Last week, the National Bank of Ukraine’s (NBU) interventions in the interbank market jumped to a record high for this year and last year – $1 billion 417.4 million, the second highest figure since Russia’s full-scale invasion of Ukraine after $1 billion 424.1 million in May 2022, according to the regulator’s statistics.
According to the statistics, the central bank increased sales of foreign currency by 31.8% compared to the previous week, to $1 billion 417.6 million. At the same time, purchases remained at a meager level, but doubled over the week to $0.2 million.
In total, since the beginning of 2024, the volume of foreign currency sold by the regulator amounted to $32 billion 942.6 million, while the volume of foreign currency purchased amounted to $126 million. Over the same period in 2023, the NBU sold $27 billion 937.1 million worth of foreign currency and bought back $218.9 million.
According to the data published by the central bank during this time, the negative balance between the volume of foreign currency purchases by the population and the volume of its sales narrowed from $50.92 million to $48.52 million.
The official hryvnia exchange rate dropped by 27 kopecks to 41.8761 UAH/$1 over the week, while the cash exchange rate weakened by 32 kopecks when buying to 42.25 UAH/$1 and by 37 kopecks when selling to 42.33 UAH/$1.
Over the past month, the official hryvnia exchange rate fell by 0.9%, or 37 kopecks.
In general, since the beginning of 2024, the dollar has risen in price by 10.2%, or UAH 3.87, at the official exchange rate, and since the National Bank switched to managed flexibility on October 3, 2023, by 14.5%, or UAH 5.30.
As reported, Ukraine’s international reserves in November 2024 increased by $3.344 billion, or 9.1%, and as of December 1, according to preliminary data from the central bank, amounted to $39.925 billion, while net international reserves (NIR) increased by $3.5 billion, or 15.6%, to $25 billion 939 million.
In November, the National Bank of Ukraine (NBU) fined state-owned PrivatBank, Alliance Bank and Asvobank (all based in Kyiv) for violating the anti-money laundering laws for a total of UAH 27.5 million, according to a press release from the regulator. According to the release, Privat was fined UAH 10 million, Alliance – UAH 15.1 million, and Asvibank – UAH 2.5 million.
As reported with reference to market participants, Ukrainian banks are planning to sign a joint memorandum next week, which provides for the introduction of unified market practices and approaches to customer due diligence and monitoring of financial transactions on customer accounts.
According to them, the memorandum is expected to provide for a gradual reduction of the monthly transaction limit, after which, in the absence of verified income, enhanced financial monitoring will be carried out.
The National Bank of Ukraine on August 23 revoked licenses and excluded from the State Register of Financial Institutions ODO IC Varto (Kiev) and PJSC ASK Dnister (Lviv), according to the regulator’s website.
The regulator granted permission to exit the market by fulfilling the insurance portfolio to the mentioned companies on August 6 and July 17, having agreed on the exit plan.
According to the statements, for 2023, the insurance portfolio of PJSC ASK Dnister was formed from payments on insurance of land transport (except railway) – 91.6%, property insurance against fire and other risks – 6%, other types – 2.4%.
The volume of insurance premiums of the company in the mentioned period has amounted to UAH 10,010 mln, formed insurance reserves – UAH 4,987 mln, at the same time the company has paid UAH 6,109 mln of indemnities. Its share on insurance premiums in the market makes 0,01%.
The insurance portfolio of ALC IC Varto was formed at the expense of payments under health insurance contracts – 100%.
The volume of insurance premiums of the company in the specified period has amounted to UAH 29,594 mln, formed insurance reserves – UAH 3,007 mln. The volume of paid indemnities has been fixed at the level of UAH 15,422 mln. The company occupied 0,07% of the insurance services market.
The National Bank of Ukraine (NBU) has downgraded its migration forecasts for Ukrainians: while in April this year it expected an outflow of 200,000 this year and an inflow of 0.4 million next year, it now estimates the outflow this year at 400,000 and the inflow next year at 300,000.
