The National Bank of Ukraine (NBU) will extend the list of instruments for banks intended to maintain long-term liquidity in the view of a huge present gap between short-term and long-term liquidity in financial institutions.

First, the current list of standard instruments for maintaining liquidity (refinancing loans up to 14 days and up to 90 days) will be supplemented with refinancing for 1-5 years.

Respective refinancing will not have a special purpose status and will be disbursed according to results of extraordinary tenders. A floating rate will be set for such instruments (the NBU key policy rate + 2 pp) and will change throughout the period a bank uses disbursed funds respective to the changes in the key policy rate.

Banks can pledge as collateral the same assets used to raise refinancing loans up to 14 days and up to 90 days. These instruments include as follows:

• Ukraine government bonds (domestic government bonds and external government bonds of Ukraine, and special purpose domestic government bonds);
• NBU certificates of deposit (for long-term refinancing to be used as additional collateral only);
• foreign currency (US dollars, euro, pound sterling, Swiss francs, Japanese yen);
• bonds of international financial organizations.

An option will be provided to exchange matured securities for other securities.

Long-term refinancing periods, loan amounts, and tender schedule will be determined by the NBU Board according to outcomes of the monetary policy committee meeting on quarterly basis. Information on the tender schedule for maintaining bank liquidity for the next quarter (including long-term) will be posted on the NBU web-site. Information on tender award decisions will be published on the NBU web-site on the day of the tender.

Introducing such instruments will create basis for resumption of long-term lending in the real sector thus fostering economic growth.

Second, transfer of title to securities will be provided for direct repo transactions.

Direct repo transactions are currently available. However, according to effective regulations, title to securities in a repo transaction is retained by the bank executing such transaction with the NBU. Thus, ensuring transfer of title for such transactions will enable the NBU to alleviate creditor’s risks.

Moreover, this will increase liquidity of the secondary market of securities and the general market liquidity, as well as foster government bond trading.

Third, a pool of assets will be created, which banks could pledge as collateral to receive overnight loans and refinancing loans of different maturities.

For this purpose the bank is supposed to enter into a general loan agreement with the NBU for a 5-year term (with optional renewal for additional 5 years) and create an asset pool. The pool may include assets listed above.

That said, banks can change one type of assets in the pool for another on regular basis enabling a bank to manage pledged assets.

Secured and previously verified collateral will promote a more expedient and simplified procedure for banks to receive liquidity from the NBU. Furthermore, banks will have the option to apply for overnight loans against foreign currency collateral.

The highlighted amendments were approved by NBU Board Resolution No. 144 dated 28 December 2017 On Amendments to the Regulation on the Use by the National Bank of Ukraine of Standard Instruments for Regulating Liquidity in the Banking System that enters into effect on 2 May 2018.