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National Bank of Ukraine Publishes the First Issue of the Financial Stability Report
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The National Bank of Ukraine has started publishing the Financial
Stability Report. The first issue of the Financial Stability Report released by
the NBU today provides insight into macroeconomic and banking sector
developments and assesses their potential impact on the current situation. This
analysis is at the core of the NBU’s policy aimed at ensuring financial
stability. “Ukraine has emerged from the bottom of the crisis, yet the Ukrainian
financial system remains vulnerable to external shocks and internal risks,”
underlined NBU Governor Ms Valeria Gontareva. “The recovery of bank lending is
hampered by the heavy debt burden of enterprises, poor solvency of most
economic sectors and heightened judicial risks. In view of the above, an
insignificant reduction of banks’ credit portfolio is expected in 2016
(adjusted for the exchange rate effect). Overall, according to estimates by the
NBU, the banking sector will remain loss-making in 2016 due to substantial
allocations to loan loss provisions to cover losses from credit operations. Its
return to profitability is expected no sooner than in 2017. The Report also outlines the key tasks facing the NBU, and
recommendations to be followed by banks and other government authorities, which
are crucial for ensuring financial stability. The NBU is set conduct stress tests for banks on a regular basis and
alter an approach to credit risk assessment. The regulator intends to develop
and approve a roadmap for the harmonization of domestic banking laws and
regulations with Basel committee recommendations and EU directives. The National Bank of Ukraine has provided banks with some
recommendations. First, the NBU has advised banks to determine the actual
quality of loan portfolio and set aside the required provisions, as well as to
improve an internal risk management framework. Second, the NBU recommends that
banks adjust their own business models to the new conditions. Third, banks are
strongly advised to implement in full recapitalization plans and restructuring
programs developed based on the findings of diagnostic studies. The NBU also remains staunch in its stance, calling for the need to
improve legislation. The regulator urges
parliament to approve draft laws that would help spur a recovery in bank
lending. In particular, these include Draft Law No. 3555 On Financial
Restructuring, Draft Law No. 4004 On Restructuring the Ukrainian Citizens'
Liabilities under FX Loans Extended for Purchasing the Single Residence
(Mortgage Loans), as well as Draft Law No. 4529 On Amendments to Some
Legislative Acts of Ukraine to Stimulate Lending in Ukraine, which would
enhance the protection of creditor rights. In addition, NBU recommends forcing the implementation of the Principles
of State Banking Sector Strategic Reforming. It is better to start reforming of
state banks with a change of principle of formation of banks supervisory boards
and management election on a competitive basis. For that purpose, amendments
must be introduced to a range of Ukrainian laws. Publication of the Financial Stability Report is the first step towards
establishment of the NBU macroprudential policy. Currently, the development of
the macroprudential regulation has already commenced. In future, the NBU also
plans the active use of macroprudential policy tools, which would supplement
the monetary policy. The Report will be published in electronic format twice a year on the NBU’s official website. |