“This assumption has worsened compared to the April Inflation Report due to the significant destruction of the Ukrainian energy system, which is accompanied by prolonged power outages and increases the risks for the heating season,” the regulator said in its July Inflation Report, published on Friday.
The NBU adds that in addition to household difficulties, frequent outages have a negative impact on production processes, which reduces economic activity and demand for labor, further stimulating migration.
In absolute terms, the number of migrants staying abroad is expected to increase to 6.7 million this year and 7 million next year.
The NBU refers to UN data, according to which the number of migrants abroad increased by 240 thousand to 6.6 million in the first half of this year.
In a new report, the National Bank postponed the expected start date for Ukrainians to return home from 2025 to 2026. According to its forecasts, 200,000 Ukrainians may return home in the first quarter of 2026 and the same number by the end of the year, although the April inflation report estimated the net inflow in 2026 at 800,000.
The central bank explains the change in its forecasts both by the deterioration of living conditions in Ukraine, in particular due to power outages, and by the factor of greater adaptation of Ukrainians abroad due to the long duration of their stay.
Thus, the NBU now estimates the number of compatriots-migrants abroad at the end of 2026 at 6.6 million, up from 5.3 million in the April inflation report.
It is noted that the number of internally displaced persons will also remain significant, as, according to surveys, a significant number of them have nowhere to return to due to significant damage to housing infrastructure.
“Currently, the negative risks of an even greater outflow of migrants abroad, and of a smaller and later return prevail. Important factors in this may be legislative decisions by the governments of recipient countries to deepen the integration of Ukrainian migrants in host countries, and their children in the educational systems of host countries, and, accordingly, an increase in the propensity to unite families abroad,” the regulator notes.
The NBU believes that this will have a negative impact on labor supply and consumer demand and will hinder economic growth.
“Significant changes in the structure of the economy and increased demand for skilled labor will lead to further imbalances in the labor market, which will stimulate wage growth that will be higher than productivity growth in certain sectors,” the regulator predicts.
On the other hand, the rapid recovery of housing, infrastructure, and job growth due to the economic recovery may lead to a more active return of migrants, the central bank points out.
The National Bank of Ukraine (NBU) has imposed a penalty of UAH 33.76 million on state-owned Oschadbank, UAH 11.05 million on Pivdenny Bank and UAH 10.05 million on A-Bank, the regulator’s website reports.
According to it, Oschad was fined for improper organization of primary financial monitoring in terms of the obligation to develop, implement and update internal documents on the Law “On Prevention and Counteraction to Legalization (Laundering) of the Proceeds of Crime, Terrorist Financing and Financing of the Proliferation of Weapons of Mass Destruction” (AML/CFT) and the lack of procedures in them sufficient to ensure effective risk management.
It is noted that other reasons for the fine imposed on the financial institution include the bank’s failure to properly fulfill its obligation to implement an automation system, apply a risk-based approach, and verify new and existing customers.
Pivdenny Bank was fined for improper implementation of enhanced due diligence measures in relation to clients with high risk business relationships, untimely submission of documents at the NBU’s request to comply with the requirements of VAT/FT legislation, and failure to identify all the criteria for money laundering risk inherent in business relationships with clients.
A-Bank received a fine due to improper due diligence of the RIAs, new and existing customers, as well as improper application of a risk-based approach.
In addition, the central bank fined Diamond Pay LLC (TM DPAY, Dnipro) of Victoria Golubeva with a turnover of UAH 2.6 billion in 2023 for UAH 13.06 million for a number of violations in terms of primary financial monitoring. According to the company’s website, it is a service for organizing payment acceptance and online transfers, and its main services include payments on gambling websites, including Favbet.
