Financial Stability Council discusses reduction of non-performing loans in state-owned banks and restructuring debt of Deposit Fund

3/29/19

Since the end of 2018, some of the risks for the stability of the financial system of Ukraine have declined this is the conclusion made by the participants of the first meeting of the Financial Stability Council in 2019.

The risks on the currency market declined even after the enactment of the Law of Ukraine “On Currency and Currency Transactions” in the beginning of February 2019. Export revenues and the increased volume of state bonds held by portfolio investors contribute to the moderate rise of the exchange rate of the
Hryvna. The banking sector also demonstrates stable and profitable operations.

The participants of the meeting also stated that the economic growth was expected to slow down in 2019 due to the weaker demand on the international market and the necessity to stick to the rigid monetary and fiscal policy. At the same time, these measures contribute to the lower inflation. The key risks refer to the slower pace of the global economic growth including the main trading partners of Ukraine as well as a possible unfavourable dynamic on the international commodity markets.

The participants of the meeting also agreed that it was important for Ukraine to keep the reached dynamic of cooperation with international financial organisations, to fulfil its obligations on time and to receive the planned financial aid according to the agreed schedule. This is necessary to smoothly sustain the
peak payments of Ukraine’s external debts and to continue reforms.

Another point of the meeting’s agenda was the reduction of the volume of non-performing loans in the banking sector. As stated by the meeting participants, the state-owned Oshchadbank, Ukreximbank and Urkgazbank worked hard last year to reduce the volume of their bad loans, with the Ukrgazbank being most successful in this. These efforts also took into account the recommendations for handling NPLs published in the end of 2018. The members of the Financial Stability Council noted that the NPL issue in the state banking sector must be solved until the end of 2019.

One more point of the agenda was the restructuring of the debt of the Deposit Fund to the Ministry of Finance. The participants of the meeting agreed that a complex
solution was necessary to handle the debt burden of the Fund, which requires a dedicated legislative initiative.

Ending the meeting, the participants also stressed the importance of the development of the secondary market for domestic state bonds nominated in UAH both for
international and domestic investors, including such international platforms as Reuters and Bloomberg. This step became especially relevant after the signing of an agreement with Clearstream on March 13 that paves the way to the market of domestic state bonds for international investors. To make this happen, the
National Securities and Stock Market Commission shall simplify the trading requirements for domestic state bonds on the secondary market.

For information:
The meeting was attended by Minister of Finance Oksana Markarova, Head of the National Bank Yakiv Smoliy, Head of the National Securities and Stock Market Commission Tymur Khromaev, Managing Director of the Deposit Fund Kostiantyn Vorushylin, Head of the National Commission for the State Regulation of Financial Services Ihor Pashko, First Deputy Head of the National Bank Kateryna Rozhkova as well as Deputy Heads of the National Bank Dmytro Sologub, Oleg Churiy and Roman Borysenko, Deputy Minister of Finance Yuri Heletiy, Deputy Managing Director of the Deposit Fund Andriy Olenchyk.

The Financial Stability Council was established in March 2015 according to the decree of the President of Ukraine. Its permanent members are the Head of the National Bank of Ukraine, Minister of Finance of Ukraine (co-chairpersons of the Council), the Head of the National Securities and Stock Market Commission, the Head of the National Commission for the State Regulation of Financial Services, the Managing Director of the Deposit Fund, the Deputy Head of the National Bank and the Deputy Minister of Finance.

The Council serves as a forum for the professional discussion of system risks affecting the financial stability of the country.

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