Business meets with the Board of the National Bank of Ukraine

01/ 04/ 2020

Today the European Business Association had a meeting with the Board of the National Bank of Ukraine. There was a discussion on the current macroeconomic situation in the country, its further development, currency fluctuations and inflation, the possibility of implementing certain currency restrictions, etc. The meeting started with good news as the Verkhovna Rada took a step towards ensuring the IMF assistance for Ukraine. This involves the adoption of the Law on the land market and adoption as a basis of the Draft Law № 2572-e the impossibility of returning the banks (nationalized or liquidated) to the ex-owners that will be hopefully finally adopted next week. Thus, the expected assistance from the IMF will help Ukraine to overcome this period with fewer losses given the fact that the country has sufficient foreign currency reserves according to NBU representatives information. Therefore, it is expected that most of the assistance funds will be used for the Ministry of Finance to cover the budget deficit, fund the stabilization program to fight the coronavirus, etc. In total, Ukraines international reserves currently worth about $ 25 billion and are sufficient to support financial stability through currency interventions, if needed. Surely, the macroeconomic situation is not very favorable at the moment to promote the process of currency liberalization. However, NBU representatives assured that there were no reasons for imposing currency restrictions. The banking sector operates as usual, and approximately 75% of branches are open to provide necessary services throughout the country. Banks are gradually switching to non-cash payments, and more than 90% of terminals are working. Today, due to various restrictions related to the pandemic of the coronavirus, the business seeks state support. Therefore, during the meeting, we asked the participants what kinds of support they would like to have from the banking regulator. Thus, about 23% of respondents mentioned tax breaks and the absence of currency restrictions, 18% meant the cancellation of the taxation of deposits (for both physical and legal persons), 16% mentioned the reduction of the loan interest rates; 12% - credit restructuring, 9% preferred the cancellation of penalties on loan payments (for the period of quarantine). In the context of credit holidays, according to NBU representatives, the borrowers are currently granted a long-term preferential debt regime. It is an option to defer loan payments for the period of quarantine without penalties for late payments or credit restructuring (directly, by the decision of commercial banks), to facilitate debt management for businesses. At the same time, the business offered to consider renewal of the loan payments not immediately after the end of the quarantine, but at least a few months later, to have some time for resuming its normal operations. It was also noted that the banks had sufficiently high liquidity and, if needed, they would have funds to support businesses and people. For example, the NBU is working on the more affordable emergency liquidity support loans for the banks, etc. At the same time, it was emphasized that support programs for specific sectors, for example, credit programs for enterprises affected by the coronavirus, are within the competence of the Government. Certainly, the crisis caused by the coronavirus is specific but at the same time, the economic situation of the country now is better than during previous crises, as in 2008-2009. Among other things, in order to mitigate the consequences, currently are used such tools as reducing the discount rate from 11% to 10% per year, supporting banks liquidity, and so on. Regarding the foreign exchange market, the business drew attention to the shortage of US dollars at banks and foreign exchange offices caused by disruptions in foreign currency delivery to Ukraine as the country can just import the currency. However, the NBU is actively finding ways to deliver the currency to the country. According to the forecasts of the NBU, the foreign exchange rate will be stable. Also, there are no fundamental reasons for the accelerated inflation. Therefore, the NBU expects it within the 5±1% target range. At the same time, it is difficult to make accurate forecasts right now due to the lack of understanding of how long the quarantine will last and how slow the economy will grow. However, it is obvious that, in the current situation, it is important to maintain macro-financial stability, which is the focus of the NBU activities now. Businesses also raised questions about the possibility of using an electronic format for managing customer transactions. For its part, the NBU reported that there are no restrictions for that, so it is encouraged to switch to paperless and cashless technology. On behalf of the European Business Association, we thank the NBU representatives for their professional dialogue and for answering questions that are important for the business!

The meeting started with good news as the Verkhovna Rada took a step towards ensuring the IMF assistance for Ukraine. This involves the adoption of the Law on the land market and adoption as a basis of the Draft Law № 2572-e the impossibility of returning the banks (nationalized or liquidated) to the ex-owners that will be hopefully finally adopted next week. Thus, the expected assistance from the IMF will help Ukraine to overcome this period with fewer losses given the fact that the country has sufficient foreign currency reserves according to NBU representative’s information. Therefore, it is expected that most of the assistance funds will be used for the Ministry of Finance to cover the budget deficit, fund the stabilization program to fight the coronavirus, etc.

In total, Ukraine’s international reserves currently worth about $ 25 billion and are sufficient to support financial stability through currency interventions, if needed.

Surely, the macroeconomic situation is not very favorable at the moment to promote the process of currency liberalization. However, NBU representatives assured that there were no reasons for imposing currency restrictions.

The banking sector operates as usual, and approximately 75% of branches are open to provide necessary services throughout the country. Banks are gradually switching to non-cash payments, and more than 90% of terminals are working.

Today, due to various restrictions related to the pandemic of the coronavirus, the business seeks state support.

Therefore, during the meeting, we asked the participants what kinds of support they would like to have from the banking regulator. Thus, about 23% of respondents mentioned tax breaks and the absence of currency restrictions, 18% meant the cancellation of the taxation of deposits (for both physical and legal persons), 16% mentioned the reduction of the loan interest rates; 12% – credit restructuring, 9% preferred the cancellation of penalties on loan payments (for the period of quarantine).

In the context of credit holidays, according to NBU representatives, the borrowers are currently granted a long-term preferential debt regime. It is an option to defer loan payments for the period of quarantine without penalties for late payments or credit restructuring (directly, by the decision of commercial banks), to facilitate debt management for businesses. At the same time, the business offered to consider renewal of the loan payments not immediately after the end of the quarantine, but at least a few months later, to have some time for resuming its normal operations.

It was also noted that the banks had sufficiently high liquidity and, if needed, they would have funds to support businesses and people. For example, the NBU is working on the more affordable emergency liquidity support loans for the banks, etc. At the same time, it was emphasized that support programs for specific sectors, for example, credit programs for enterprises affected by the coronavirus, are within the competence of the Government.

Certainly, the crisis caused by the coronavirus is specific but at the same time, the economic situation of the country now is better than during previous crises, as in 2008-2009. Among other things, in order to mitigate the consequences, currently are used such tools as reducing the discount rate from 11% to 10% per year, supporting banks’ liquidity, and so on.

Regarding the foreign exchange market, the business drew attention to the shortage of US dollars at banks and foreign exchange offices caused by disruptions in foreign currency delivery to Ukraine as the country can just import the currency. However, the NBU is actively finding ways to deliver the currency to the country.

According to the forecasts of the NBU, the foreign exchange rate will be stable. Also, there are no fundamental reasons for the accelerated inflation. Therefore, the NBU expects it within the 5±1% target range. At the same time, it is difficult to make accurate forecasts right now due to the lack of understanding of how long the quarantine will last and how slow the economy will grow. However, it is obvious that, in the current situation, it is important to maintain macro-financial stability, which is the focus of the NBU activities now.

Businesses also raised questions about the possibility of using an electronic format for managing customer transactions. For its part, the NBU reported that there are no restrictions for that, so it is encouraged to switch to paperless and cashless technology.

On behalf of the European Business Association, we thank the NBU representatives for their professional dialogue and for answering questions that are important for the business!