Net sales of dollars by the National Bank of Ukraine (NBU) in the first week of August rose to $458.3m from $349.3m in the last week of July.
According to the NBU on its website, from July 31 to August 4, 2023, its purchase of currency slightly increased from $1.1m to $2.0m, while its sale increased from $350.5m to $460.3m.
At the same time, on the cash market, the dollar, which rose in price by 45 kopecks a week earlier, lost about 20 kopecks this week and at the end of the week was quoted at a rate of about UAH 37.40/$1.
In total, since the beginning of this year, the NBU has purchased $192.4m on the market, while it sold $14bn 741.4m.
As reported, the volume of the National Bank’s interventions in July rose slightly to $1.946 bln from $1.848 bln in June and $1.93 bln in May. However, international financial support amounted to about $4.4 billion last month. As a result, international reserves, which grew by 4.5% in June to a new historic high of $39.00 billion, will exceed this record at the end of July and, according to experts, will reach $41 billion.
The National Bank of Ukraine in its August inflation report worsened its forecast for the country’s 2024 consolidated budget deficit including grants to UAH 1,281 billion, or 16.8% of GDP, down from UAH 811 billion, or 10.5% of GDP, in its April report.
“Deficits are expected to be higher than in the previous forecast, primarily due to the longer duration of security risks, and therefore the need for significant spending on the security and defense sector. Taking this into account, the amount of expected international assistance to finance other expenditures has been increased,” the NBU points out.
In the new report, the forecast of the consolidated budget deficit including grants in 2025 is raised to UAH 883 billion, or 10.0% of GDP, up from UAH 577 billion, or 6.5% of GDP in the April report.
Last year, as the NBU recalled, the deficit of the consolidated budget including grants amounted to UAH 845 billion, or 16.3% of GDP. In the second quarter of this year, it widened to more than UAH 233 billion, and excluding grants in revenue – to UAH 369 billion, or more than 24% of GDP.
“In 2023, the budget deficit excluding grants in revenue is expected to be at the level of the previous year – more than 26.3% of GDP. In the future, due to the increase in revenues, it will narrow to almost 20% of GDP in 2024 and 12% of GDP in 2025 excluding revenue grants,” the National Bank summarized.
It specified that it expects grants to decline from 9.3% of GDP last year to 6.5% of GDP this year, 2.9% of GDP next year and 1.8% of GDP in 2025.
“Given the significant budget deficits for several consecutive years and their financing mainly by debt, as well as the reduction of grant support in the medium term, the debt will approach 100% of GDP,” the National Bank said. It explained that it increased the debt-to-GDP ratio in this forecast compared to the previous one due to the revision of assumptions about the size of deficits upward and grant support downward in 2024-2025.
In particular, the NBU expects government debt to rise from 78.4% of GDP to 84.6% of GDP this year, to 96.6% of GDP next year and to 98.2% of GDP in 2025.
“At the same time, such a high level of debt will have a relatively moderate pressure on the budget in the coming years, primarily due to the receipt of loan funds on preferential terms – at low rates and with a deferred schedule of principal payments,” the NBU believes.
Ukraine’s real gross domestic product (GDP) growth in the second quarter of 2023 compared to the same period last year amounted to 18.3% after a decline of 10.5% in the first quarter, such an updated estimate the National Bank of Ukraine published in an inflation report on its website on Friday night.
According to it, the economic recovery will slow to 4.6% in the third quarter of 2023 and 1.8% in the fourth quarter, with a slight acceleration to 2.6-2.2% in the first and second quarters of next year.
In late April, the National Bank expected GDP growth of 15.9% in the second quarter of this year, and 3.9% and 3.7% in the third and fourth quarters, respectively.
Overall, as reported, the NBU improved its forecast for Ukraine’s economic recovery this year to 2.9% from 2.0% in April (including by improving its estimate of the decline in the first quarter from 13.5% to 10.5%), but worsened it for next year to 3.5% from 4.3%.
“The baseline scenario is based on assumptions about Ukraine’s consistent compliance with the obligations of the Extended Fund Facility Program with the IMF, coherent monetary and fiscal policies, gradual leveling of quasi-fiscal imbalances, particularly in the energy sector. Also, the baseline scenario assumes a tangible reduction of security risks from mid-2024, which will contribute to the full unblocking of seaports, reduction of sovereign risk premium and return of forced migrants to Ukraine”, – the National Bank almost verbatim repeated the paragraph of the previous inflation report, but moved the reduction of security risks from the beginning of 2024 to its middle.
Despite this, the key risk to the forecast is still a longer duration and intensity of the war, which could slow economic recovery and worsen inflation and exchange rate expectations, the National Bank emphasizes.
Among other risks, the regulator named a decrease in the volume or loss of rhythmicity of international aid, the resumption of significant power shortages due to further destruction of energy infrastructure, which will limit economic activity and exports and lead to higher imports and demand for foreign currency.
The NBU also pointed out the risks of export logistics constraints due to large-scale terrorist attacks, the emergence of additional budgetary needs and significant quasi-fiscal deficits, particularly in the energy sector; further complications for agro-products exports.
The National Bank estimates the probability of the risk of prolongation of the war and its escalation, as well as eco-terrorism of the occupants, as well as a quarter earlier, at the level of 25% to 50%.
