The current financial sector state is perhaps the best since Ukraine's independence, while financial stability risks are insignificant. The world is showing cautious optimism and much better expectations for 2020 than a few months ago. The Ukrainian economy is growing faster than projected and inflation has reached the target range. At the same time, industrial output is decreasing, mainly due to the unfavorable prices in some world commodity markets, in particular the developments in metal prices. The Financial Stability Council (hereinafter – the FSC) participants discussed this issue at this year’s last session.
The situation in the foreign exchange market remains favorable. The National Bank of Ukraine (hereinafter – the NBU) is buying surplus of currency in the market to replenish international reserves. Thus, since the year start, the NBU's net FX purchase has already exceeded USD 6 billion. The volume of deposits in the banking system has been increasing. The volume of FX deposits has been growing faster in the last months of the current year, even despite the historically lowest interest rates. A favorable macroeconomic situation, low inflation and the hryvnia’s strengthening will contribute to reducing the financial system dollarization.
Restoring the Deposit Guarantee Fund (hereinafter – the DGF) solvency was among the key issues discussed during the meeting. To date, the DGF has a debt of UAH 49 billion to the Ministry of Finance of Ukraine for the bulk of its borrowings. The situation exists in relation to the crisis, as the DGF had to borrow funds from the NBU and the Ministry of Finance to repay guaranteed deposits to bankrupt banks’ clients. The FSC members discussed possible ways to restore the DGF’s solvency. The financial and legal evaluation of several scenarios will be conducted in Q1 2020.
As regards the DGF, the FSC’s participants supported the idea of including Oschadbank in the deposit guarantee system starting from mid-2020. The plan for the bank’s joining the fund will be further elaborated.
In addition, the FSС discussed the risks of construction financing funds. Market regulators are concerned about these funds’ operation as cases of an inappropriate fulfillment of their obligations are increasing. The FSС members agreed on the need of rapid amendments to the legislation in order to strengthen investor protection and increase transparency in the primary real estate market. The relevant proposals will be submitted to parliament.
Finally, the participants agreed to set up an interagency Committee on Financial Development, which will coordinate the implementation of the Strategy of Ukrainian Financial Sector Development until 2025. Also, the task force on dealing with NPLs at state-owned banks was expanded to include representatives of law enforcement agencies.
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The FSС meeting was attended by Oksana Markarova, Minister of Finance of Ukraine, Yakiv Smolii, NBU Governor, Svitlana Rekrut , Managing Director of the Deposit Guarantee Fund, Ihor Pashko, Head of the National Commission for State Regulation of Financial Services Markets (NCSRFS), Kateryna Rozhkova, NBU First Deputy Governor, and Yurii Heletii, Deputy Minister of Finance.
The FSC was established by a presidential decree in March 2015. The FSC comprises the NBU Governor, the Minister of Finance of Ukraine (the co-chairs), Head of the National Securities and Stock Market Commission, Head of the National Commission for State Regulation of Financial Services Markets, the Managing Director of the DGF, a Deputy Governor of the NBU, and a Deputy Minister of Finance of Ukraine.
The FSC provides a forum for professional discussion of systemic risks that pose a threat to the national financial stability.