The National Bank of Ukraine (NBU) will reduce the discount rate from 25% to 23-24% for the first time since June 1, 2022 at a meeting on July 27, bankers interviewed by Interfax-Ukraine predict.
“I am sure that the NBU will decide to lower the rate by 1-2%, because there are all prerequisites for this. First of all, significantly more lively rates of inflation reduction. (…) True, I do not think that the regulator will resort to drastic changes. Nevertheless, the risks and uncertainty remain very significant, and the system has a considerable liquidity overhang, which the NBU is trying to tie up in term deposits. And from the point of view of exchange rate stability, the National Bank should maintain a high level of attractiveness of hryvnia deposits for the population,” – said the board of Unex Bank Ivan Svitek.
He noted that the NBU back in April expected to slow inflation to 14.8% at the end of 2023, but already at the end of June inflation fell to 12.8%.
“So, military risks do not allow to be too optimistic in forecasts, including with regard to inflation. However, the NBU itself openly speaks about the preservation of the potential for its further slowdown,” the banker added.
Elena Dmitrieva, the first deputy head of the board of Globus Bank, shares a similar opinion.
“Now, more than ever, the issue of discount rate reduction is the most probable. At the same time, the “step” of reduction is unlikely to exceed 1-2 p.p., which will actually coincide with the previously announced plans of the NBU,” – said the expert.
According to her, such a decision became possible after a long and painstaking work of the regulator to establish a balance between supply and demand for currency, gradual popularization of the hryvnia as the most reliable currency for preserving and increasing the wealth of citizens.
In addition, thanks to strong macro-financial assistance from partner countries, Ukraine is able to cover a significant amount of state budget expenditures, which has a positive impact on the strength of the hryvnia, including since the beginning of the year the treasury has already received almost $23 billion, Dmitrieva added.
Low inflation, which according to the current macro forecast will not exceed 12.8% by the end of 2023, gradual development of the country’s economy, as well as the NBU strategy of gradual liberalization of the foreign exchange market, which is possible only in conditions of a strong national currency, she said.
According to the first deputy head of the board of Globus Bank, in the perspective of September – December the size of the discount rate may decrease to 20%, it is this that will encourage commercial banks to significantly change the terms of their own mortgage and deposit programs.
“In such conditions, for example, the rates on hryvnia deposits with placement up to 1 year may fall to 4%, and the mortgage ones, depending on the maturity, by 3.5-5%,” she expects.
In turn, the head of the analytical department of Sense Bank Alexey Blinov expects a decrease in the discount rate by 3 p.p. to 22% per annum.
“The improvement in short-term inflation expectations further increases the need for lowering the discount rate. As a first step on July 27, its reduction by 3 p.p. to 22% per annum seems optimal. Given the twofold disagreement between inflation and the discount rate, this would be a rather cautious step,” he pointed out
According to him, Sense Bank, maintains the forecast of the discount rate of 20% per annum at the end of 2023, which is in line with the NBU’s stated intentions to keep the discount rate at a markedly positive real level, even taking into account the risks of accelerating inflation in 2024.
Volodymyr Mudryy, Head of the Board of OTP Bank, Head of the Council of the Independent Association of Banks of Ukraine, also expects that the NBU may decide to lower the rate by 2-3% per annum.
“There are two prerequisites for this. First, it is necessary to stimulate lending to the economy. Despite the fact that business expectations have recently improved, we do not see demand for borrowed funds from business. The corporate loan portfolio, unlike the consumer loan portfolio, continues to shrink. And the price of resources has a big impact on this.
Second, deposit rates are already significantly higher than the inflation rate,” he said.
He noted that inflation was 12.8% in July, while the Ukrainian index of retail deposit rates was 14-15% per annum in hryvnia, depending on the term of deposits, and the NBU has always emphasized that deposit rates should be kept at a level that only compensates for inflation.
In addition, he believes that the NBU’s three-month deposit certificates at a fixed rate at the level of the discount rate will remain in effect for the time being.
Oleksiy Rudnev, Chairman of the Board of Accordbank, notes that in the current environment it is advisable to reduce the discount rate, in particular, to develop lending.
“Consumer inflation slowed to 12.8% year-on-year in June (from 15.3% in July), with the prospect of further decline during the summer months. The NBU’s foreign exchange reserves have reached a historic level of $39 billion, and the dollar has been relatively stable in recent months. (…) In our opinion, the regulator will cut rates, albeit slightly (perhaps by 1.5-3%), as it is important to set the market trend while maintaining the attractiveness of hryvnia deposits,” he said.
For his part, Pivdenny Bank’s strategic development analyst Konstantin Khvedchuk is more modest and expects the NBU discount rate to drop to 24% and the overnight deposit certificate rate to 19%.
