On 26 September 2017, the Board of the National Bank of Ukraine chaired by Yakiv Smolii, Acting Governor of the NBU, held a meeting with top managers of Ukraine’s 40 largest banks.
At the start of the meeting, Mr Smolii congratulated bankers on the new business season and announced traditional quarterly meetings to continue.
“We must maintain and enhance the current positive trends in the banking sector. Over eight months of 2017, solvent banks showed net profit after taxes of UAH 3.43 billion. Fortunately, the banking system remained profitable even despite losses of two large banks incurred through provisioning. FX reserves are growing steadily: the NBU has bought out more than USD 1.5 billion from the market since the start of the year. At the same time, the central bank smoothed out minor fluctuations on the FX market by means of interventions,” said Yakiv Smolii, Acting Governor of the NBU.
For the positive trends to last, banks should resume lending to the real sector. This is the banks’ priority according to Mr Smolii. “We realize that high legal risks and legislative barriers stand in the way of the full-fledged lending recovery. The Verkhovna Rada could solve these problems by supporting important draft laws on financial sector functioning. First of all, these are draft laws regarding creditor rights protection and bankruptcy issues,” pointed out Mr Smolii.
He also reminded heads of banks about transforming the cash circulation model and the gradual transition to the outsourcing model. “The new model envisages the NBU’s agents – commercial banks and CIT companies – to handle the logistics of cash circulation, i.e., its transportation, storage, and processing,” explained Yakiv Smolii.
Dmytro Sologub, the NBU Deputy Governor, led a discussion of the recent economic trends and prospects for the late 2017 and 2018. “The economy has managed to overcome the shock of broken trade and transport links in the east of the country. Over the first six months of the year, the economy grew 2.4% and the current figures indicate that our forecast of real GDP to increase 1.6% in 2017 was rather conservative – the growth will be more than that,” he said.
At the same time, Mr Sologub noted that inflation as of the end of 2017 might also exceed the current forecast by the NBU (9.1%). Fundamental inflation factors remain under control. However, the inflation level is also influenced by temporary factors, which have caused a price increase for four groups of products – meat and dairy products, vegetables, and tobacco goods. “The monetary policy must react to changes in fundamental factors. That is why we will watch the temporary factors closely so that they do not turn into fundamental ones. In addition, inflation risks may realize in the fiscal policy domain. In case the risk of inflation remaining outside the target range is high, we will respond with tight monetary policy,” mentioned Mr Sologub.
The NBU Board members drew special attention of the heads of banks to the importance of continued cooperation between Ukraine and the IMF. Both Dmytro Sologub and Oleg Churiy emphasized that fulfilling the reform program undertaken by Ukraine is the basis for macroeconomic and financial stability over the medium and long term.
“A gradual disinflation, external market environment favorable for Ukrainian exporters, Ukraine returning to the international capital markets – none of these should interfere with the IMF cooperation program. Financing, which will prove useful in 2018–2019 to repay the external public debt, is not the only benefit of the program. These are, first of all, reforms which are a prerequisite for a stable and strong economic growth,” said Oleg Churiy, the NBU Deputy Governor.
Speaking of the FX market situation, Oleg Churiy mentioned that changes in the schedule of receiving financing under the IMF program does not influence the market. Mr Churiy says that the market depends on other factors – export proceeds and psychological factors. “Since the start of the year, export volumes have grown more than 20% and the current dynamics of export proceeds is much better than we expected. Meanwhile, imports also grow as the economy picks up. In addition, the media hype regarding hryvnia depreciation in the autumn impacts expectations of households, whose demand for foreign currency increased in September, despite the trends observed since the start of the year,” he noted.
Oleg Churiy also confirmed the NBU’s intentions to continue the gradual FX liberalization. The NBU is currently finishing processing proposals and comments regarding legislative changes required to liberalize FX regulation, which it received from businesses, banks, and experts during public discussions. “We aim at presenting the finalized Draft Law On Foreign Currency in the near future,” said Mr Churiy.
Roman Borysenko, the NBU Deputy Governor, reminded bankers that Financial Institutions Servicing Division has been operating within the NBU since July in order to facilitate interaction between the market (banks and non-bank financial institutions) and the regulator. He also added that, in October, under the Electronic Document Flow project, FOSSDOCMAIL will replace NBUMAIL, the system of email exchange between the NBU and commercial banks. FOSSDOCMAIL is a more modern, efficient, and secure information exchange channel.
Mr Borysenko also informed about Ukrainian banks’ readiness for implementation of IFRS 9: “According to the latest survey, banks have made big progress in preparing for the international standards implementation. Now it is essential for every bank to consolidate the efforts of their top-management, lines of business, risk management, finance, and IT to finish the preparations for IFRS 9 implementation starting 1 January 2018.”
Kateryna Rozhkova, the NBU Deputy Governor, shared information on key prudential supervision projects of the NBU. The Deputy Governor paid special attention to nuances of the shift to IFRS 9, the need for banks to intensify their work with non-performing assets, and elaborating the process for the new bank supervision approach – SREP (Supervisory review and evaluation process) – and credit register.
In particular, Ms Rozhkova reminded that IFRS 9 would become obligatory for the banking system starting 1 January 2018. According to preliminary estimates, the shift to IFRS 9 will not affect capital of most banks.
“The NBU is actively reforming the regulator’s supervision functions in order to make the banking system more stable and predictable. For us it is very important to implement all key innovations by closely discussing them with the banking community. We are glad about our improved cooperation with banks and plan to continue making further transformations in an open and transparent way,” emphasized Kateryna Rozhkova.