NBU continues to fight COVID-19 with anti-crisis measures

The National Bank of Ukraine this week introduced a series of anti-crisis measures designed to ease the economic impact of the COVID-19 pandemic.

On March 20, the bank announced it has forbidden banks to restrict the withdrawal of deposits. “If your deposit [term] has expired, you can do anything with it, extend it or withdraw it. There are no restrictions,” said bank governor Yakiv Smolii at a news conference. 

According to Smolii, Ukrainian banks have seen virtually no run on the banks, despite worries over the economic situation among the public and businesses. 

“The previous 10 days have shown the reliability of banks and the confidence of their depositors – deposits remain in the banking system, there is practically no outflow,” said the governor. 

The NBU also temporarily cancelled fees for electronic payments, in an effort to promote the use of cashless transactions for the duration of the COVID-19 pandemic. 

“Our priority in this quarantine is distance. We want cashless payments to be cheaper than cash, and are taking the necessary steps in this direction,” said deputy governor Serhii Holod.

These steps are in addition to the bank’s announcements from earlier in the week. On March 18, the NBU introduced programs to help banks give their clients preferable conditions in servicing loans that have been performing as of March 7, if this does not affect the bank’s capital.

The central bank also introduced long-term refinancing of banks for up to five years to maintain stability.

“Until now, the NBU has typically credited (refinanced) banks for up to two weeks,” said Olena Korobkova, head of the Independent Association of the Banks of Ukraine. “Such ‘short’ money helps to smooth out fluctuations in cash balances on the correspondent account and to continuously make payments to customers, but it cannot be used for lending. Long-term refinancing for up to five years, which was announced by the regulator, is a completely different matter.”

The NBU also introduced programs to support banks with funding they can channel to businesses and individuals most affected by quarantine, according to Smolii. 

Furthermore, this week the NBU also said banks can delay dividends until July, which is tantamount to a tax break for some state-owned banks. It also said it was ready to increase the norm of its foreign exchange reserves, and was ready to support banks with liquidity if needed. 

Alexander Pisaruk, the head of Raiffeisen Bank Aval praised the NBU’s measures, saying there is demand from business for increased lending and the restructuring of existing loans. His bank will work on voluntary loan restructuring. 

He added that Raiffeisen Bank Aval has seen a few applications for crisis loans and debt relief, compared to two weeks, when there were none. 

Currency fluctuations and liquidity shortages remain one of the regulator’s most pressing challenges. The central bank has been burning through its foreign reserves, selling over $1 billion in the past week, trying to buoy the hryvnia and smooth out the biggest fluctuations.

NBU deputy chairman Oleh Churiy said on March 20 that the NBU expects the hryvnia’s downfall to reverse due to declines in dollar and euro values, especially if Ukraine reaches its long-awaited $5.5 billion deal with the International Monetary Fund. 

“We believe that the exchange rate cannot move in one direction,” he said. Indeed, after a steady decline, the hryvnia has seen a bump, rising from Hr 28 per $1 to Hr 27.37 on March 20.

Serhiy Fursa, head of fixed income at Dragon Capital, said that this is possible, given that in the  short term, the hryvnia’s value is driven by domestic worries. But in the longer term, we may see economic fundamentals have more of an impact and the hryvnia is likely to lose “substantially” more value throughout the rest of the year.  

Fursa agreed that the IMF deal remains the key for Ukraine to resolve its current problems. The NBU announced that news about a possible deal, and extra emergency lending, will come within the next few weeks. 

However, many financial institutions have started to doubt the likelihood of a deal, following the cabinet reshuffle at the start of March, which many believe ejected popular reformers, to the benefit of oligarchs.