“Inflationary pressures have significantly decreased over the past 5 months, and the NBU’s interest rates are now significantly higher than inflationary expectations, so there are grounds to start a cycle of rate cuts. However, given the high uncertainty during the war and the reaction of banks in the face of ultra-high liquidity, the NBU will act cautiously, cutting rates in small steps. By the end of the year, we expect the key policy rate to be close to 20%,” the analyst said.
Sergiy Kolodiy, Chief Macroeconomic Analysis Officer at Raiffeisen Bank, shares his forecast.
“We expect the NBU to start a cycle of monetary policy easing at its next meeting on July 27 after more than a year of unchanged key policy rate at 25%. In our opinion, the first step at the beginning of the rate cut cycle will be cautious (a 100 pp cut to 24%), as the regulator would like to see the market reaction to its decision and calibrate further steps,” the banker said.
Raiffeisen Bank also expects a similar downward correction of rates on standing facilities: certificates of deposit and overnight refinancing loans.
Kolodiy notes that the NBU is likely to maintain the asymmetry in the range of rates on them at the discount rate: “minus” 500 pp for overnight DS and “plus” 200 bp for overnight loans.
“However, the analysis of statistical data shows that since November 2022, overnight loans have not been used as simple access operations,” he added.
“By introducing three-month certificates of deposit at the discount rate and simultaneously reducing the rate on overnight certificates of deposit to the level of “discount rate minus 500 pp”, the NBU managed to change the structure of deposits in favor of longer-term deposits. Banks also gradually raised deposit rates, and now, taking into account the current inflation rate for June (12.8%), real deposit rates (i.e., adjusted for inflation) have returned to positive territory for the first time since the beginning of the war,” Kolodiy said.
Thus, Raiffeisen Bank believes that the NBU has already achieved its goals of increasing the interest of the population in hryvnia instruments, the main of which are deposits.
“Since the situation is developing according to a more positive scenario and we are seeing a permanent slowdown in inflation, in July – 12.8%, while the forecast at the beginning of the year was above 18.7% (the forecast was revised in April to 14.8% at the end of the year), a reduction in the discount rate is quite likely in the near future,” expects Oksana Shveda, Deputy Chairman of the Board of Credit Dnipro Bank.
The National Bank of Ukraine (NBU) on July 21 excluded from the State Register of Financial Institutions PJSC IC Kyivska Rus (Kyiv) in connection with the revocation of licenses for the provision of financial services, according to the regulator’s website.
As reported, the licenses were revoked on July 11, 2023 in connection with the insurer’s failure to submit reports for the year 2022, failure to submit information and documents at the request of the National Bank and the company’s failure to eliminate the identified violations in the time specified by the regulator (June 8, 2023).
According to the last submitted to the NBU statements of PJSC IC Kyivska Rus for the nine months of 2022, the amount of insurance payments amounted to UAH 85,4 mln, of which UAH 76,9 mln was transferred to reinsurance. The insurer has not made payments during the specified period.
Earlier, on May 8, 2023 the NBU has applied to IC ‘Kyivska Rus’ a measure of influence in the form of temporary suspension of licenses in connection with non-submission of reports for the first half of 2022 and for 2022, as well as actuarial report for 2022.
The company also did not submit the report on corporate governance and information on key risks and results of stress testing for 2022, did not provide information and documents at the request of the NBU.
Private JSC IC Kyivska Rus carries out activities on voluntary and compulsory types of insurance other than life insurance.
On July 10, the National Bank of Ukraine has annulled the license of Financial Company Rialto LLC (Kiev) to provide financial services, namely, to lend money, including on financial credit terms.
As reported on the website of the regulator, following the results of an unscheduled inspection on the protection of the rights of consumers of financial services found violation of the financial company of the requirements of current legislation, in particular, the laws of Ukraine “On financial services and state regulation of financial services markets”, “On consumer credit”, as well as a number of regulations of the National Bank of Ukraine.
Rialto FC was registered in June 2020. The authorized capital is UAH 6 mln.
In May 2023 state-owned PrivatBank again topped the list of the most profitable banks with UAH 4 billion 597.1 million net profit, followed by the bank with Ukrainian capital FUIB with UAH 756.4 million.
According to the data published by the National Bank of Ukraine on its website, in the top five banks with the greatest net profit in May there are also three banks with foreign capital: Ukrsibbank – UAH 577.7 million, OTP Bank – UAH 560.8 million and Raiffeisen Bank – UAH 436.4 million.
The second top five banks were state-owned Ukrgasbank and Ukreximbank (UAH 376.2 mln and UAH 292.5 mln, respectively) and banks with foreign capital: Citibank (UAH 324.0 mln), Credit Agricole Bank (UAH 301.1 mln), and Credobank (UAH 231.2 mln).
