The National Bank of Ukraine (NBU) hosted this year’s first meeting of the Financial Stability Council (FSC) last week. Since the end of 2018, certain risks to the financial system’s stability have declined, the participants pointed out.
FX market risks eased off even after the currency liberalization that followed the enactment in early February of the law of Ukraine On Currency and Currency Operations. Export revenues and nonresidents’ increasing portfolio investment in domestic government bonds are contributing to the gradual strengthening of the hryvnia. The banking system is also reporting stable and profitable performance.
However, economic growth will slow down in 2019 as external demand weakens and fiscal and monetary policy continues to be tight, the participants said. At the same time, this is what has been driving the decrease in inflation. Key risks include a sharper deceleration of growth around the world and in Ukraine’s main trading partners and possible unfavorable developments in commodity markets.
The participants emphasized the importance of preserving the current pace of cooperation with international financial institutions, fulfilling the commitments Ukraine undertook to meet, and receiving the scheduled tranches of financial assistance. This is necessary to tide the country over the period of peak repayments on external debt and to continue to press forward with reform.
The participants discussed reducing the banking sector’s NPLs. Oschadbank, Ukreximbank, and Ukrgasbank all took action last year to cut bad debt, the participants pointed out. Ukrgasbank drove its NPL ratio down to 10%. This work was done while taking into account the NPL guidelines for state-owned banks published in the final days of 2018. The problem of NPLs on state-owned banks’ balance sheets may be resolved in 2019, the participants emphasized.
In addition, the participants discussed the issue of restructuring the debt of the Deposit Guarantee Fund (DGF) to the Finance Ministry. The participants were unanimous in saying that resolving the DGF’s excessive debt burden required a top-to-bottom approach and a separate legislative initiative.
As the meeting drew to a close, the participants also emphasized the importance of developing the secondary market of hryvnia domestic government bonds, in particular on international platforms such as Reuters and Bloomberg for both international and local investors. This is especially relevant in light of signing an agreement with Clearstream on March 13th, which opens up access to the domestic government bonds market for international investors. To this end, the National Securities and Stock Market Commission should simplify the requirements for trading the instrument on the secondary market.
For reference
The meeting of the FSC was attended by the Minister of Finance of Ukraine Oksana Markarova, NBU Governor Yakiv Smolii, Head of the National Securities and Stock Market Commission (NSSMC) Tymur Khromaiev, Managing Director of the Deposit Guarantee Fund (DGF) Kostiantyn Vorushylin, Head of the National Commission for State Regulation of Financial Services Markets (NCSRFS) Ihor Pashko, First Deputy Governor of the NBU Kateryna Rozhkova, Deputy Governors of the NBU Dmytro Sologub, Oleg Churiy, and Roman Borysenko, Deputy Minister of Finance Yurii Heletii, and Deputy Managing Director of the DGF Andrii Olenchyk.
The FSC was established by a presidential decree in March 2015. The FSC Comprises the NBU Governor, the Minister of Finance of Ukraine (co-chairs of the FSC), Head of the NSSMC, Head of the NCSRFS, 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 country’s financial stability.