The National Bank of Ukraine, which previously included certain terms of “significant improvement in the security situation” in its basic macroeconomic forecast scenario, has abandoned this approach and instead published an alternative scenario in its April inflation report, the main difference of which is slower economic growth in 2025 with a larger budget deficit, weaker hryvnia and reduced international reserves.
“The alternative scenario is based on the assumption of higher security risks and, accordingly, a slower return of the economy to normal conditions over the forecast horizon. Under this scenario, Ukraine’s economy will recover more slowly in 2025 compared to the baseline scenario. However, the inflation trajectory will differ slightly,” the NBU said in the report.
As reported, in the first inflation reports for July and October 2022 after the pause caused by the Russian invasion, the NBU, in addition to the baseline, provided an alternative scenario with a longer period of war, but later abandoned it, although the IMF continued to provide such a scenario.
In the renewed alternative scenario in the April inflation report this year, GDP growth in 2025, in particular, will accelerate to only 3.3% from 3% this year, while the baseline scenario envisages economic growth of 5.3% next year.
At the same time, in 2026, the baseline scenario envisages a slowdown to 4.5%, while the alternative scenario envisages an acceleration to 5.6%.
According to the NBU, the economic recovery in the alternative scenario will be more fragile, even with more significant budget deficits. “Increased imbalances in the labor market amid a worse migration situation than in the baseline scenario will restrain consumer and business activity, and increase pressure on business labor costs. The recovery of industrial production from the damage and losses caused under this scenario will be slower, as will the recovery of sown areas,” the NBU said.
He added that the energy deficit will also have a negative impact on economic activity, which, however, is assumed to remain unchanged compared to the baseline scenario – about 5% in 2024-2025.
“Ensuring macro-financial stability will require somewhat higher volumes of international assistance and, at the same time, significantly higher spending of the NBU reserves to maintain a controlled situation in the foreign exchange market and moderate inflation,” the NBU emphasized.
According to the document, the main factor supporting the economy will be the continued maintenance of a softer fiscal policy than in the baseline scenario. The budget deficit, excluding grants in revenues, will amount to 18% of GDP in 2025 (13.5% of GDP in the baseline) and 12% of GDP in 2026 (7.5% of GDP in the baseline). The government will continue to spend heavily on infrastructure, social welfare, defense, and security. Their impact on the budget deficit will be partially offset by additional measures to mobilize budget revenues at 3.5% of GDP, the NBU added.
According to its forecasts, large budget deficits in 2025-2026 will be financed by both additional domestic and external borrowings. In particular, the alternative scenario envisages international assistance of $28.7 billion in 2025 and $18.5 billion in 2026, compared to $25.1 billion and $12.6 billion in the baseline scenario, respectively. “As a result, this will make it possible not to resort to monetary financing of the budget,” the NBU said.
According to the alternative scenario, budget deficits will lead to an increase in public and publicly guaranteed debt, which will approach 100% of GDP at the end of the forecast period.
The NBU added that the inflation trajectory will be similar to the baseline scenario, but it will require more significant spending of international reserves: consumer inflation will temporarily accelerate to 8.6% at the end of 2024, followed by a decline to 5.5% at the end of 2025, compared to 8.2% and 6.0% in the baseline scenario, respectively.
To cover the larger structural deficit in the foreign exchange market, the NBU will spend more of its international reserves. Therefore, despite the higher external financial assistance, the reserves will remain almost unchanged in 2024 and will decrease over 2025-2026 to $33 billion, while in the baseline scenario they will amount to $39.3 billion at the end of 2026.
“At the same time, such volumes of reserves will allow us to continue to gradually ease currency restrictions,” the NBU said.
As reported, Ukraine’s GDP, according to the State Statistics Service, grew by 5.3% in 2023 after a 28.8% decline in 2022.
Earlier, Experts Club and Maxim Urakin released a video analysis of how the GDP of the world’s countries has changed in recent years, more detailed video analysis is available here – https://youtu.be/w5fF_GYyrIc?si=BsZmIUERHSBJrO_3
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