Currency liberalization motivates banks to revise their business model

15/ 02/ 2019

Business, representatives of banks, and the NBU have discussed the Law On currency and currency operations, which came into effect on February 7, and have considered further steps to liberalize the foreign-exchange market and the prerequisites for their implementation. Yakiv Smolii, Governor of the NBU, attended the discussion. Volodymyr Lavrenchuk, Chairman of the Board of Raiffeisen Bank Aval, and Anton Tyutyun, Deputy Chairman of the Board of Oshchadbank represented the views of the banks. Yakiv Smolii once again emphasized the key achievements that were put in place. The National Bank allowed the repatriation of dividends in foreign currency for 2018. In addition, the allowed amount of repatriation of dividends was also increased - from 7 million USD to 7 million EUR a month. In addition, businesses no longer need to reserve UAH in cash to buy currency one day before the transaction - the T + 1 rule has been cancelled. For foreign economic contracts the terms of calculations have been increased from 180 to 365 days. Operations under export-import contracts for less than 150 thousand UAH from now do not require the oversight of the capital account. The ban on using accounts abroad has been lifted. Individual licenses for currency transactions were cancelled – they were replaced by the system of e-limits (2 million euros a year for legal entities, 50 thousand euros for individuals). For individuals, there appeared an opportunity to exchange currency online. On the first day, according to banks, Ukrainians bought about 4 million USD online. In the next few days, the fuss fell significantly. Thus, according to the information of one of the largest banks, this week the volume of online currency purchases dropped twofold. We are currently seeing, in general, how the market will respond to innovations and some of the restrictions, for example, on repatriation of dividends that we are planning to gradually withdraw. In particular, the latter holds back the investment attractiveness, and therefore its removal is a priority for us. But first, we need to look at how the market will behave in response to the already conducted liberalization, said the Governor of the NBU. At the same time, he added that complete liberalization is impossible only because of the law. In order to prevent further monetary liberalization endangering financial stability, it is necessary to simultaneously control the outflow of capital offshore by implementing the BEPS Action Plan in Ukraine. It is also important that the Verkhovna Rada approves the bill on the split, which will help improve the quality of regulation of the non-bank financial market. These steps will help to achieve full transparency of the movement of capital, and there will no longer be any need to restrain it through currency restrictions. In turn, Volodymyr Lavrenchuk highlighted the difference between currency control (which was before) and the currency supervision (which is being implemented). Today, banks are delegated the opportunity to independently determine the system of measures of the currency supervision. It can be based on different criteria since everyone must know their own client. We have identified three key benefits. The first is forwards and currency swaps. Previously, they were connected with the hedging of risks under export-import contracts, but now they have to do with credit operations. Hedging expanded. This is the maximum risk insurance. That is why both customers and investors feel better. The second is the possibility for non-residents to open accounts in Ukrainian banks for export and import operations, investments. This is an added value for investors. The third is that small operations up to 150 thousand UAH do not require supervision. This is a decrease in routine processes. Paperless, painless, common sense. What we have long sought, explained Lavrenchuk. He also added that liberalization pushes banks to revise their business model, invest more in the staff to provide even better banking services. Anton Tyutyun supported this opinion. He noted that the law on currency is positively perceived by banks, and further steps towards currency liberalization are welcome. A new law and seven regulations, grouped according to their area, replaced the obsolete decree and the 56 by-laws. We do not see the excitement after the introduction of the currency law. These are market demands that take time. However, there are no mechanical solutions to its implementation. Of course, banks need to become more professional. We also carry out a variety of training for our staff, because we have to meet the requirements of time, he added. In addition, they talked about other innovations that are important to the consumer. For example, the possibility of choosing a bank to receive a salary from, electronization. The NBU stressed that six banks have already joined the BankID NBU, and about ten are in the process. Moreover, the priority this year is to increase the availability of this service to users. In addition, remote identification is cheaper for banks than customer service in offices, so the banking system should be interested in implementing this service and connecting to the BankID system of the NBU. During the conclusion, the participants expressed their opinion on macroeconomic stability in 2019. Yakiv Smolii stressed that despite the double election, the NBU sees no risks to macro-financial stability that has been developed over the past few years. Last year we ended up with inflation of 9.8%, and the trend towards its decrease remains. In January, it declined to 9.2%. We expect that by the end of this year it will slow down to 6.3%, and next year it will reach the NBUs target of 5%. If there is a favorable macro-financial situation and our expectations for a reduction in inflation will be met, the NBU can move on to the loosening of the monetary conditions. And this is a reduction in the discount rate, increasing opportunities for lending to businesses at a lower cost of resources. One of the key tasks of the NBU in 2019 is to create conditions for revitalization of corporate sector lending, he explained. For his part, Volodymyr Lavrenchuk noted that even during martial law the banks did not see the risks. Nonetheless, he named the labour market to be one of the challenges. Anton Tyutyun drew attention to the relaxation of the policy, especially in terms of the discount rate. Now, the rate is on the verge of the reasonably practicable for the client, so lending needs to be developed. And he concluded that banks are looking at this year with restrained optimism and are waiting for the cheapening of the resources.

