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Coronavirus Crisis, Ways to Curb NPLs, Litigation Risks – Financial Stability Council’s Focus over Past 12 Months

The NBU has released its fifth Report on the Activities of the Financial Stability Council covering the period from August 2019 through July 2020.

During this period, the fallout from the COVID-19 pandemic presented one of the key challenges to state budget execution and the banking sector’s performance, among other things, as did the ensuing quarantine measures. Through the active work and cooperation of all institutions comprising the Financial Stability Council (FSC), and thanks to support from the IMF and other international donors, fiscal and debt risks were mitigated, and banks remained financially stable.

As is traditional, during its meetings, the FSC addressed current risks and the most sensitive issues regarding financial stability, including ways to curtail the NPLs that state-owned banks accumulated on their balance sheets. The FSC approved the plans developed by state-owned banks to reduce their NPL portfolio by UAH 305 billion over the course of three years. To achieve this, the banks will:

  • remove fully-provisioned NPLs from their balance sheets (while continuing to recover loans from debtors)
  • restructure viable loans
  • foreclose on and sell collateral 
  • sell or assign debts pertaining to distressed portfolios.

At the end of the reporting period, the FSC’s agenda included issues related to the risk that the Law of Ukraine On Households Deposit Guarantee System will be declared unconstitutional, potentially adversely affecting financial stability. This prompted the FSC to set up a task force that will draw up an action plan to mitigate financial stability risks that may arise if the Constitutional Court of Ukraine finds this law to be unconstitutional. The task force includes representatives of the NBU, the Ministry of Finance, and the Deposit Guarantee Fund.

The FSC also discussed ways to to counteract risks that may ensue in the event that the Law On Amendments to Certain Legislative Acts of Ukraine on the Improvement of Certain Mechanisms of Banking Activity Regulation is recognized unconstitutional.

For reference 

The FSC was established by a presidential decree in March 2015. The FSC comprises the NBU Governor, the Minister of Finance of Ukraine (co-chairing the FSC), the Managing Director of the Deposit Guarantee Fund, the Head of the National Commission for State Regulation of Financial Services Markets, the First Deputy Governor of the NBU, and the Deputy Minister of Finance.

The FSC provides a forum for professional discussion of systemic risks that pose a threat to the national financial stability.

 

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