Business met with representatives of the NBU

11/ 02/ 2021

The NBU does not plan to reduce the existing number of instruments to support banks and their customers if the pandemic intensifies. This was announced during an EBA meeting with the heads of departments of the National Bank of Ukraine, which took place on February 10. During the discussion, it was emphasized that the vector of cooperation between the NBU and the IMF is going according to plan. Thus, this year Ukraine may expect the confirmation of three tranches under the stand-by program worth 2.2 billion US dollars. The NBU representatives also pointed to a positive trend in reducing the share of non-performing loans in Ukrainian banks. The NPL decreased from 75% in 2018 to 41% at the end of 2020 and is expected to fall to 10% in the coming years. In particular, state-owned banks have developed three-year plans to reduce the share of bad loans in their portfolios by a total of UAH 305 billion. Supervision and control over the implementation of these plans are carried out by the NBU. More market participants are taking advantage of currency derivatives to hedge the risks associated with the floating exchange rate regime. Therefore, in the last two years, the NBU has relaxed regulation for swaps and forwards. The regulator currently works on abolishing the purchase of foreign currency under the obligation, which, in turn, will allow to carry out freely forward transactions. According to a representative of the NBU, it is likely that currency restrictions on swaps and forwards will be removed this year. To popularize the instrument of interest rate derivatives among banks, the NBU launched an auction of interest rate swaps in 2020. Last year, in total, transactions worth about UAH 16 billion were conducted. In the first quarter of this year, it was announced that such auctions would be held twice a week. Also, next week, Ukraine will begin work on an IMF technical assistance mission to help develop the interest rate derivatives market. In 2021, it is planned to implement the concept of open banking and discuss with banks the standardization of open API. Besides, the second stage of studying the possibilities of issuing electronic hryvnia, which is the NBUs digital currency, will be continued. In response to a business request, the heads of NBU departments shared the situation in resolving issues related to the use of qualified electronic signatures and the conclusion of distance contracts. Currently, the National Bank is awaiting consideration of a draft law that provides the NBU with the necessary rights and powers to equate different types of signatures in the banking system of Ukraine. Regarding distance contracts, it was noted that the first stage of their implementation has already been completed. Thus, the NBU has developed models of full and simplified remote verification. Currently, the World Bank and IFC consult the NBU on the adaptation of the European experience of concluding agreements. Therefore, this year the National Bank together with the Ministry of Digital Transformation plan to help eliminate the norms that prevent the remote conclusion of contracts. The National Bank also expressed its position on interbank exchange rates and the increase in the value of cash. According to NBU representatives, administrative regulation of rates will have negative consequences for the payment market of Ukraine. Therefore, the cost of interchanging should be reduced only by market methods. The central bank also stated that increasing the value of cash is not part of the institutions plans. The EBA and the NBU discussed the development of non-cash payments and prospects for the adoption of the draft law №4364 On Payment Services. The NBU drew attention to the poorly developed infrastructure of non-cash payments in Ukraine. The NBU estimates that there are 9 terminals per 1,000 people in Ukraine, while in Poland and Germany there are approximately 16 to 24 terminals per 1,000 people. At the same time, the difference between the shares of non-cash and cash payments is insignificant - 55% vs. 45%. The National Bank also supports the initiative to abolish the taxation of deposits. According to NBU experts, the state budget cannot rely on the component, which is decreasing from year to year. Thus, three years ago, the share of the deposit interest tax revenues amounted to 1.3% in total state budget revenues, and in 2020 it fell to 0.5%. Regarding the development of the non-banking financial services market, the regulator has developed a number of legislative initiatives, which have already been submitted to the relevant Committee of the Verkhovna Rada. We are talking about (1) draft law on financial services and financial companies, which will establish certain universal rules, including for the securities market, as well as regulate the activities of pawnshops, factoring, and leasing companies, (2) new draft law on insurance, which will introduce a European approach to determining solvency, (3) the draft Law on Credit Unions. The adoption of these documents is expected to accelerate the reset of the non-bank financial services market, boost their development, improve their quality, and ensure an adequate level of consumer protection. The European Business Association thanks the representatives of the NBU for sharing in detail the plans and priorities for maintaining macroeconomic stability in Ukraine. We do hope for further cooperation in 2021! For reference: The event was joined by Shaban Oleksii, Deputy Governor of the National Bank of Ukraine; Dehtiarova Nataliia, Director of the Banking Supervision Department; Vavryshchuk Vitalii, Director of the Financial Stability Department, Lapko Nataliia, Deputy Director of the Department- Head of the Department, Payment Systems Regulation Department, Payment Systems and Innovative Development Department; Arseniuk Oleksandr, Head of the Department of Operational Regulation of the Money and Credit Market, Department of Open Markets; Hurbych Olha, Director of the Department of Methodology for Regulating the Activities of Non-Banking Financial Institutions; Maksymchuk Olha, Director of the Non-Bank Financial Services Market Supervision Department; Zaivenko Viktor, Director of the Money Circulation Department; Lepushynskyi Volodymyr, Director of the Department of Monetary Policy and Economic Analysis; Shatskyi Serhii, Head of Program Management, Strategic Change Implementation Department, Strategy and Development Department. 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During the discussion, it was emphasized that the vector of cooperation between the NBU and the IMF is going according to plan. Thus, this year Ukraine may expect the confirmation of three tranches under the stand-by program worth 2.2 billion US dollars.

