A wave of excessive sentiment that has gripped the country is driving up the demand for liquid funds, including that for cash. In order to create conditions for the banks to operate sustainably and meet in a timely manner its obligations to depositors and creditors, the National Bank of Ukraine has taken additional measures to support the banking system liquidity.
In particular, Resolution of the National Bank of Ukraine Board No. 86 dated February 21, 2014, (hereinafter – Resolution No. 86) envisages measures to:
- provide from February 24, 2014, banks greater flexibility in managing their own liquidity through:
- a reduction in the share of the mandatory provisions to be allocated by banks on a separate account with the National Bank of Ukraine from 40% to 20% of the amount of the mandatory provisions made in the previous provisioning period under report;
- a decrease in the minimum amount of the mandatory provisions that banks are required to hold daily at the start of a business day on their correspondent accounts with the National Bank from 60% to 50% of the mandatory provisions made during the preceding provisioning period;
- annul from February 21, 2014, restrictions on the number of bids that banks are allowed to submit to obtain refinancing in the form of overnight loans.
Before Resolution No. 86 was adopted banks were allowed to apply for the National Bank of Ukraine to obtain refinancing in the form of overnight loans against collateral not more than twice a week and in the form of unsecured loans not more than once a week.
Commenting on Resolution No. 86, Director of the General Department of Monetary Policy of the National Bank of Ukraine Olena Shcherbakova noted that these measures, coupled with other regulatory measures taken by the National Bank of Ukraine, would make it possible to build up additional liquidity buffers for the banking system. “In the short-term perspective these measures will enable banks to mitigate a wave of excessive market sentiment triggered by the increasing demand for liquid funds. This move opens up further opportunities for banks to boost lending,” said Ms Olena Shcherbakova.
She also added that the adopted decisions were in line with the recommendations provided by the international financial organizations, including the IMF, concerning the improvement of operational structure of the monetary policy and the money market adjustment mechanisms.