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Business, representatives of banks, and the NBU have discussed the Law “On currency and currency operations”, which came into effect on February 7, and have considered further steps to liberalize the foreign-exchange market and the prerequisites for their implementation. Yakiv Smolii, Governor of the NBU, attended the discussion. Volodymyr Lavrenchuk, Chairman of the Board of Raiffeisen Bank Aval, and Anton Tyutyun, Deputy Chairman of the Board of Oshchadbank represented the views of the banks.

Yakiv Smolii once again emphasized the key achievements that were put in place. The National Bank allowed the repatriation of dividends in foreign currency for 2018. In addition, the allowed amount of repatriation of dividends was also increased – from 7 million USD to 7 million EUR a month. In addition, businesses no longer need to reserve UAH in cash to buy currency one day before the transaction – the T + 1 rule has been cancelled. For foreign economic contracts the terms of calculations have been increased from 180 to 365 days. Operations under export-import contracts for less than 150 thousand UAH from now do not require the oversight of the capital account. The ban on using accounts abroad has been lifted. Individual licenses for currency transactions were cancelled – they were replaced by the system of e-limits (2 million euros a year for legal entities, 50 thousand euros for individuals). For individuals, there appeared an opportunity to exchange currency online.

“On the first day, according to banks, Ukrainians bought about 4 million USD online. In the next few days, the fuss fell significantly. Thus, according to the information of one of the largest banks, this week the volume of online currency purchases dropped twofold. We are currently seeing, in general, how the market will respond to innovations and some of the restrictions, for example, on repatriation of dividends that we are planning to gradually withdraw. In particular, the latter holds back the investment attractiveness, and therefore its removal is a priority for us. But first, we need to look at how the market will behave in response to the already conducted liberalization,” said the Governor of the NBU.

At the same time, he added that complete liberalization is impossible only because of the law. In order to prevent further monetary liberalization endangering financial stability, it is necessary to simultaneously control the outflow of capital offshore by implementing the BEPS Action Plan in Ukraine. It is also important that the Verkhovna Rada approves the bill on the “split”, which will help improve the quality of regulation of the non-bank financial market. These steps will help to achieve full transparency of the movement of capital, and there will no longer be any need to restrain it through currency restrictions.

In turn, Volodymyr Lavrenchuk highlighted the difference between currency control (which was before) and the currency supervision (which is being implemented). Today, banks are delegated the opportunity to independently determine the system of measures of the currency supervision. It can be based on different criteria since everyone must know their own client. “We have identified three key benefits. The first is forwards and currency swaps. Previously, they were connected with the hedging of risks under export-import contracts, but now they have to do with credit operations. Hedging expanded. This is the maximum risk insurance. That is why both customers and investors feel better. The second is the possibility for non-residents to open accounts in Ukrainian banks for export and import operations, investments. This is an added value for investors. The third is that small operations up to 150 thousand UAH do not require supervision. This is a decrease in routine processes. Paperless, painless, common sense. What we have long sought,” explained Lavrenchuk.

He also added that liberalization pushes banks to revise their business model, invest more in the staff to provide even better banking services.

Anton Tyutyun supported this opinion. He noted that the law on currency is positively perceived by banks, and further steps towards currency liberalization are welcome. A new law and seven regulations, grouped according to their area, replaced the obsolete decree and the 56 by-laws. “We do not see the excitement after the introduction of the currency law. These are market demands that take time. However, there are no mechanical solutions to its implementation. Of course, banks need to become more professional. We also carry out a variety of training for our staff, because we have to meet the requirements of time,” he added.

In addition, they talked about other innovations that are important to the consumer. For example, the possibility of choosing a bank to receive a salary from, electronization. The NBU stressed that six banks have already joined the BankID NBU, and about ten are in the process. Moreover, the priority this year is to increase the availability of this service to users. In addition, remote identification is cheaper for banks than customer service in offices, so the banking system should be interested in implementing this service and connecting to the BankID system of the NBU.

During the conclusion, the participants expressed their opinion on macroeconomic stability in 2019. Yakiv Smolii stressed that despite the double election, the NBU sees no risks to macro-financial stability that has been developed over the past few years. “Last year we ended up with inflation of 9.8%, and the trend towards its decrease remains. In January, it declined to 9.2%. We expect that by the end of this year it will slow down to 6.3%, and next year it will reach the NBU’s target of 5%. If there is a favorable macro-financial situation and our expectations for a reduction in inflation will be met, the NBU can move on to the loosening of the monetary conditions. And this is a reduction in the discount rate, increasing opportunities for lending to businesses at a lower cost of resources. One of the key tasks of the NBU in 2019 is to create conditions for revitalization of corporate sector lending,” he explained.

For his part, Volodymyr Lavrenchuk noted that even during martial law the banks did not see the risks. Nonetheless, he named the labour market to be one of the challenges.

Anton Tyutyun drew attention to the relaxation of the policy, especially in terms of the discount rate. Now, the rate is on the verge of the reasonably practicable for the client, so lending needs to be developed. And he concluded that banks are looking at this year with restrained optimism and are waiting for the cheapening of the resources.