central banks’ interest rate moves affected their markets. This will enhance the effectiveness of monetary policy.
Mr Churii also outlined progress made by the NBU in easing FX controls. A Working Group that has been working on this project at the NBU since August 2015 has reviewed the regulatory framework governing foreign exchange controls. We have already selected the most appropriate model on which to build foreign exchange control regulations in Ukraine. This model is in line with EU Council Directive 88/361/EEC on the Liberalization of Capital Movements. The Working Group, consisting of independent domestic and foreign experts, is currently working on a Roadmap for the Journey to this model. Preparatory work to amend or revise applicable laws will soon be launched.
“As liberalization of FX controls is impossible without measures to promote “de-offshorization,” the NBU called for efforts to address this issue half a year ago,” added Ms Gontareva. According to the NBU Governor, it is impossible to lift FX controls over BOP current account operations without having efficient controls in place to regulate transfer pricing and without jeopardizing foreign exchange market stability. The NBU Governor also added that it is impossible to ensure the free flow of capital without eliminating opportunities for companies to shift capital to low-tax jurisdictions. The free flow of capital should not come at the cost of exchange rate and price stability in the country. “The Interdepartmental Working Group consisting of representatives of the Presidential Administration, NBU, Ministry of Finance of Ukraine and the State Fiscal Service is currently involved in efforts to work out the concept of de-offshorization,” underlined Ms Gontareva.
The NBU also takes measures to prevent to prevent nonproductive capital outflow abroad. “We welcome the news that now banks operating in Ukraine have ceased cooperation with notorious transit banks. This leads us to assume that we have found a permanent solution to the capital outflow problem. However, we keep controls in place to oversee banks’ correspondent accounts,” said the NBU Governor.
NBU Deputy Governor Ms Kateryna Rozhkova commented on the initiative to allow banks to transform into private joint ctock companies. “If a bank does not intend to raise capital at the stock exchange, there is no need to require it to exist in the form of a public joint-stock company. The Laws of Ukraine On Banks and Banking and On Joint-Stock Companies need to be amended to this effect. “We see eye to eye with the National Securities and Stock Market Commission, which is to initiate the respective legislative changes,” said Ms Rozhkova.
She also informed the bankers that last Friday the NBU held a meeting with representatives from banks and audit firms to discuss a new regulation on credit risk assessment. The key point is that there were no divisions on the issue between the NBU and market players. It will take us one more week to test a new methodology to make sure that our new regulation will not require banks to significantly increase capital. After this, we plan to table the draft resolution to the Financial Stability Committee for consideration at its next meeting. Following the approval by the Financial Stability Committee, the draft regulation will be submitted to the NBU Board in late May,” said Ms Rozhkova. “A Working Group on the implementation of this new guidelines will be set up this week”.
Ms Rozhkova also reminded the bankers that diagnostic studies of banks carried out in 2015 have revealed that four banks have required no additional capital, while another four banks have implemented three-year recapitalization programs and nine more banks have been partially recapitalized. “To date, banks have increased their capital by UAH 69 billion, which has had a positive impact on their balance sheets. Overall, the banking system is on track with its recapitalization program,” underlined Ms Rozhkova.