The National Bank of Ukraine (NBU) will hold the first interest rate swap auction on 2 July 2020. Please be reminded that this is a new instrument introduced by the NBU for the first time. With the instrument, banks can hedge, or mitigate, interest rate risks, and receive an additional incentive to boost investments and long-term lending.
Auction bids should be submitted until 12:00 p.m. on 2 July through Refinitiv’s FX Trading platform or Bloomberg’s IB Chat. Results of the auction will be released on the same day at 5:00 p.m.
The starting bid of a bank is UAH 10 million. Total auction volume is UAH 2 billion. One bank cannot make more than five bids.
This is a price auction. Regarding their economic essence, auction transactions can be presented as follows: a bank makes a bid to receive a provisional loan of a certain amount that carries a certain fixed interest rate. If the bid is confirmed, the bank provides the NBU with the same-size provisional loan carrying a fluctuating interbank rate that is derived from the Ukrainian Index of Interbank Rates on Overnight Loans and Deposits (UONIA) and thus reflects the market conditions. Both provisional loans have the same amounts, maturity dates, and interest payout dates. During the agreed period, the parties calculate the differences between interest payments.
Using the interest rate swap, banks will be able to pay fixed loan rates in the long term, thus insuring themselves against changes in the cost of debt. This will boost long-term hryvnia lending.
For more information on interest rate swaps, go to "Money Market" Section.