Four more banks made profit ranging from 200m UAH to 100m UAH: Pivdenniy Bank – 168.6m UAH, Oshchadbank – 160.8m UAH, Universal Bank (mono) – 149.4m UAH, and ING Bank Ukraine – 139.4m UAH.
Among these 14 banks, the largest reserves in May were disbanded Ukrexim – 1 billion 253.2 million UAH and Oschadbank – 315.8 million UAH, while the largest new reserves were formed by Privat – 784.0 million UAH and Raif – 647.2 million UAH.
The list of 9 unprofitable banks in May was headed by Motor Bank – 12.8 million UAH and First Investment Bank – 9.5 million UAH, while the rest of the banks have less than 5 million UAH.
In May, the net profit of banks decreased to 9.59 billion UAH from 9.94 billion UAH in April and 12.58 billion UAH in March, which, however, is more than 6.61 billion UAH in February. Excluding Privat, the net profit of the banks in May was UAH 5.35 billion against UAH 5.52 billion in April.
At the same time if in April total assets of all banks increased by 61.53 billion UAH, in May – only by 2.23 billion UAH due to decrease of Privat by UAH 16.88 billion, Raif – by UAH 7.26 billion, and OTP – by UAH 5.04 billion.
The leaders in increase of assets in May were Ukrgas – UAH 6.90 billion, City – UAH 3.80 billion, FUIB – UAH 3.38 billion, Credit Agricole – UAH 3.35 billion, and Pivdenniy Bank – UAH 2.97 billion.
According to May results, this increase in assets allowed Crédit Agricole to enter the top ten largest Ukrainian banks with UAH 96.74 bn., leaving behind Sense-Bank (former Alfa-Bank), whose assets decreased by UAH 0.55 bn. in May and reached UAH 96.64 bn. We remind that at the beginning of 2022, Alfa Bank was the 6th largest bank by assets on the market with UAH 125.36 bln.
Increase of obligatory reserves in May caused increase of UAH 13.26 bn. in bank portfolios after decrease by UAH 5.39 bn. in April.
Raif increased its portfolio the most, by UAH 6.19 bln, Ukrsib by UAH 4.75 bln, Oschad by UAH 3.03 bln, Citi by UAH 1.20 bln, and ING Bank by UAH 0.90 bln.
In general, according to the results of five months of the year the most profitable bank by a wide margin remains PrivatBank – UAH 25.48 billion, or 47.5% of the total net profit of the banking system for the period.
In January-May, Raif received UAH 3.26 billion in net profit, FUIB – UAH 2.99 billion, Ukrsibbank – UAH 2.89 billion, OTP Bank – UAH 2.60 billion, City – UAH 2.27 billion, Oschad – UAH 2.23 billion and UKrgas – UAH 2.18 billion.
Among the 11 banks, whose net profit for the five months exceeded 1 billion UAH, also Ukrexim – 1.54 billion UAH, Sens-Bank – 1.40 billion UAH and Universal (mono) – 1.31 billion UAH.
In May 2023 state-owned PrivatBank again topped the list of the most profitable banks with UAH 4 billion 597.1 million net profit, followed by the bank with Ukrainian capital FUIB with UAH 756.4 million.
According to the data published by the National Bank of Ukraine on its website, in the top five banks with the greatest net profit in May there are also three banks with foreign capital: Ukrsibbank – UAH 577.7 million, OTP Bank – UAH 560.8 million and Raiffeisen Bank – UAH 436.4 million.
The second top five banks were state-owned Ukrgasbank and Ukreximbank (UAH 376.2 mln and UAH 292.5 mln, respectively) and banks with foreign capital: Citibank (UAH 324.0 mln), Credit Agricole Bank (UAH 301.1 mln), and Credobank (UAH 231.2 mln).
Four more banks made profit ranging from 200m UAH to 100m UAH: Pivdenniy Bank – 168.6m UAH, Oshchadbank – 160.8m UAH, Universal Bank (mono) – 149.4m UAH, and ING Bank Ukraine – 139.4m UAH.
Among these 14 banks, the largest reserves in May were disbanded Ukrexim – 1 billion 253.2 million UAH and Oschadbank – 315.8 million UAH, while the largest new reserves were formed by Privat – 784.0 million UAH and Raif – 647.2 million UAH.
The list of 9 unprofitable banks in May was headed by Motor Bank – 12.8 million UAH and First Investment Bank – 9.5 million UAH, while the rest of the banks have less than 5 million UAH.
