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NBU Takes Part in Meeting of Cluster 1 of EU-Ukraine Association Committee

NBU Takes Part in Meeting of Cluster 1 of EU-Ukraine Association Committee

On 26 October, representatives of the National Bank of Ukraine took part in the scheduled meeting of Cluster 1 of the Subcommittee on Economic and Other Sector Cooperation of EU-Ukraine Association Committee which aims to discuss macroeconomic cooperation and state finance management.

"The National Bank of Ukraine has taken a number of measures to support the real economy and the financial sector in response to the spread of the coronavirus infection," pointed out Volodymyr Lepushynskyi, director of the Monetary Policy and Economic Analysis Department, in his monetary policy overview during  session 2, which was dedicated to macroeconomic cooperation and fiscal and monetary policies. 

Volodymyr Lepushynskyi also noted that the NBU had created the conditions for lending to become more accessible for businesses and households by substantially easing its monetary policy in 2020: the NBU’s key policy rate was cut to 6% per annum from 13.5%. At the same time, the NBU was one of the first central banks in emerging markets to start raising its key policy rate in 2021 in response to rising inflationary pressures. It was eventually raised by 2.5 pp over the current year.  Furthermore, since early July 2021, the NBU has started phasing out the measures taken to address the coronavirus crisis and normalizing the operational design of the monetary policy. The central bank expects these steps to be sufficient to slow down inflation and bring it to the 5% target as of the end of 2022.

In her presentation during session 3 Cooperation in the Financial Sector, Director of the Financial Stability Department Pervin Dadashova focused on financial stability issues and outlined main achievements in reforming the financial sector of Ukraine.

The financial sector of Ukraine has in general successfully passed the Covid-19 crisis and is properly performing its functions, the speaker stressed. To a large extent, its stability is due to the fact that banks entered the pandemic sufficiently capitalized, highly liquid, and with no significant imbalances. The impact of the crisis on loan quality has been much milder than previously expected. By paying significant attention to the quality of their portfolios before and during the crisis, and by restructuring the loans to debtors that were experiencing difficulties, banks came through the crisis without taking significant losses. They were actually able to increase their capital reserves. 

The NBU continues to harmonize Ukrainian legislation with EU law, Pervin Dadashova said. This primarily concerns capital requirements to cover operational risk, which are planned for introduction at the start of 2022. 

Work is also underway to update nonbank sector legislation. Draft laws on financial services, finance companies, insurance, and credit unions have already passed the first reading in the Verkhovna Rada.

The EU representatives noted the effectiveness of the NBU’s efforts to support the financial sector and maintain its stability in times of crisis, as well as measures to reform the financial sector. 

The EU experts presented a review of recent developments in the EU financial services sector, with the focus on the challenges of passing new banking legislation (CRRII/CRDV; BRRD), implementing Basel III standards, and amending insurance legislation (Solvency II).

For reference 

Cluster 1 (macroeconomic cooperation, public finance management: budgetary  policy, internal control and external audit, statistics, accounting and audit, anti-fraud management) of the Subcommittee on Economic and Other Sector Cooperation of the EU-Ukraine Association Committee was created and is operating under Article 466 of the EU-Ukraine Association Agreement. Cluster 1 meetings are held on an annual basis. The NBU has traditionally participated in its meetings on issues related to monetary policy, financial stability, and financial sector reform.


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