As for the “grain corridor,” which stopped working in June, although the National Bank estimated this risk at 25-50%, now the regulator gives a 15-25% probability of restoring its work and the same value estimates the new risk of continuing food ban by some European countries, which threatens additional losses of $500 million by the end of this year and a possible reduction in crops.
With a probability of 15-25%, the National Bank also assumes such risks as increased emigration and imbalance of public finances (freezing of tariffs on housing and utility services, reduction of international aid, emission financing of the deficit).
The risk of renewed energy deficit due to damage to infrastructure is on the scale of the National Bank, as in April, at up to 15%.
In this report, as well as in the previous one, there is a mention of such a factor as “Marshall Plan”, which can greatly affect and improve the macro outlook, and its probability the central bank kept at 15-25%.
The Board of the National Bank of Ukraine has decided to resume inspections of banks suspended since March 2020 in connection with COVID-19, and approved the plan of their conduct for the IV quarter of 2023, according to a statement on the NBU website on Thursday evening.
According to it, scheduled inspections of 8 banks will be carried out in the IV quarter of 2023, in particular A-Bank, Bank ¾, TAScombank and MTB Bank.
EPB Bank, Globus Bank, Sky Bank and Family Bank were also included.
“The inspection plan is drawn up with a risk-based approach, taking into account the specificity and complexity of the bank’s operations, the level of risks of its activities and a certain overall assessment of SREP (Supervisory Review and Evaluation Process),” the regulator pointed out.
It recalled that in May it started assessing the stability of banks to determine the real state of the banking sector under wartime conditions.
The Board of the National Bank of Ukraine has decided to revoke the banking license from JSC JSCB Concord (Kiev) and liquidate it from August 1, 2023 due to the bank’s systematic violation of legal requirements in the field of preventing and combating money laundering, financing of terrorism and proliferation of weapons of mass destruction (PIK/FT).
“The share of the financial institution was 0.17% of the assets of solvent banks, so its withdrawal from the market will not affect the stability of the banking sector of Ukraine”, – noted in a statement on the NBU website.
Speaking about the violations, the National Bank specified that it is a failure to ensure the functioning of an appropriate risk management system, failure to provide at the request of the inspection team reliable information, failure to take into account in the analysis of risks features and opportunities for the use of bank products.
“In addition, over the past two years, the National Bank, based on the results of supervision in the field of PIK / CFT for violations committed by the bank applied to the bank such measures of influence, such as imposing a fine totaling 60.4 million UAH and a written warning,” – added the regulator.
The NBU reminded that each depositor of the bank will receive from the Deposit Guarantee Fund reimbursement in the full amount of the deposit, including interest, and the total possible amount of payments of the guaranteed amount to depositors on July 1, 2023 is UAH 1 billion 116.25 million.
It is specified that the decision on revocation of the banking license and liquidation of Concord Bank was made by the decision of the NBU Board of Directors No. 265-rsh dated August 1. In addition, the National Bank imposed another fine on the bank in the amount of UAH 400 th. for violations in making transfers.
Concord Bank, according to information on its website, was founded in August 2006, and in 2012 its main beneficiaries were Olena and Yulia Sosiedka.
According to the National Bank of Ukraine, as of June 1, 2023, Concord ranked 35th (UAH 4.83 billion) among 65 banks operating in the country in terms of assets. In the first three months of 2023, the network of the bank’s subdivisions decreased by two branches – to 12.
At the end of last week, the bank denied the information allegedly about the deprivation of its license as a result of an inspection by the National Bank, spread by “trash websites and telegram channels created by Russian special services”. Concord emphasized that they support the actions of the NBU in terms of regulation of “so-called gambling” and the formation of an efficient and transparent banking system.
As reported, in early February, the Deputy Head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy Yaroslav Zheleznyak accused nine banks, including Ukrgasbank and Ayboks Bank, of helping the gambling business in hiding up to 10 billion UAH of turnover per month. He claimed that these banks were providing a service of miscoding (substituting the purpose of payment – IF-U) and withdrawing this money: wiring money from the player to the casino account under the guise of payment “for advertising services” or similar services.
Then the National Bank fined state-owned Ukrgasbank 64.6 million UAH for improper organization of the intrabank system of prevention and counteraction and primary financial monitoring when working with gambling business participants, and on March 7 revoked the banking license of Ibox Bank, 37th in terms of assets out of 66 Ukrainian banks, in connection with a number of violations, including the facilitation of a sports poker tournament and insufficient financial monitoring of clients even after the regulator’s warning.
The National Bank has raised its forecast for Ukraine’s international reserves at the end of this year to $38.3 billion from $34.5 billion in its April forecast.
According to the NBU’s updated estimates presented at a briefing on Thursday, Ukraine’s international reserves will reach $42.6 billion at the end of next year and $44.1 billion a year later, while in April the National Bank gave more modest estimates of $36.1 billion and $37.1 billion, respectively.
The NBU expects that this year the external financing of the state budget alone will amount to $42 bln, and next year it estimates such a need at $37 bln.
According to its forecasts, such a large-scale financial external support will fully cover the negative current account balance, which this year and next year the NBU estimates at $11 bln, $17.2 bln and $16.1 bln, respectively.
As reported earlier, due to a significant inflow of external financing, Ukraine’s international reserves rose by 4.5 percent in June to a record high of $39.00bn.