The NBU representatives also pointed to a positive trend in reducing the share of non-performing loans in Ukrainian banks. The NPL decreased from 75% in 2018 to 41% at the end of 2020 and is expected to fall to 10% in the coming years. In particular, state-owned banks have developed three-year plans to reduce the share of “bad” loans in their portfolios by a total of UAH 305 billion. Supervision and control over the implementation of these plans are carried out by the NBU.

More market participants are taking advantage of currency derivatives to hedge the risks associated with the floating exchange rate regime. Therefore, in the last two years, the NBU has relaxed regulation for swaps and forwards. The regulator currently works on abolishing the purchase of foreign currency under the obligation, which, in turn, will allow to carry out freely forward transactions. According to a representative of the NBU, it is likely that currency restrictions on swaps and forwards will be removed this year.

To popularize the instrument of interest rate derivatives among banks, the NBU launched an auction of interest rate swaps in 2020. Last year, in total, transactions worth about UAH 16 billion were conducted. In the first quarter of this year, it was announced that such auctions would be held twice a week. Also, next week, Ukraine will begin work on an IMF technical assistance mission to help develop the interest rate derivatives market.

In 2021, it is planned to implement the concept of open banking and discuss with banks the standardization of open API. Besides, the second stage of studying the possibilities of issuing electronic hryvnia, which is the NBU’s digital currency, will be continued.

In response to a business request, the heads of NBU departments shared the situation in resolving issues related to the use of qualified electronic signatures and the conclusion of distance contracts. Currently, the National Bank is awaiting consideration of a draft law that provides the NBU with the necessary rights and powers to equate different types of signatures in the banking system of Ukraine. Regarding distance contracts, it was noted that the first stage of their implementation has already been completed. Thus, the NBU has developed models of full and simplified remote verification. Currently, the World Bank and IFC consult the NBU on the adaptation of the European experience of concluding agreements. Therefore, this year the National Bank together with the Ministry of Digital Transformation plan to help eliminate the norms that prevent the remote conclusion of contracts.

The National Bank also expressed its position on interbank exchange rates and the increase in the value of cash. According to NBU representatives, administrative regulation of rates will have negative consequences for the payment market of Ukraine. Therefore, the cost of interchanging should be reduced only by market methods. The central bank also stated that increasing the value of cash is not part of the institution’s plans.

The EBA and the NBU discussed the development of non-cash payments and prospects for the adoption of the draft law №4364 “On Payment Services”. The NBU drew attention to the poorly developed infrastructure of non-cash payments in Ukraine. The NBU estimates that there are 9 terminals per 1,000 people in Ukraine, while in Poland and Germany there are approximately 16 to 24 terminals per 1,000 people. At the same time, the difference between the shares of non-cash and cash payments is insignificant – 55% vs. 45%.

The National Bank also supports the initiative to abolish the taxation of deposits. According to NBU experts, the state budget cannot rely on the component, which is decreasing from year to year. Thus, three years ago, the share of the deposit interest tax revenues amounted to 1.3% in total state budget revenues, and in 2020 it fell to 0.5%.

Regarding the development of the non-banking financial services market, the regulator has developed a number of legislative initiatives, which have already been submitted to the relevant Committee of the Verkhovna Rada. We are talking about (1) draft law on financial services and financial companies, which will establish certain universal rules, including for the securities market, as well as regulate the activities of pawnshops, factoring, and leasing companies, (2) new draft law on insurance, which will introduce a European approach to determining solvency, (3) the draft Law on Credit Unions. The adoption of these documents is expected to accelerate the reset of the non-bank financial services market, boost their development, improve their quality, and ensure an adequate level of consumer protection.

The European Business Association thanks the representatives of the NBU for sharing in detail the plans and priorities for maintaining macroeconomic stability in Ukraine. We do hope for further cooperation in 2021!

For reference:

The event was joined by Shaban Oleksii, Deputy Governor of the National Bank of Ukraine; Dehtiarova Nataliia, Director of the Banking Supervision Department; Vavryshchuk Vitalii, Director of the Financial Stability Department, Lapko Nataliia, Deputy Director of the Department- Head of the Department, Payment Systems Regulation Department, Payment Systems and Innovative Development Department; Arseniuk Oleksandr, Head of the Department of Operational Regulation of the Money and Credit Market, Department of Open Markets; Hurbych Olha, Director of the Department of Methodology for Regulating the Activities of Non-Banking Financial Institutions; Maksymchuk Olha, Director of the Non-Bank Financial Services Market Supervision Department; Zaivenko Viktor, Director of the Money Circulation Department; Lepushynskyi Volodymyr, Director of the Department of Monetary Policy and Economic Analysis; Shatskyi Serhii, Head of Program Management, Strategic Change Implementation Department, Strategy and Development Department.