The National Bank of Ukraine is updating the Regulation On Calculating and Publishing the Ukrainian Overnight Index Average (UONIA) (hereinafter referred to as the Regulation) to introduce modern methodologies for calculating this indicator.
As of 4 January 2022, the NBU:
- will calculate UONIA as a weighted average by volume of transactions to reduce the risk of an excessive potential impact on the indicator that may be caused by certain banks’ small-volume deals at the rates that substantially differ from the average market ones. It is worth mentioning that as of today UONIA is calculated as the arithmetic mean
- will include the following components in the primary sample to be used for UONIA calculations:
- only deals with the most relevant volume for the Ukrainian interbank lending market: from UAH 10 million to UAH 200 million (at present all interbank deals are incorporated into the primary sampling)
- 10% of banks’ deals concluded with the NBU on placing overnight certificates of deposit being in the middle of a series of respective deals ranked by volume (at present, while calculating the arithmetic mean without taking into account the volume of deals, the calculations are based on 10% of any such deals randomly chosen out of their total number)
- 10% of banks’ deals concluded with the NBU on overnight refinancing loans being in the middle of a series of respective deals ranked by volume (at present, while calculating the arithmetic mean without taking into account the volume of deals, the calculations are based on 10% of any such deals randomly chosen out of their total number).
- will increase the number of criteria for calculating UONIA under special conditions by adding the following criterion to the applicable two criteria (the minimal number of agreements and the minimal quantity of counterparties): Number of deals available for calculation ≤ 10% of the average daily number in the previous month.
The updated methodology for calculating UONIA provides that calculations of the indicator will continue including 10% of the total number of banks’ deals with the NBU, both for placing overnight certificates of deposit and overnight refinancing. However, to further bring the methodology of calculating this indicator in line with the International Organization of Securities Commissions (IOSCO) principles, the NBU has developed an algorithm to be followed when considering the transition to UONIA calculations without taking into account deals between banks and the NBU.
The said amendments were enacted by NBU Board Decision No. 599 dated 30 November 2021 On Approval of the Amendments to the Regulation On Calculating and Publishing the Ukrainian Overnight Index Average (UONIA), which is entering into force on 4 January 2022.
A new version of the Regulation (as amended) is available by clicking this link.
The proposals, the rationale behind them, and analytical estimations based on which the above amendments to the Regulation were made can be found here.
The respective proposals on the amendments to the Regulation were brought up for public discussion whose summary can be found here.
Maintaining the practice of including 10% of the total number of banks' agreements with the NBU in the calculation of UONIA does not fully comply with the principles set out in the document IOSCO: Principles for Financial Benchmarks Final Report July 2013. The decision to maintain the practice was made considering that excluding the respective agreements could cause problems in calculating the indicator under the basic methodology due to the insufficient number of interbank deals against the backdrop of banks’ low activity on the interbank lending market.
However, to further bring the UONIA calculation methodology in line with the IOSCO principles, the National Bank has developed an algorithm to be followed when considering the transition to UONIA calculations without taking into account agreements between banks and the NBU. It provides, among other things, for estimating each six months (during the regular review procedure for the indicator) the cases where UONIA (subject to exclusion of agreements with the NBU) would not be calculated according to the basic methodology in the previous twelve-month period due to market participants’ low activity. If by results of two consecutive analyses of the respective calculations it appears that the methodology of calculating UONIA under special conditions would be used less than twice per six months, the issue of transferring to calculating UONIA without taking into account banks’ agreements with the NBU will be considered.