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Financial Stability Council Has over Past Year Focused on Overcoming Effects of COVID-19 Crisis, Restoring DGF Solvency, Reducing NPLs in State-Owned Banks, and Expanding Deposit Guarantee System

The National Bank of Ukraine (NBU) has released the sixth Report on the Activities of the Financial Stability Council covering the period from August 2020 through July 2021.

Traditionally, the Financial Stability Council (FSC) focused on assessing systemic risk, as well as financial sector concerns in the postcrisis recovery of the economy. The vaccination rollout and economic recovery decreased the estimated risks posed by the coronavirus crisis. Generally, systemic risks in the financial sector are now low and controlled. At the same time, the gradual rollback of emergency measures should not endanger economic stimulus. Continued cooperation with the IMF is the key to reducing threats to financial stability.

In the reporting period, the FSC considered at its meetings the essential financial stability issues, including restoring the solvency of the Deposit Guarantee Fund (DGF) and implementing the NPL reduction plans of the state-owned banks.

The FSC approved a list of decisions on restoring the solvency of the DGF, including:

  • approving the restructuring of DGF debts by converting such debts into contingent liabilities and determining respective repayment sources
  • determining the special terms of accession of Oschadbank JSC to the retail deposit guarantee system
  • approving a gradual increase in the covered deposit to UAH 600,000 from 1 January 2023
  • supporting the proposal of the DGF to introduce a legal mechanism for resolving disputes between ex-owners and the DGF over the recovery of failed banks’ assets.

At the meeting held in February 2021, the FSC commended the progress in implementing the NPL reduction plans of state-owned banks. It also recommended the banks to continue restructuring loan portfolios in 2021 and make more active use of all available tools for resolving NPLs in order to reduce NPL ratio below 20% by 2025.

In the reporting period, the FSC also considered the issues of creating a deposit guarantee system for members of credit unions and a system to guarantee payouts under life insurance agreements. The FSC supported the introduction of this system on the DGF’s platform, approved the road map for expanding the guarantee system, and set up a working group of NBU and DGF experts.

For reference:

The FSC was established by a presidential decree in March 2015. The FSC is an inter-agency body and a platform for professional discussions on financial stability.

The FSC comprises the NBU Governor, the Minister of Finance of Ukraine (co-chairing the FSC), the Head of the National Commission for Securities and Stock Market, the Managing Director of the Deposit Guarantee Fund, the First Deputy Governor of the NBU, and the Deputy Minister of Finance for European Integration.

The FSC identifies systemic risks and threats to financial stability and develops recommendations to minimize their impact on the financial system.