The second issue
of the Financial
Stability Report suggests that the
systemic risks for Ukraine's financial sector subsided during 2016. The
Report has assessed the systemic risks emerging from current economic and
banking sector developments. The results of risk analysis will lie at the core
of the NBU’s policy on ensuring the financial stability.
The macroeconomic environment was conducive
to mitigating risks. Real GDP has
returned to growth; headline inflation is kept under
control; and the public finance deficit has narrowed significantly.
Real sector performance has improved, and corporate sector leverage has decreased to below the critical level. Some sectors
- agriculture, mining and light and infrastructure industries - are
already attractive for lending and have the potential to spark a recovery in
lending. Banks should focus on lending to domestic-demand oriented
industries, as well as profit-generating SMEs with moderate leverage.
The key risks to financial stability
of Russian aggression in the East of Ukraine;
the anemic economic
recovery in the major trading partners;
the slow pace of
a high probability of further delays in
disbursements of official financing from the International Monetary Fund and
“Ukraine's experience suggests that the
termination of cooperation with international financial institutions is bound
to hamper economic transformation efforts. That is why all the public
authorities should see keeping the IMF program on track as their top priority,”
underlined NBU Governor Ms Valeria Gontareva.
The lack of progress in ensuring the creditor
right protection, implementing judiciary reform and passing much-needed laws,
as well as the inconsistent actions of the law enforcement authorities pose
risks to financial stability in the long term.
The banking sector has overcome the bulk of
the legacy problems: the banking sector clean-up is
nearing the finishing line; household and corporate deposits kept on
recovering. Banks have sufficient capital and liquidity to resume lending to
the economy. The NBU expects the banking sector to return to profitability in
2017 after three years of losses.
“The key risk to financial stability in the
short run is possible non-compliance by a few large banks with re-capitalization
programs, which were based on diagnostic studies. It will be impossible
to ensure the financial sector stability in the long term without efforts by
large banks to address capital shortages,” stressed the NBU Governor.
The main task for all authorities in 2017 is
to ensure creditor right protection, which is essential for restarting lending. The NBU expects parliament to help banks
mitigate risks and relaunch lending by passing bills
on the Credit Register, restructuring of mortgage loans in foreign currency and
a law on creditor rights protection as soon as possible. Reforms at state-owned banks should also be reinvigorated. Finally, the Law of Ukraine On Financial Restructuring, which would enable
to restore the solvency of viable borrowers and bring the banks’ balance sheets
back to health
The NBU recommends that banks move forward with the transformation of their
business models to return to steady profitability and embark on preparations
for the transition to IFRS 9, which would bring changes in the credit risk
assessment. Banks should also focus their efforts on unwinding related-party
lending in accordance with requirements set by the NBU.
The NBU has also outlined its near-term tasks
Next year the NBU
plans to move ahead with its plans to gradually ease FX regulations and proceed
with liberalization of FX regulation. In Q1 2017, the NBU is going to present a
draft law On Foreign Currency, which is intended
to overcome the complexity and over-regulation of FX regulation in Ukraine and
lay down new principles underlying a new regulation.
year, the NBU will develop a concept for approximation of banking regulation to
recommendations of Basel Committee and EU Directives.
Also, the regulator
will develop a new liquidity requirement - LCR (liquidity coverage ratio),
which would significantly strengthen the resilience of banks to liquidity
Finally, the NBU is
set to further tighten requirements for disclosure of
financial and prudential reports, which would raise the awareness of clients,
analysts and media.
The Financial Stability Report
is a key public document of many
central banks around the world. The Financial Stability Report aims to identify
risks to financial stability in Ukraine, to assess their impact on the domestic
financial system and economy and offer recommendations to strengthen financial
stability. The key feature of the FSR is that it focuses on risks and
recommendations. The NBU publishes the report twice a year. The first issue of
the Financial Stability Report was published in June