On 12 September 2016, Governor of the National Bank of Ukraine, Ms Valeria Gontareva, held a meeting with top managers of Ukraine’s 40 largest banks. NBU representatives at the meeting also included NBU Deputy Governors Yakiv Smolii, Roman Borysenko, Kateryna Rozhkova, Dmytro Sologub, and Oleh Churiy.
The NBU Governor reminded the meeting participants that NBU Deputy Governor Mr Vladyslav Rashkovan has left the central bank.
“I would like to officially introduce to you Acting Deputy Governor Mr Roman Borysenko responsible for financial and administrative operations at the central bank. Prior to this appointment, Mr Borysenko headed the Personnel Department and was actively involved in the internal transformation process of the NBU. As you may know, we have recently announced the launch of the second phase of the transformation project that will run for three years. Mr Borysenko is in charge of this project,” said Ms Gontareva. The NBU Governor underlined that information about the NBU’s alleged plans to include privatization of the Banknote Printing and Minting Works on the agenda of the second phase of the transformation process has no substance. “The Banknote Printing and Minting Works will not be removed from the NBU’s organizational structure,” said Ms Gontareva.
Meanwhile, the NBU is pushing ahead with its cashless economy project, which is successfully implemented in many countries around the world. According to the NBU’s flash estimate, the level of cash in the economy (M0-to-GDP ratio) will stand at 7.5% in 2020, while at the end-2015 the M0-to-GDP ratio was 15.6%. The NBU Governor unveiled plans to hold a special meeting with bankers to discuss this project and make adjustments thereto based on their proposals.
The NBU Board noted clear signs of macroeconomic stabilization. “The current economic situation is fully in line with the NBU’s macroeconomic forecast presented in the Inflation Report (July 2016): the economy is gradually recovering, while inflation has dropped sharply. In particular, the FX market volatility observed in early September was also in line with the NBU’s projections,” said NBU Deputy Governor Mr Sologub. “Thus, the end-year inflation target of 12% is well within reach.”
In his turn, Mr Oleh Churiy outlined factors that will affect the FX market in the near term. First, revenues from fresh grain exports are expected to offset a fall in global grain prices. Also, a trend toward lower volatility in the FX market will be supported by the renewal of cooperation with the International Monetary Fund, which is expected this week. “Meanwhile, in August, the NBU resumed FX sale auctions and is set to conduct, if warranted, further FX interventions to contain exchange rate volatility triggered by temporary factors,” said Mr Churiy.
However, the NBU Governor underlined that both macroeconomic prerequisites and other capital control measures necessary to prevent capital outflow to low-tax jurisdictions must be in place to enable the NBU to move ahead with FX liberalization. “A package of draft laws designed to counteract the erosion of the taxable base and profit-shifting abroad (BEPS-related draft laws) has been prepared in line with the OECD’s BEPS recommendations by the Parliamentary Committee on Tax and Customs Policy with support from the NBU. The draft laws have been presented for consideration by parliament. Also, these draft laws provide for Ukraine to join the framework for automatic exchange of information between the tax authorities of other countries. If effectively implemented and enforced, these laws will eliminate the need for administrative restrictions on foreign exchange transactions and enable the NBU to put in place new and more liberal foreign exchange controls,” said Ms Gontareva.
NBU Deputy Governor Ms Rozhkova briefed the bankers on the progress made by Ukraine's top 20 largest banks in implementing recapitalization programs. “Currently, five banks have fulfilled the prescribed recapitalization programs, another five banks have implemented this year’s programs well ahead of schedule, and four more banks are in the process of having their recapitalization programs approved. I am convinced that by the end of September 2016, the top 20 largest banks will bring their capital adequacy ratios back to 5%,” said Ms Rozhkova, adding that the NBU has extended the deadline for banks to meet the capital ratios set by the regulator. Thus, the next 20 largest banks are required achieve a zero capital adequacy ratio by the end of November 2016 and raise it to 5% by the end of February 2017.
Ms Gontareva pointed out that this year banks have increased their capital by a total of over UAH 100 billion.
The current high liquidity in the banking system enabled banks to substantially reduce their debt to the NBU, bringing it back to levels recorded at the start of 2014. Over the first eight months of 2016, the outstanding principal debt on refinancing loans decreased by UAH 25 billion.
Ms Rozhkova said that banks would need to focus their efforts on profit maximization in 2017 as the banking system's performance continues to weaken with the losses incurred by banks adversely affecting their capital.
“The recovery of lending activity will enable banks to enhance their efficiency and improve their performance. To achieve this, the NBU, together with the banking association, bankers, and companies have discussed a lot of proposals and issues that need to be addressed to restore lending. Based on these proposals, an Action Plan that will serve as a roadmap will soon be drawn up and implemented through our joint efforts. Last week the NBU Board approved a concept paper on the credit registry. We hope that the establishment of a credit registry will enable bankers to make more prudent lending decisions,” said the NBU Deputy Governor.
In addition, Ms Rozhkova reminded the bankers that, in September, for the first time, the NBU will review credit risk reports prepared by banks in accordance with a new regulation.
This regulation will come into effect on 1 January 2017. It has applied in test mode from 1 September 2016. The bankers should pay special attention to possible shortcomings that might be revealed during the review of reports prepared in accordance with the new regulation and take measures jointly with the regulator to eliminate them. “We hope that following of the new regulation’s entry into force, banks will discontinue the practice of overestimating the financial capacity of borrowers and delaying the recognition of assets as non-performing,” said Ms Rozhkova.
For reference
The NBU has held regular meetings with top managers of the 40 largest banks since 2014. These meetings were held once a month last year (except for summer months). The top 40 largest banks account for 96% of total banking sector assets. The next meeting with bankers has been scheduled for October.