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Financial Stability Council Discusses Risks to the Financial Sector and Approves Restructuring of Non-Performing Loans
29 December, 15:19

Financial Stability Council Discusses Risks to the Financial Sector and Approves 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 advanced cooperation with the International Monetary Fund and funding granted by the IMF and other international organizations is of utmost importance for maintaining macroeconomic stability during the period of Ukrainian external debts repayment in 2019 and 2020.

Notwithstanding notable external and internal challenges, this year has a positive ending: the GDP growth is expected to be 3.4%, the Ukraine’s international reserves reached a five-year high, hryvnia is stable on the FX market, the budget deficit is close to a historical minimum, and groundwork has been laid for further deceleration of inflation.

The FSC noted the efforts of the Ministry of Finance for implementing a prudential fiscal policy throughout the year, as well as joint efforts for launching a new cooperation program Stand-By with the IMF.

At the same time, the FSC members highlighted key challenges of 2019 such as deceleration of growth of the global economy and the partnering economies of Ukraine, adjusting prices of raw materials, and increase in interest rates by leading world banks. One of the mitigators of these risks will be a sufficient decrease in oil prices. The economic growth in Ukraine will somewhat slowdown due to strict monetary and fiscal policies required to ensure macroeconomic and financial stability. The auxiliary risks unbalance the labor market. Ukraine also faces uncertainty due to two upcoming elections.

Among the issues considered at the FSC meeting were NPLs of the state-owned banks. Finding the solution to this problem is a priority for the FSC, the National Bank of Ukraine (NBU), and the Ministry of Finance of Ukraine. Today, the NBU resolution on treating NPLs is being drafted that will determine standards and recommendations for banks on how to manage problem borrowers.

In general, the meeting considered a range of issues associated with the state-owned banks as follows:

·          the principles for restructuring non-performing loans of the state-owned banks were approved. The FSC expects that compliance with said principles will safeguard the interests of the state as the banks’ owner

·          the issue of appointing independent supervisory boards in Oschadbank and Ukreximbank. The Ministry of Finance makes efforts for timely appointment of the supervisory board members by a transparent competition

·          The issue of lending by the state-owned banks to major state-owned companies was discussed. The FSC decided that regulation of the issue of overlending to the state-owned companies by the state-owned banks requires a comprehensive solutions, for that purpose consultations are held with banks, corporate borrowers and the IMF.

The FSC members also discussed bringing the economy out of the shadow and improving transparency of the fiscal authorities after the split-up 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 approved 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.

For reference:

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.

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