On January 31, 2017, the Financial Stability Council (FSC) had its first meeting this year. The meeting was attended by its co-chairpersons, Minister of Finance Oleksandr Danyliuk and Head of the National Bank Valeriya Gontareva, as well as by the heads of other bodies regulating the financial market.
The participants of the meeting mentioned the improved macroeconomic framework for the operation of the financial sector including the faster pace of economic growth. At the same time, they mentioned additional inflationary risks, which is why the current forecast of the consumer price index of the National Bank of Ukraine set at 9.1% for the end of 2017 is closer to the upper limit of the price range which is at 8% +/-2%. The fiscal policy remains moderate, the budget deficit is within the set limits. The exchange rate of the Hryvna was stabilized after the period of increased volatility in December and January; in the course of 2017, the fundamental economic parameters will result in the moderate volatility of the exchange rate. The participants of the meeting also mentioned increasing risks due to the resumed hostilities in the East of Ukraine.
The key point on the FSC meeting agenda was the operation of the state-owned banks.
The analysis of the assets of the Ukreximbank and the Oshchadbank made by the National Bank in January 2017 detected the lower quality of a number of loans granted by the banks in 2016. The discipline of many big customers got significantly worse, some of them suspended loan re-payment. This development requires the recapitalization of the banks in 2017. The exact volume of recapitalization will be defined considering the possible positive impacts of the restructuring of a part of the debts conducted in line with the Law of Ukraine “On Financial Restructuring”. Currently, the state-owned banks comply with the National Bank regulatory capital requirements.
The participants of the meeting agreed to revise and to update the development strategy of state-owned banks. The “Principles of the Strategic Reform of the State Banking Sector” were adopted in February 2016 by the Cabinet of Ministers. This document must be updated, since the share of state-owned banks in the Ukrainian banking system is now higher than 50% after the nationalization of the Privatbank.
The Ministry of Finance also informed the meeting participants about the finalized draft law containing important changes in the standards of corporate management at state-owned banks including the creation of independent supervisory boards. The draft law shall be presented to the Parliament within several weeks.
The meeting participants also discussed the issues of the life insurance market development. The life insurance market is an element of the pension system infrastructure in Ukraine. This segment of the insurance market is presently rather small and is not able to establish the long-term resource base for the financial sector. At the same time, the key companies on this market have high-quality assets. The FSC decided to support the initiatives of the National Commission for the Regulation of Financial Service Markets which could enhance the growth potential of the life insurance market and contribute to the better protection of customers’ rights.