The National Bank of Ukraine has published its Annual Report 2019, in which the central bank reports about its operations and summarizes changes that took place in the Ukrainian financial system and economy.
Same as last year, Annual Report 2019 is dedicated to results of the implementation of the NBU’s medium-term strategy and seven goals it defines for the central bank.
“The Ukrainian economy and financial sector finished 2019 showing good health and strength. This is especially important today, when Ukraine, along with the rest of the world, is on the brink of a crisis due to the pandemic of the novel coronavirus infection. Our country entered this period at a time of economic growth and with the lowest inflation rate in six years. The banking sector also started the crisis year in good condition. It is stable, reliable, and transparent. At the start of this year, the banking sector was well-capitalized and profitable, and there were no bankruptcies on the market. The banks are active in issuing retail loans and are gradually resuming corporate lending,” emphasized the NBU Governor Yakiv Smolii.
Price growth slowed: in 2019 consumer inflation was at a six-year low of 4.1%
Ukraine achieved its inflation target faster than expected even despite 2019 being a year of both presidential and parliamentary elections, which usually affect economic indicators due to political uncertainty. This was supported by the NBU’s consistent monetary policy and the government’s prudent fiscal policy.
The country’s “safety cushion”: international reserves reached a seven-year high
In 2019, international reserves rose to USD 25.3 billion. Benign FX markets allowed increasing the reserves by 22% over the year. The NBU’s net FX purchases amounted to USD 7.9 billion, the highest level in past 14 years.
FX inflows to Ukraine came from foreign investment in government securities, proceeds from Ukrainian exports (particularly thanks to record crop yields and an increase in IT services exports), and sustained high amounts of remittances from labor migrants. The favorable FX market environment was supported by low prices for energy imports and moderate dividend repatriation.
Support to the Ukrainian economy is a priority: the NBU cut its key policy rate five times in 2019, to 13.5%
Last year, the NBU started a cycle of monetary policy easing in order to foster economic growth. In 2019, the central bank cut the key policy rate from 18% to 13.5%. The NBU acts in a responsible manner and continues to support the economy in difficult times of the pandemic.
The NBU and the Cabinet of Ministers of Ukraine have agreed about closer cooperation and coordination in order to deliver economic growth, revive lending, and lower interest rates. The NBU made a commitment to maintain price stability and support the government's economic policy. For its part, the government pledged to conduct predictable budgetary and public debt management policies in order to ensure the sustainability of government finances.
Ukrainians are bringing money to banks: hryvnia and foreign currency deposits grew markedly
Hryvnia retail deposits in banks increased by 17.5% last year, and foreign currency retail deposits grew by 15.4%. Hryvnia corporate deposits in banks increased by 19.5% over the year, and foreign currency corporate deposits grew by 48.4%.
Banks are issuing retail loans actively and are ready for a gradual resumption of corporate lending
Hryvnia consumer lending rose by almost one third (31%) as of the year-end. Mortgage lending also grew by 13.4%. The growth was driven by an increase in household income on the one hand and high yields on such services for banks on the other. At the same time, net hryvnia corporate loans decreased by 6.2% last year.
Loan interest rates started to decline at the end of the year
A monetary policy easing in 2019 contributed to lower cost of credit. Interest rates on hryvnia corporate loans started to decline at the end of the year, dropping by 2.4 pp in Q4, to 15.7% per annum. However, the cost of credit remained high for retail customers.
The NBU has stepped up efforts to implement the full FX liberalization. Last year, it lifted around 40 restrictions on FX transactions
Last year, the NBU canceled the mandatory sales of foreign currency for businesses, allowed individuals to buy foreign currency online, lifted all limits on paying dividends abroad, and introduced a convenient system of electronic limits for foreign investment. In addition, the regulator canceled the requirement for businesses to make provisions for their FX purchases and doubled the timeframe for settlements under export and import contracts.
None of the steps towards the FX liberalization had any negative impact on the FX market and the balance of payments, as the NBU phased out the restrictions only gradually, aligning its actions with improvement in Ukraine’s macroeconomic conditions.
Cash in circulation is decreasing, while cashless settlements are growing more popular
The level of cash in the economy fell to 9.7% at the start of 2020, from 17.8% five years ago. On the other hand, the quantity and amount of cashless settlements are on the rise. Cashless payments at shops and card-to-card transfers are gaining popularity among Ukrainians. Cashless transactions account for a half (50.3%) of all payment card transactions.
The NBU has been vested with new powers to protect consumer rights in financial services and regulate nonbank financial institutions. Another priority is to raise financial literacy of Ukrainians
Last year, the parliament vested the NBU with new powers that will enable the central bank to be more effective in delivering financial stability in Ukraine starting in 2020. The services of all institutions will become transparent and safe for end customers. Consumers will become more confident in the services they receive.
Since the start of this year, the NBU has already received greater powers to protect consumer rights in financial services in practice, and not only on paper. For now it has the respective powers to be able to influence the behavior of those market participants that violate the laws.
Improving the financial literacy of households has become the 35th function of the NBU. Last year, the central bank organized 700 events aimed at raising financial literacy of different target audiences, including in the regions: Zhytomyr, Lviv, Vinnytsia, Dnipro, Odesa, Ternopil, Chernivtsi, Kharkiv, and Kherson.
The NBU transferred to the state budget almost UAH 43 billion of its profit for 2019. This will help the government to overcome the pandemic
The NBU transferred UAH 42.72 billion of its profit for the past year to the state budget. It is UAH 2 billion more than planned in the state budget for 2020. The entire amount was transferred in one go. This year, the state budget will bear a heavy financial burden of fighting the coronavirus infection in the country and supporting the businesses and households most affected by anti-pandemic restrictions.
Read more in the NBU’s Annual Report 2019.
Consolidated financial statements and the consolidated governance report, as well as the auditor's report, are available by going to the link.
Compiling and disseminating annual reports is common practice for all central banks. The NBU’s consolidated financial statements comprise an integral part of the Annual Report. The NBU had its financial statements audited by auditing company Ernst & Young Audit Services LLC.
The NBU has been publishing annual reports since 1994.
Annual reports for 1994 through 2019 are available on the NBU’s official website. The central bank has digitized all of the paper versions of the annual reports, starting from 1994. The electronic versions of these reports are available on the NBU’s official website.