Financial Stability Council Discusses Risks to the Financial Sector and Approves Guidelinles for Restructuring of Non-Performing Loans
Last week the Financial Stability Council (FSC) held the final meeting in 2018. The members at the meeting stated that renewal of cooperation with the International Monetary Fund and funding granted by the IMF and other IFIs is of utmost importance for maintaining macroeconomic stability during the period of significant external debts repayment in 2019 and 2020.
Notwithstanding notable external and internal challenges, this year ended on a positive note: the GDP growth is expected to be 3.4% yoy, the Ukraine’s international reserves reached a five-year high, hryvnia is stable, the budget deficit is close to a historical minimum, and preconditions have been put in place for further deceleration of inflation.
The FSC noted the efforts of the Ministry of Finance for implementing a prudent fiscal policy throughout the year, as well as joint efforts for launching a new IMF Stand-By program.
At the same time, the FSC members highlighted key challenges of 2019 such as deceleration of global economy and Ukraine’s key partner economies, downward pressures on raw materials prices, and policy rate increases by leading world banks. Meanwhile, a significant decrease in oil prices will be a mitigating factor. The economic growth in Ukraine will slow somewhat due to tight monetary and fiscal policies that are necessary to ensure macroeconomic and financial stability. Labor market imbalances is an additional risk. Ukraine also faces uncertainty due to two upcoming elections.
FSC also discussed NPLs of the state-owned banks. Finding s solution to this problem is a priority for the FSC, the National Bank of Ukraine (NBU), and the Ministry of Finance of Ukraine. The NBU is drafting a resolution on NPL management – it will set standards and recommendations for banks on how to manage problem borrowers.
In general, the meeting considered a range of topics on the state-owned banks:
● the guidelines for restructuring non-performing loans of the state-owned banks were approved. The FSC expects that compliance with these principles will safeguard the interests of the state as the banks’ owner
● the issue of appointing independent supervisory boards at Oschadbank and Ukreximbank. The Ministry of Finance is dedicated to a timely appointment of the supervisory boards via a transparent competition
● The issue of lending by the state-owned banks to major state-owned companies was discussed. The FSC decided that heavy lending by state banks to state companies is an issue that needs a comprehensive solution, for that purpose consultations are held with state banks, corporate borrowers and IFIs.
The FSC members also discussed economy de-shadowing and improving transparency of the fiscal authorities after the split of the State Fiscal Service. Monitoring transfer pricing, regulation of automated information exchange with the customs authorities of the partnering states, and establishing double customs authorities were in focus.
The FSC members welcomed the introduction of the new system for submitting financial statements in the uniform XBRL format for big companies starting next year. This will be beneficial both for companies due to automation of drawing up and submitting reports and data users on the account of advanced security and transparency.
The meeting was attended by Minister of Finance of Ukraine (MoF) Oksana Markarova, Governor of the National Bank of Ukraine (NBU) Yakiv Smolii, Head of the National Securities and Stock Market Commission (NSSMC) Timur Khromaev, Head of the National Commission for State Regulation of Financial Services Markets (NCSRFS) Ihor Pashko, First Deputy Governor of the NBU Kateryna Rozhkova, Deputy Governor of the NBU Serhii Kholod, Deputy Ministers of Finance Yuriy Heletiy and Vasyl Shkurakov, and Deputy Managing Director of the Deposit Guarantee Fund (DGF) Andrii Olenchyk.
The Financial Stability Council was established by a presidential decree in March 2015. The FSC is comprised of the Governor of the National Bank of Ukraine, the Minister of Finance of Ukraine (co-chairs of the FSC), the Head of the National Securities and Stock Market Commission, the Head of the National Commission for State Regulation of Financial Services Markets, the Managing Director of the Deposit Guarantee Fund, a Deputy Governor of the National Bank of Ukraine, and a Deputy Minister of Finance of Ukraine.
The FSC provides a forum for professional discussion of systemic risk posing a threat to the country’s financial stability. The next meeting is scheduled for February 2019.