The Financial Stability Council Supported Measures to Ensure Macro-Financial Stability and Agreed to Conduct Bank Resilience Assessment

On February 3, 2023, the participants of the regular meeting of the Financial Stability Council discussed the ways to ensure macro-financial stability and resilience of the banking sector in the context of a prolonged full-scale war.

The Council noted that a number of risks have stabilized, although Russia's war and terror are worsening the economic outlook.

The international reserves have increased thanks to the international financial assistance. Together with the banks' significant foreign currency liquidity, this creates the basis for a possible easing of certain currency restrictions in the future.

The NBU has downgraded its economic growth forecast for 2023 to 0.3% due to the effects of the energy terror and a revision of the main forecast assumption of a longer duration of active hostilities. As security risks decline, Ukraine will return to economic growth in 2024-2025.

Despite the ongoing war, inflation will slow down in 2023 and remain manageable due to measures taken by the NBU and the Government, as well as support from international partners. The NBU will also continue to take measures to make hryvnia financial instruments more appealing so that Ukrainians can protect their savings. The Council supported the NBU's actions to return inflation to a sustainable downward trajectory and to improve the maturity structure of household deposits in the banking sector.

Customers have maintained their confidence in the banking system, liquidity inflows continue, and growth in term deposits has resumed. Despite the war, banks are maintaining and sometimes increasing their capital reserves, but threats to capital adequacy remain. At the same time, the loan portfolio is shrinking due to low demand. The government programs can continue to support lending. Therefore, the Council members agreed to help update the design of Government lending support programs in line with the proposals considered by the Financial Stability Council in December 2022.

In 2023, the NBU plans to assess the resilience of banks and the banking system. The Council agreed with the NBU's proposed concept of bank resilience assessment, which will help to determine the state of the sector after the most acute phase of the current economic crisis related to the war. The sustainability assessment, in particular its third stage - forecasting the banks' performance under the baseline scenario - will help assess the viability of financial institutions' business models and determine the real capital needs of the largest banks. Based on the results of the resilience assessment, the NBU will adjust the regulatory easing regime and decide on further implementation of requirements for banks in line with EU regulations. 

The Council also discussed progress in fulfilling Ukraine's commitments under the Memorandum of Economic and Financial Policies with the IMF.  

Additional Information 

The meeting was attended by members of the Financial Stability Council: Minister of Finance of Ukraine Sergii Marchenko, Governor of the National Bank of Ukraine Andriy Pyshnyy, Deputy Minister of Finance of Ukraine for European Integration Yuriy Draganchuk, Managing Director of the Deposit Guarantee Fund Svitlana Rekrut, First Deputy Governor of the National Bank of Ukraine Kateryna Rozhkova, Deputy Governor of the National Bank of Ukraine Dmytro Oliynyk, and other heads of FSC member institutions.

The Financial Stability Council was established in March 2015 by a Presidential Decree and is a forum for professional discussion of systemic risks that threaten the financial stability of the state.