In May, the net profit of banks decreased to 9.59 billion UAH from 9.94 billion UAH in April and 12.58 billion UAH in March, which, however, is more than 6.61 billion UAH in February. Excluding Privat, the net profit of the banks in May was UAH 5.35 billion against UAH 5.52 billion in April.
At the same time if in April total assets of all banks increased by 61.53 billion UAH, in May – only by 2.23 billion UAH due to decrease of Privat by UAH 16.88 billion, Raif – by UAH 7.26 billion, and OTP – by UAH 5.04 billion.
The leaders in increase of assets in May were Ukrgas – UAH 6.90 billion, City – UAH 3.80 billion, FUIB – UAH 3.38 billion, Credit Agricole – UAH 3.35 billion, and Pivdenniy Bank – UAH 2.97 billion.
According to May results, this increase in assets allowed Crédit Agricole to enter the top ten largest Ukrainian banks with UAH 96.74 bn., leaving behind Sense-Bank (former Alfa-Bank), whose assets decreased by UAH 0.55 bn. in May and reached UAH 96.64 bn. We remind that at the beginning of 2022, Alfa Bank was the 6th largest bank by assets on the market with UAH 125.36 bln.
Increase of obligatory reserves in May caused increase of UAH 13.26 bn. in bank portfolios after decrease by UAH 5.39 bn. in April.
Raif increased its portfolio the most, by UAH 6.19 bln, Ukrsib by UAH 4.75 bln, Oschad by UAH 3.03 bln, Citi by UAH 1.20 bln, and ING Bank by UAH 0.90 bln.
In general, according to the results of five months of the year the most profitable bank by a wide margin remains PrivatBank – UAH 25.48 billion, or 47.5% of the total net profit of the banking system for the period.
In January-May, Raif received UAH 3.26 billion in net profit, FUIB – UAH 2.99 billion, Ukrsibbank – UAH 2.89 billion, OTP Bank – UAH 2.60 billion, City – UAH 2.27 billion, Oschad – UAH 2.23 billion and UKrgas – UAH 2.18 billion.
Among the 11 banks, whose net profit for the five months exceeded 1 billion UAH, also Ukrexim – 1.54 billion UAH, Sens-Bank – 1.40 billion UAH and Universal (mono) – 1.31 billion UAH.
The first stage of the currency restrictions easing roadmap includes minimizing the multiplicity of exchange rates, liberalizing trade operations and facilitating new loans and investments.
The National Bank of Ukraine released the relevant public version of the Strategy to Ease Exchange Restrictions, Transition to a More Flexible Exchange Rate and Return to Inflation Targeting on Friday evening.
According to it, the second stage is liberalization of trade finance, management of currency risks of banks, the possibility of repatriation of interest on “old” debt obligations and investments.
Finally, the third stage includes the possibility of repayment of loans and investments, liberalization of household transactions and transactions in derivatives, the possibility of lending to non-residents and investments abroad.
As announced by the National Bank, the Roadmap and the Strategy have no specific calendar dates.
“Softening of currency restrictions is carried out gradually, taking into account the above priorities and is determined not by timeframes, but by the formation of appropriate macroeconomic prerequisites,” said the NBU.
According to the document, although the Roadmap defines the sequence of easing of currency restrictions, some steps (in particular, within the specified stages) may be implemented earlier or later than initially envisaged. This could happen if the conditions are such that a deviation from the stipulated sequence would be determined to be more beneficial to the economy, the currency market and the financial system.
The National Bank added that the easing of currency restrictions could occur gradually, in particular by changing the limits, calibration of levels, etc.
The regulator noted that the Roadmap reflects the following priorities: easing restrictions on transactions related to the movement of goods and services, then – related to capital flows and, finally, with its own foreign currency in respect of transactions at the expense of purchased foreign currency.
The NBU stressed that it will follow the general approach in which the refusal to fix the exchange rate will precede a large-scale liberalization of capital flows. “For its part, the increase in exchange rate flexibility will be preceded by the relaxation of most currency restrictions on trade transactions and restrictions that distort the functioning of the foreign exchange market because of the multiplicity of exchange rates,” the central bank added.
The National Bank added that during the implementation of the Strategy it will maintain tight monetary conditions by maintaining a sufficiently high level of real interest rates, which will ensure sufficient attractiveness of hryvnia assets and thus minimize the risks to exchange rate stability with the abandonment of the exchange rate fixing regime and the easing of currency restrictions.
According to the strategy, the NBU will base its decisions on the dynamics of the following key parameters: inflation and inflation expectations; the level of international reserves and foreign exchange market stability; interest rates and financial stability parameters.
“The appropriate preconditions and positive result of the conducted analysis have already allowed the NBU to soften a number of currency restrictions in June. At the same time, the prerequisites for the next steps of the Strategy are still forming,” the regulator noted.
