Ways to ensure macrofinancial stability and the banking sector’s resilience as the full-scale war drags on were the key topics discussed at a regular meeting of the Financial Stability Council (FSC) on 3 February 2023.
The FSC highlighted the stabilization of a number of risks, although russia’s war and terrorist acts are worsening the economic outlook.
Thanks to international aid, Ukraine’s international reserves have increased. Coupled with the banks’ significant FX liquidity, this lays the groundwork for a possible easing of certain FX restrictions going forward.
The NBU has revised downwards its economic growth forecast for 2023, to 0.3%, due to the consequences of russia’s energy terror and because of a revised major assumption about the longer duration of active hostilities. Ukraine will return to economic growth in 2024–2025 as security risks decline.
Even as the war grinds on, inflation in 2023 will decelerate and remain in check thanks to measures taken by the NBU and the government and assistance from international partners. To enable Ukrainians to protect their savings, the NBU will also take further steps to make hryvnia-denominated financial instruments more lucrative. The FSC has backed the NBU’s efforts to return inflation to a path of steady decline and to improve the term structure of retail deposits in the banking sector.
Clients have maintained their confidence in the banking system, which keeps receiving liquidity inflows. Term deposits have returned to growth. The banks are maintaining, and in some cases building up, capital cushions despite the war, but capital adequacy risks persist. At the same time, the loan portfolio is shrinking due to low demand. Going forward, state programs are what can further support lending. The FSC members agreed to contribute to updating the design of government programs that support public lending, in line with proposals discussed at the FSC’s December 2022 meeting.
In 2023, the NBU is planning to conduct a resilience assessment of the banks and the banking system. The NBU has proposed a concept of bank resilience assessment that will reveal the sector’s true condition after the hardest phase of the current war-induced economic crisis is over. The FSC endorses this effort. The resilience assessment – specifically stage three, which estimates the banks’ performance indicators under the baseline scenario – will evaluate the viability of the financial institutions’ business models and identify actual capital needs of the largest banks. The findings of the resilience assessment will shape an adjustment of the regulatory easing regime and inform decisions that will sustain the bringing of banking requirements further into line with the EU acquis.
The FSC also discussed Ukraine’s progress in meeting its commitments under the Memorandum on Economic and Financial Policy with the IMF.
The following FSC members participated in the meeting: Andriy Pyshnyy, NBU Governor, Serhii Marchenko, Minister of Finance of Ukraine, Svitlana Rekrut, Managing Director of the DGF, Kateryna Rozhkova, NBU First Deputy Governor, Dmytro Oliinyk, NBU Deputy Governor, Yurii Drahanchuk, Deputy Minister of Finance of Ukraine for European Integration, and other heads of institutions comprising the FSC.
The FSC was established by a presidential decree in March 2015. The FSC provides a forum for the professional discussion of systemic risks to domestic financial stability.