On July 30, Ukraine’s banking sector was surprised – the NBU announced banks could no longer place all their liquidity in 3-month deposit certificates and must now bargain on the rate.
Over the past three years of full-scale war, Ukraine’s central bank, the National Bank of Ukraine (NBU), has worked to preserve public confidence in the hryvnia and encourage Ukrainians to keep their savings in the national currency. Alongside capital controls and, for a time, a fixed exchange rate, the NBU linked banks’ excess liquidity to three-month deposit certificates after its initial wartime interest rate hike failed to raise deposit rates as effectively as intended.
Set up in spring 2023, the three-month deposit certificates let banks place an amount of liquidity tied to their existing portfolio of household deposits with a term of three months or more, multiplied by a coefficient of 3.0 for any growth in that portfolio since April 2023. The NBU said it worked, however, critics said the NBU overpaid banks and should have redirected that liquidity to loans instead.
Why rock the boat if the central bank stabilized the storm? The NBU warns that once the war ends and reconstruction capital flows in, deals will again jump to foreign currency. Ukraine needs a breathing money market with reliable benchmarks set by the banks themselves. In parallel, the NBU is developing a holding for future capital-market infrastructure.
Critics call the new updates a loosening of monetary policy exactly when liquidity should be locked down in a country at war. The banks are watching. They’re either neutral or don’t share the excitement.
The central bank is betting the credibility it earned through war on its ability to steer the economy through the invasion’s aftermath. The question is whether the strategy will deliver as intended.
How parked liquidity became the NBU’s weapon
Ukraine’s banking system evolved from corruption and ineffectiveness, into a healthy lender and keeper of deposits. During COVID-19, Ukrainians packed banks with cash, but banks couldn’t find enough businesses to lend to, so liquidity sat in correspondent accounts abroad and in government bonds.
After the 2022 invasion of Ukraine, the pattern repeated with higher stakes. Banks sat on billions in liquidity even as inflation climbed, reaching 13.7% in March of that year, 16.4% in April, and finally peaking at 26.6% in December.
In June 2022, the NBU raised its key rate from 10% to 25% to curb panic currency-buying, but market rates didn’t follow.
According to Mykhailo Rebryk, former head of the NBU’s Monetary Policy and Economic Analysis Department and now Senior Macroeconomist at KSE Institute, transmission was weak as banks were awash with excess liquidity and yields on government bonds did not rise. “Transmission from the key rate to market rates is weak if no transactions actually take place at that rate,” Rebryk told Kyiv Post.
The three-month deposit certificates were a tool no other central bank had, but it was worth trying. “Ukraine does not have a financial market where the central bank can impact rates the way the Fed does,” Olesia Verchenko, associate professor at the KSE, told Kyiv Post.
It was framed as a win-win. Both sides protected their money from inflation and Ukrainians did not flee into dollars. But Concorde Capital’s Oleksandr Parashchiy calculated that the tool cost more than it saved, calling it an “anti-stimulus for lending” in a Facebook post, and more critics followed.
First deputy governor Serhiy Nikolaichuk closed the debate in a September 2025 interview with Interfax-Ukraine, calling the design “very effective in calibrating monetary conditions,” adding that changes could follow if the NBU wanted “to develop the money market” where banks could lend each other cash short-term. That moment has arrived.
Why the NBU is changing the rules
When the war ends, reconstruction capital won’t ease the central bank’s task. The NBU fears rebuilding finance will pour in foreign currency unless a functioning hryvnia market exists first. “When large-scale reconstruction projects already need financing, the market must already be working, not merely forming,” NBU governor Andriy Pyshnyi wrote in an op-ed.
Reliable market benchmarks will eventually underpin a “yield curve, interest rate and currency derivatives, long-term loans, and mortgages,” deputy governor Volodymyr Lepushynskyi told Kyiv Post
For now, the NBU wants to stimulate trading between banks on the interbank credit market, “but going forward, we may not limit ourselves to this,” he added.
Now banks will not have all their bids satisfied in full and need to wander around seeking market alternatives for liquidity. “It will not create a deep money market in a day, but it already changes the logic,” Lepushynskyi explained to Kyiv Post.
However, the only problem is that the central bank’s key rate may become a weaker signal while inflation is again sticky, or it may even lower hryvnia deposit rates.
From Aug. 7, the NBU began holding interest-rate tenders for the certificates every two weeks, with a pre-announced volume, instead of meeting every bid. The ceiling stays at the key rate plus 3.5 percentage points, but the market has started to lower it.
The first tender on Aug. 7 caught Rebryk off guard. The average rate fell 0.3 percentage points to 18.71%, even as the NBU had just raised its key rate by 0.5 points. “This could lead to a leveling-out of the July hike... in the worst case, reverse transmission,” he wrote on Facebook.
The second tender, on Aug. 21, pushed the rate down even further, to 18,59%. Bank profitability on these risk-free placements is gradually shrinking, a banking-sector source explained to Kyiv Post on the condition of anonymity.
