The National Bank of Ukraine has expanded the opportunities for banks to manage short-term liquidity in foreign currency.

Currently, Ukrainian banks’ correspondent accounts balances with non-resident banks amount to USD 5 billion. During the year, balances on correspondent accounts of banks ranged from USD 4.5 billion to USD 5.5 billion. Most of these funds are denominated in hard currencies.

Up until now, banks had two options of placing temporarily idle cash balances in foreign currency: either to use these funds to issue interbank loans or place them on correspondent accounts.

From now on, banks will be provided with an additional option of investing foreign currency in highly liquid investment grade debt instruments under simplified rules.

This move will enable banks increase a return on investment and mitigate credit risks associated with FX balances held on accounts with correspondent banks.

“Given that the T-bill market has a high liquidity, which is manifested in extremely low spreads, if needed, banks will be able sell these securities before their maturity date, which would have a limited impact on securities prices,” said NBU Deputy Governor Mr Oleg Churiy, explaining advantages of this option.

The NBU has amended the Instruction on the Rules Governing the Issuance of Individual Licenses for Investment Abroad to enable banks manage FX liquidity.

Under new rules, banks will be able to invest funds in highly liquid investment grade debt instruments without having to apply for individual licenses.

Banks will have to meet several requirements to be allowed to invest in such debt instruments:

• An authorized bank is required to have a general license to raise foreign currency loans and place foreign currency on accounts abroad.
• An issuer of debt securities must be an international financial institution or a foreign state (one of the G7 countries), including represented by the respective public authority.
• An issuer of debt securities, in which investment is made, is required to have investment-grade ratings of at least АА-/Аа3 approved by the leading credit rating agencies such as Fitch Ratings and/or Standard&Poors, and/or Moody’s as of the date of purchase of these securities by an authorized bank.
• Debt securities in which investment is made must be denominated in US dollars, JPY, EUR, in Pound sterling (GBP) and Canadian dollars (CAD).
• The maturity of debt instruments shall not exceed five years.
• Banks are allowed to perform operation involving the purchase of debt instruments and their subsequent sale only with nonresidents from abroad.

he appropriate amendments to this effecthave beenapprovedbyNBU BoardResolution No.406of22November2016Instruction on the Rules Governing the Issuance of Individual LicensesforInvestment Abroad.The amendments will come into effect from 23 November 2016.