EBA met with the Board of the National Bank of Ukraine

06/ 09/ 2023

Today, the European Business Association held a regular meeting with Andriy Pyshnyy, Governor of the National Bank of Ukraine, Kateryna Rozhkova, First Deputy Governor, and Sergiy Nikolaychuk and Yuriy Heletiy, Deputy Governors. In particular, they discussed further steps and plans of the regulator to ensure the macro-financial stability of the country. Thus, the NBU is focused on preparing and implementing several strategic documents (financial sector development strategy, currency liberalization strategy, lending recovery strategy, etc.) The currency liberalization strategy, as you know, has already been adopted (as part of the commitments under the IMF program). It is based on the creation of preconditions, not on a calendar schedule. Currently, the NBU sees progress in creating the relevant preconditions, but they need to be sustainable. The NBU considers all proposals that could give the economy additional impetus and resources while analyzing them to ensure that the changes implemented do not harm macro-financial stability. For example, the NBU is considering the possibility of repatriating new dividends (the first stage of the Roadmap for easing restrictions), refunding interest on old loans from non-residents (the second stage), resuming SWIFT transfers for investment abroad (the third stage), increasing the limit on transfers from foreign currency cards of Ukrainian banks to foreign bank cards (the third stage), etc. In addition, each step towards currency liberalization requires additional discussion with international partners, as Ukraines foreign exchange reserves are currently supported primarily by international financial assistance. Accordingly, the NBUs actions should be as transparent and clear as possible for international partners. This creates the necessary circle of trust that allows us to hope for further support. In the future, the NBU also plans to move toward greater exchange rate flexibility. This will happen only when the right preconditions are in place. Even after the transition, the NBU will remain an important player in the foreign exchange market for a long time and will compensate for the structural deficit of foreign currency, which will allow the hryvnia to strengthen rather than weaken. The NBU emphasized that exchange rate stability is one of the regulators priorities, as it is necessary to ensure price and financial stability. It was also noted that the transition to a more flexible exchange rate is likely to take place separately from the NBUs decisions on the key policy rate. After all, such meetings are held by the calendar plan, and the NBU plans to move to flexibility when the preconditions are in place, not when certain dates occur. The participants also touched upon the situation in the Ukrainian foreign exchange market. Despite the challenges, the situation is stable and under control. The difference between the official and cash exchange rates is gradually narrowing. The country has a sufficient level of international reserves. As a result, the NBU was able to ease some restrictions, in particular in terms of allowing interest to be repaid on new loans from non-residents and loans secured by a guarantee from an international financial organization or export credit agency. The Strategy for the Development of the Financial Sector of Ukraine has recently been approved. The document sets out current priorities and goals for the development of the financial sector both during a full-scale war and post-war reconstruction. The strategy pays special attention to the implementation of European legislation, as Ukraines movement toward the EU is an absolute priority. The NBU is also preparing a Lending Resumption Strategy. The regulator has not recently seen a decline in the business loan portfolio. The key policy rate cuts, along with risk mitigation and the recovery of business activity, will help to increase both banks lending appetites and business demand. In addition, as part of the cooperation program with the IMF, much attention is paid to supporting businesses, particularly small and medium-sized ones. At the same time, support is also important for large companies, so we are currently discussing possible formats with the Ministry of Economy. In response to the businesss question about what the NBU plans to pay attention to in connection with the implementation of the Laws of Ukraine On Insurance and On Financial Services and Financial Companies, the NBU is currently working on several new regulations on licensing (requirements for owners, inspections, packages of documents, etc.), supervision, including on-site inspections (with details for each market segment), enforcement measures, as well as the implementation of European directives in the insurance market, regulation of credit unions, etc. These are, in fact, the guidelines that businesses should pay attention to. The potential impact of a possible global recession on the Ukrainian economy and the banking systems readiness for possible blackouts were also discussed. The NBUs macroeconomic forecast assumes that the external environment will remain stable: the global economy is unlikely to show high growth rates, but there are no grounds for a recession under the baseline scenario. More important markers that will determine the development of the Ukrainian economy in the coming years are security risks, the rhythm of international assistance, and the fulfillment of obligations to partners. To ensure uninterrupted operation even in the event of blackouts, the banking system, together with the NBU, is working on, updating, and refining security protocols in advance, including those created last year as part of the POWER BANKING project. We understand what actions are needed to ensure the smooth functioning of the banking system under any circumstances. On behalf of the entire business community, we sincerely thank the team of the National Bank of Ukraine for its constant constructive dialog with business and for its resilience and macroeconomic stability. We look forward to continuing our cooperation in the future!