“A release of liquidity ‒ freed up because it can no longer be parked in NBU certificates of deposit ‒ could be quite significant,” Rebryk told Kyiv Post. “To push it into lending quickly, banks may loosen credit standards ‒ but that risks a build-up of non-performing loans over time.”
But the demand for instruments is still higher than NBU’s pre-announced volumes. The central bank announced a Hr.30 billion ($675 million) limit for the first tender and banks placed bids of Hr.37.1 billion ($834.75 million). As the NBU announced a higher limit of Hr.40 billion ($900 million) on the second tender, banks placed bids for even more – Hr.52.1 billion ($1.17 billion).
Maksym Tsymbal, first deputy chairman of Bank Pivdennyi, also thinks the rate hike was “most likely an additional argument” to offset banks’ weaker incentive to attract deposits.
However, NBU governor Andriy Pyshnyi disagreed when Kyiv Post asked directly: “Of course, we understand that there will be a limited effect on the tightness of monetary policy from the introduction of interest rate tenders to place three-month certificates of deposit – that is truly so. Was this actually the main reason behind considering the need to raise the key policy rate? My answer is no.”
Will it work?
Markets aren’t convinced. Two banking-sector sources, speaking on condition of anonymity, told Kyiv Post they’re “intrigued and watching” while the effectiveness of the previous monetary policy framework needs to be reflected first. The third one said: “We will watch, but this first step in adjusting the monetary policy framework related to 3-month CDs seems, under conditions of excess liquidity in the banking system, to depend largely on the central bank’s decision regarding the volume of certificate issuance, which is why it feels somewhat artificial.”
But the fourth one thinks the new design will indeed make the monetary transmission more effective. PrivatBank also “welcomes” NBU’s initiatives for deeper and more liquid market, but told Kyiv Post it is still too early to speak whether they have boosted the interbank market.
As of Aug. 24, the tender mechanism remains the only change made. “Nor are there any details,” Verchenko said. At the time of publication, the NBU has not announced any new rules.
“The biggest question for now is how narrow the corridor between the key rate and the three-month DCs can become before the NBU moves to the next stage … and what that next stage might be. The NBU might move away from tying this to the pace of term deposit attraction altogether,” Tsymbal says. He added that this part of the plan “was not communicated with full clarity by the regulator.”
The third source agreed that banks will compete at the NBU’s tenders, but the supply of 3-month CDs is currently “determined by a single institution.” “At the moment, the situation is not entirely clear. We can see that the rate on 3-month CDs is declining, but it is unclear at what level it may eventually stabilize,” the source told Kyiv Post.
The demand from banks higher than the volume offered and a decreased rate “may indicate that banks are adapting to the new model”, PrivatBank’s press service told Kyiv Post. “The tender mechanism creates a certain additional uncertainty regarding the future yield of such instruments. For banks, this parameter becomes less predictable, which somewhat complicates margin and pricing management,” the press service wrote Kyiv Post in a reply to a request.
The central bank says future steps depend on the results of the previous changes. Lepushynskyi told Kyiv Post the NBU will analyze “the impact on deposit rates, the money market, demand for hryvnia assets, and the overall tightness of monetary conditions.”
Verchenko argues the old design needs phasing out regardless, since both lending and borrowing have revived since it was built. “What are alternatives for excess liquidity? Either park it in the NBU, or lend out more – that’s it,” Verchenko added.
Lepushynskyi agreed the old design was only ever transitional: ”It strengthened a particular transmission link, but created almost no incentives for banks to trade hryvnia liquidity among themselves. Now the task is more complex: to develop a more market-oriented monetary transmission.”
NBU’s initiative alone is not enough – the market needs more private buyers of the excessive liquidity, Rebryk wrote in his Facebook post. Banks have borrowed aggressively, bought enough government bonds, wage growth lags B2C lending, and reliable B2B clients from retail and agro are suffering from devastating drone strikes. In this case, banks are not interested in more deposits – another surplus of liquidity. If the NBU does not absorb the surplus, he wrote, it risks the same flood of foreign currency, only worse, with lower deposit rates and an “inactivated interbank market.”
In a reply to Kyiv Post request after publication of the article, the NBU said banks will not buy more currency because of the transformation of the operational design – they are only allowed to buy currency for their own purposes in volumes no more than 5% of regulatory capital. NBU’s new policy will help reduce the demand for currency, NBU wrote.
Nevertheless, the central bank has options: selling government bonds from its own portfolio, larger interventions, higher reserve requirements, or changing how much of those requirements banks can cover with benchmark government bonds instead of cash. But each carries a side effect – on the finance ministry’s borrowing costs, on reserves, or on corporate lending, Rebryk wrote.
However, that doesn’t seem to be stopping the central bank.
“We fully understand that under the previous operational design, the situation was comfortable for banks …. Now, with these changes, the NBU has begun to push banks out of their comfort zone, but there is no alternative to this decision if we want to achieve the activation of the money market,” Lepushynskyi explained to Kyiv Post.