OREANDA-NEWS. On 9 February 2016, Governor of the National Bank of Ukraine, Ms Valeria Gontareva, held a monthly meeting with top managers of Ukraine’s 40 largest banks. NBU representatives at the meeting also included NBU Deputy Governors Vladyslav Rashkovan, Kateryna Rozhkova Yakiv Smolii, and Oleh Churii. 

“Unfortunately, today we  see a political crisis unfolding in Ukraine, which adds to uncertainty in financial markets, adversely affects relations between Ukraine and its international partners and  puts  this year’s economic growth at stake. We hope that politicians will be able to resolve this political crisis in the near future,” Ms Gontareva said, opening her speech.

The NBU Governor drew the bankers’ attention to the Inflation Report published on 4 February 2016, which provides insight into the economic situation in the fourth quarter of 2015 and contains fresh macroeconomic forecasts. In particular, the NBU was forced to revise its real GDP growth forecast downwards to 1.1% from 2.4% projected earlier.  The current account deficit forecast was revised upwards.  Unlike last year, when the current account was balanced, this year the current account deficit is expected to stand at USD 2.5 billion.  At the same time, the NBU has  maintained its 2016 inflation forecast unchanged. “Heightened political instability was not reflected in our forecasts. Therefore, our forecasts will materialize only if political stability is maintained,” stressed Ms Gontareva.

The second part of the NBU Governor’s speech was focused on bank lending. Ms Gontareva expressed hope that this year Ukrainian banks would gradually resume lending to the economy.   Presently, weak demand for borrowing from businesses, sizable overdue debts, heavy debt loads carried by enterprises, and creditors' vulnerability prevent banks from ramping up lending.  At the same time, the NBU Governor drew the bankers’ attention to the agriculture sector. “In our view, this sector is not only the most promising but also the least indebted.  Mortgage and consumer lending also has the potential to open new opportunities for lenders,” said Ms Gontareva. According to her, banks have accumulated enough liquidity to resume lending. Once banks increase their capital,  enterprises settle their debt restructuring operations and the Verkhovna Rada of Ukraine adopts a legislation package on creditor rights protection, banks will be able to resume lending. 

A set of draft laws aimed at strengthening the protection of creditor rights has been pending in parliament since March 2015. “About 20 draft laws aimed at the development of Ukraine’s financial sector are currently pending in parliament.  Since November, the NBU and the Parliamentary Committee on Finance and Banking have kept requesting the Parliament's Speaker, Mr. Groysman, to designate a special day to debate all these draft laws.  We hope that this debate will be scheduled for March,” said Mr Rashkovan. 

NBU Deputy Governor Mr Churii briefed the bankers about the outcome of joint efforts by the NBU and the Ministry of Finance of Ukraine in the area of monetary policy implementation.   First, Mr Churii reminded the bankers that the NBU ceased selling domestic sovereign bonds as the Ministry of Finance of Ukraine  returned to the local sovereign bond market.   Second, he said that the NBU created conditions enabling not only primary dealer banks but also their customers to purchase domestic sovereign bonds denominated in foreign currency.  Third, Mr Churii informed the bankers that last week the NBU ceased selling certificates of deposit  with a 3-month maturity given that the Ministry of Finance of Ukraine plans to issue certificates of deposit with a 3-month maturity. “This move can be attributed to the NBU’s unwillingness to compete with the Ministry of Finance of Ukraine in the short-term government debt securities market. This move aims to encourage banks to invest in short-term domestic sovereign bonds denominated in hryvnia,” stressed Mr Churii.

NBU Deputy Governor Ms Rozhkova briefed the bankers about the diagnostic studies of the top 20 largest banks and their recapitalization plans. “Today we have recapitalization plans for the top 10 banks. The NBU Board is expected to approve these plans in the coming days. The next 10 largest banks are required to submit their recapitalization plans by the end of March,” said Ms Rozhkova. “On 4 February 2016 the NBU Board issued a resolution to launch diagnostic studies of the next 40 largest banks. At the same time, diagnostic studies will be conducted in some banks based on the banks' balance sheets as of 1 January 2016, whereas in the remaining banks – as of 1 April 2016.   We plan to complete diagnostic studies and approve recapitalization plans by the end of November 2016.

Additionally, Ms Rozhkova pointed out  that despite the fact that diagnostic studies would be conducted in different time frames, all the banks that find themselves with negative equity after the diagnostics would have to bring it to positive territory and meet the same recapitalization schedule by 1 April 2016.

Ms Rozhkova informed the bankers that the NBU is finalizing a draft regulation on credit risk assessment. “This regulation has been drafted in consultation with market participants and their proposals have been taken into account by the NBU.  Next week we plan to agree this draft regulation with consultants and launch final consultations on this document with banking sector representatives. The regulation is expected to be enacted by the end of March 2016,” said Ms Rozhkova.