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NBU Council Approves NBU’s Consolidated Financial Statements for 2022 and Profit to Be Distributed

NBU Council Approves NBU’s Consolidated Financial Statements for 2022 and Profit to Be Distributed

On 24 April 2023, the NBU Council approved the NBU’s Consolidated Management Report and Consolidated Financial Statements for 2022.

As of 31 December 2022, the NBU’s balance-sheet total was UAH 1,958.6 billion (UAH 1,376.9 billion in 2021).

The main components of the NBU’s assets as of the end of 2022:

  • assets that form international reserves, which mostly consisted of:

- nonresidents’ securities amounting to UAH 695.5 billion

- funds and deposits in foreign currency amounting to UAH 241.5 billion

  • Ukrainian securities – UAH 757 billion
  • loans to banks and other borrowers – UAH 40.8 billion.

Main changes in the NBU’s assets in 2022 were driven mainly by:

  • a decrease in international reserves by 8%, to USD 28.5 billion as of year-end 2022, down from USD 30.9 billion at the end of 2021
  • a twofold increase in the NBU’s portfolio of Ukrainian securities. This was driven by the purchases of domestic government debt securities to the total amount of UAH 400 billion in March–December 2022, which was necessary for supporting uninterrupted budgetary spending amid russia’s full-scale military aggression
  • a decrease by 2.4 times of the credit portfolio as the banks repaid long-term debts on performing loans.

The NBU’s liabilities as of 31 December 2022 were UAH 1,630 billion, accounting for 83% of the balance-sheet total (liabilities).

The main changes in the NBU’s liabilities occurred in the following items:

  • Banknotes and coins in circulation grew by 14%, to UAH 715 billion.
  • Certificates of deposit issued by the NBU doubled, reaching UAH 457.5 billion.

An almost twofold increase in the NBU’s equity in 2022, from UAH 166.9 billion to UAH 328.2 billion, resulted from an increase in revaluation reserves, which was mostly attributed to the change in the official exchange rate of the hryvnia against foreign currencies.

The NBU’s financial result for 2022 amounted to UAH 232.3 billion.

The main components of the NBU’s financial result were:

  • interest income of UAH 63.2 billion. This was 2.2 times the level of 2021, mainly due to an increase in income on domestic government debt securities
  • revaluation gain on financial instruments in the amount of UAH 175.6 billion due to a change in the official exchange rate and the fair value of the financial instruments. A portion of this revaluation gain – UAH 142 billion – was unrealized (previous) gain that, according to the Law of Ukraine On the National Bank of Ukraine, is accumulated as revaluation reserve in the NBU’s equity up to the moment the respective financial assets are sold.

In 2022, the NBU’s costs related to the production of banknotes, coins, and other products, administrative expenses, and staff costs were UAH 6.7 billion (UAH 5.8 billion in 2021).

Thus, the NBU’s distributable profit for 2022 was UAH 91 billion. In accordance with the Law of Ukraine On the National Bank of Ukraine, the NBU will transfer a part of its distributable profit to the State Budget of Ukraine and the other part to the general reserves of the NBU.

The NBU Council, agreeing with the validity of the approaches, estimates, and judgments applied by the NBU, approved the NBU's Consolidated Financial Statements for 2022, taking into account the report of the independent auditor.

"The NBU will transfer to the State Budget the largest amount of distributable profit in its history – UAH 71.87 billion. These funds will make a significant contribution to strengthening the defense capabilities of our country in times of war and will bring the Victory closer,” underlined, NBU Governor Andriy Pyshnyy.

In line with the Law of Ukraine On the National Bank of Ukraine, the NBU’s remaining distributable profit of UAH 19.2 billion will be allocated to increase the central bank’s general reserves, which must equal 10% of the average annual monetary liabilities of the NBU.

As a result of the external audit of the NBU's Consolidated Financial Statements for 2022, the independent auditor Ernst & Young Audit Services LLC issued a qualified opinion about provisions for expected losses from the hryvnia-denominated domestic government debt securities held in the NBU's portfolio and accounted for at amortized cost.

As stated in Note 5 of the Consolidated Financial Statements, the NBU believes, based on the analysis of all available information, that the domestic government debt securities are conditionally free of credit risk and thus do not require provisioning. The government of Ukraine always meets its liabilities on domestic government debt securities. Taking into account the unprecedented volumes of external financial assistance, the NBU believes that the domestic debt is sustainable.

The independent auditor's report also contains an explanatory paragraph on the uncertainty of the impact of russia's military aggression against Ukraine on the NBU's operations. The audit opinion was not modified in this regard.

For reference

In accordance with the law, the NBU compiles its financial statements in line with the International Financial Reporting Standards (IFRS).

Relevant estimates of assets, liabilities, income, and expenses in accordance with the IFRS (including the principle of prudence) must be made even under conditions of high uncertainty and involve the use of judgment and assumptions, analysis of all available information about past events, current circumstances, and the use of forward-looking information about the possibility of future economic benefits. The NBU's main judgments used in making the estimates are given in the notes to the Consolidated Financial Statements.

In particular, Ukrainian securities (hryvnia-denominated domestic government debt securities) held by the NBU to receive payments from the issuer are classified into “at amortized cost” category. In this case, the IFRS requires mandatory assessment of probable credit losses, i.e., an assessment of potential shortfalls in payments envisaged by the terms of the issue. Given its special status, special relations, and cooperation with the government, the NBU has access to and practical ability to analyze the most complete and up-to-date information. Based on the performed analysis, despite the difficult economic conditions in Ukraine and the ongoing military aggression of russia, the NBU reasonably expects to receive all payments on the domestic government debt securities in time. In view of the above, the NBU does not recognize any potential losses and has not created any provisions for hryvnia-denominated domestic government debt securities in its portfolio. The NBU continues to regularly and thoroughly analyze information to maintain an up-to-date assessment of the issuer's ability to repay its liabilities.

In accordance with Ukrainian legislation, the Consolidated Annual Financial Statements are subject to mandatory external audit, which was conducted by Ernst & Young Audit Services LLC, a member of the EY global network of firms with experience in auditing central banks.

Given the large share of the item "Securities of Ukraine" in the NBU's balance-sheet total, the issue of the used valuations of domestic government debt securities in the national currency, judgments, and their compliance with the IFRS was studied in detail by Ernst & Young Audit Services LLC as the key audit issue. Provisions for Ukrainian securities should have been recognized in the opinion of Ernst & Young Audit Services LLC. However, given the existence of several possible scenarios and the uncertainty regarding their probability, the audit firm was unable to determine the adverse impact of this issue on either the NBU's financial standing or its financial performance. Given the materiality of this issue, the audit firm has given a qualified opinion.

Therefore, in the opinion of the audit firm, except for the effect of the issue of recognizing provisions for expected credit losses from securities of Ukraine, the NBU’s Consolidated Financial Statements present fairly, in all material respects, the consolidated financial standing of the NBU as of 31 December 2022 and its consolidated financial performance and cash flows for the year ended 31 December 2022, in accordance with the international financial reporting standards (IFRS), and meets the requirements of the Law of Ukraine On Accounting and Financial Reporting in Ukraine with regard to compiling financial reports (Accounting and Financial Reporting Law).



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