In particular, they discussed further steps and plans of the regulator to ensure the macro-financial stability of the country. Thus, the NBU is focused on preparing and implementing several strategic documents (financial sector development strategy, currency liberalization strategy, lending recovery strategy, etc.)

The currency liberalization strategy, as you know, has already been adopted (as part of the commitments under the IMF program). It is based on the creation of preconditions, not on a calendar schedule. Currently, the NBU sees progress in creating the relevant preconditions, but they need to be sustainable.

The NBU considers all proposals that could give the economy additional impetus and resources while analyzing them to ensure that the changes implemented do not harm macro-financial stability. For example, the NBU is considering the possibility of repatriating “new” dividends (the first stage of the Roadmap for easing restrictions), refunding interest on “old” loans from non-residents (the second stage), resuming SWIFT transfers for investment abroad (the third stage), increasing the limit on transfers from foreign currency cards of Ukrainian banks to foreign bank cards (the third stage), etc. In addition, each step towards currency liberalization requires additional discussion with international partners, as Ukraine’s foreign exchange reserves are currently supported primarily by international financial assistance. Accordingly, the NBU’s actions should be as transparent and clear as possible for international partners. This creates the necessary circle of trust that allows us to hope for further support.

In the future, the NBU also plans to move toward greater exchange rate flexibility. This will happen only when the right preconditions are in place. Even after the transition, the NBU will remain an important player in the foreign exchange market for a long time and will compensate for the structural deficit of foreign currency, which will allow the hryvnia to strengthen rather than weaken. The NBU emphasized that exchange rate stability is one of the regulator’s priorities, as it is necessary to ensure price and financial stability. It was also noted that the transition to a more flexible exchange rate is likely to take place separately from the NBU’s decisions on the key policy rate. After all, such meetings are held by the calendar plan, and the NBU plans to move to flexibility when the preconditions are in place, not when certain dates occur.

The participants also touched upon the situation in the Ukrainian foreign exchange market. Despite the challenges, the situation is stable and under control. The difference between the official and cash exchange rates is gradually narrowing. The country has a sufficient level of international reserves. As a result, the NBU was able to ease some restrictions, in particular in terms of allowing interest to be repaid on “new” loans from non-residents and loans secured by a guarantee from an international financial organization or export credit agency.

The Strategy for the Development of the Financial Sector of Ukraine has recently been approved. The document sets out current priorities and goals for the development of the financial sector both during a full-scale war and post-war reconstruction. The strategy pays special attention to the implementation of European legislation, as Ukraine’s movement toward the EU is an absolute priority.

The NBU is also preparing a Lending Resumption Strategy. The regulator has not recently seen a decline in the business loan portfolio. The key policy rate cuts, along with risk mitigation and the recovery of business activity, will help to increase both banks’ lending appetites and business demand. In addition, as part of the cooperation program with the IMF, much attention is paid to supporting businesses, particularly small and medium-sized ones. At the same time, support is also important for large companies, so we are currently discussing possible formats with the Ministry of Economy.

In response to the business’s question about what the NBU plans to pay attention to in connection with the implementation of the Laws of Ukraine “On Insurance” and “On Financial Services and Financial Companies,” the NBU is currently working on several new regulations on licensing (requirements for owners, inspections, packages of documents, etc.), supervision, including on-site inspections (with details for each market segment), enforcement measures, as well as the implementation of European directives in the insurance market, regulation of credit unions, etc. These are, in fact, the guidelines that businesses should pay attention to.

The potential impact of a possible global recession on the Ukrainian economy and the banking system’s readiness for possible blackouts were also discussed. The NBU’s macroeconomic forecast assumes that the external environment will remain stable: the global economy is unlikely to show high growth rates, but there are no grounds for a recession under the baseline scenario. More important markers that will determine the development of the Ukrainian economy in the coming years are security risks, the rhythm of international assistance, and the fulfillment of obligations to partners.

To ensure uninterrupted operation even in the event of blackouts, the banking system, together with the NBU, is working on, updating, and refining security protocols in advance, including those created last year as part of the POWER BANKING project. We understand what actions are needed to ensure the smooth functioning of the banking system under any circumstances.

On behalf of the entire business community, we sincerely thank the team of the National Bank of Ukraine for its constant constructive dialog with business and for its resilience and macroeconomic stability. We look forward to continuing our cooperation in the future!