You're reading: NBU council asks central bank to back up liquidity of Naftogaz’s financial partner banks

The Council of the National Bank of Ukraine (NBU) at its meeting on November 8, 2012, approved a number of recommendations for the NBU's Board and the Cabinet of Ministers, including those regarding the support by the NBU of the liquidity of the banks that bought out state securities from NJSC Naftogaz Ukrainy.

“In order to support sustainable economic growth… [the central bank is recommended to] support, via available monetary tools and mechanisms – refinancing, REPO operations, purchase or sale of state securities, the liquidity of the banks that bought out state securities from NJSC Naftogaz Ukrainy under cabinet resolution No. 794-r dated October 17, 2012,” reads the NBU Council’s recommendations posted on the NBU’s official Web site.

Moreover, the NBU Council said that a possible slowdown of the growth of Ukraine’s monetary base in the fourth quarter of 2012 compared to the forecast should be considered as allowable, as the actual dynamics of the major macroeconomic indicators differ from the official targets.

The NBU also recommended initiating the creation of a processing center to service agreements on the financial markets (under the law on the depositary system) on the basis of PJSC All-Ukrainian Securities Depositary, which is supposed to facilitate the development of the stock market and ensure stable settlements with the use of financial tools.

As was reported, the Ukrainian government began capitalizing Naftogaz with government domestic loan bonds (OVGZ) to cover its deficit back in the summer of 2009. Initially, it adopted a resolution on increasing the oil and gas company’s charter capital by UAH 18.6 billion to UAH 24.165 billion. Naftogaz subsequently began to sell bonds or do REPO deals with banks, allowing it to pay for Russian gas.

Since then, the company’s charter capital has been increased to UAH 49.84 billion. In March of this year, the government decided to bring the terms for the issue of OVGZ closer to market: the yield rate was increased from 9.5% to 9.95% per annum, and the circulation period was reduced from ten years to three.

In October 2012, the government said in an explanatory note to a bill concerning the need to shift Naftogaz’s OVGZ financing to direct budget financing that the company is encountering difficulties with the monetization of these securities. Banks are agreeing to buy OVGZ from Naftogaz only market REPO terms, producing additional costs to the company.