As the war rages on, the government is doing everything in its power to safeguard Ukraine’s financial stability. This is the first time we have been tested on a scale this large. The National Bank of Ukraine, jointly with the Deposit Guarantee Fund and the banking community, is currently pursuing the task of maintaining the stability and efficient operation of Ukraine’s banking system.
A 100% guarantee of retail deposits while under martial law will give Ukrainians confidence in the security of their savings, as this implies that the state guarantees every citizen the return of their funds in full.
It is important to understand that a 100% guarantee of bank deposits does not mean that the state will have to reimburse all deposits held by all banks. Before the war, the banking system had a significant financial margin of safety and posted solid performance in terms of profitability, capitalization, and liquidity. Backed by the government, the Ukrainian banking system is able to meet current challenges. The decision to introduce a 100% guarantee of bank deposits for the duration of martial law comes as an additional mechanism to bolster banks.
“The NBU supports the President’s initiative to introduce a 100% public guarantee of retail deposits while martial law is in effect. Additional state support for depositors during martial law is a necessary important measure to keep Ukrainians confident that their savings are safe in their entirety. At the same time, we have every reason to believe that the banking system will have enough strength to withstand today’s tremendous challenges,” said NBU Governor Kyrylo Shevchenko.
The 100% coverage of deposits, also known as blank guarantee, is a worldwide practice. In one recent example, this instrument was deployed in 2008 in Ireland, Denmark, Iceland, and Germany as these nations struggled to overcome the global credit crunch (which in some countries lasted up to 24 months). By introducing this guarantee, the state assured retail depositors that they would have 100% of their money reimbursed under any scenario. This option is stipulated, among other things, in the Core Principles of the International Association of Deposit Insurers (IADI), which are approved by the Basel Committee on Banking Supervision. First and foremost, the arrival of the 100% deposit guarantee will boost the Ukrainian people’s confidence that their savings are not at risk. This, in turn, will prevent the banking market from being thrown out of balance,” said Svitlana Rekrut, DGF Managing Director.
As of 1 February 2022, DGF member banks held a total of UAH 658.3 billion in retail deposits (including those of sole proprietors).