2017 Key Indicators

In 2017, the NBU proved its mandate as an independent central bank, by channeling all its energies to delivering price and financial stability. The central bank managed to achieve macroeconomic stability, which promoted economic growth in Ukraine, as evidenced by 2.5% growth in real GDP in 2017.

Headline inflation hit 13.7%, and was higher than the central bank’s target range of 8% +/- 2 pp. The NBU is convinced that in the coming years inflation will gradually decrease, reaching its mid-term target of 5% in 2020. The adoption of a tighter monetary stance in the autumn of 2017 had the precise aim of bringing inflation back to its target, using inflation targeting tools.

Last year, the NBU remained committed to a floating exchange rate. With benign external market conditions, the gradual recovery of macroeconomic stability and support from international financial institutions, the NBU was able to increase international reserves to their pre-crisis level (USD 18.8 billion), while at the same time preventing pressure on the hryvnia.

This also delivered the right conditions for the continued relaxing, and even removal, of FX restrictions.

In addition, in 2017, the central bank laid the foundations for Ukraine’s long-awaited transition to eased FX controls.

The NBU has drawn up a draft foreign exchange law, which will replace the outdated Decree of Foreign Exchange Regulation and Controls adopted in 1993. Through adopting this law, Ukraine will discharge the obligations of ensuring free flow of capital it assumed when it signed the EU-Ukraine Association Agreement.

By gradually lifting all existing restrictions, Ukraine will finally achieve the freedom of FX transactions. Businesses and households will be free to make their own decisions related to FX transactions, without having to obtain permission from the regulator. Restrictions will only be applied in turbulent times to prevent or address crises, and to deliver financial stability in the country. This is a required and long-awaited move towards Ukrainian bankers and businesses that want to operate on the international market and foreign investors that are interested in the Ukrainian market.

Reviving lending is one of the NBU’s top priority goals for 2017 and 201 that the regulator is gradually achieving. Indeed, since the start of 2017, hryvnia corporate loans have risen by 8.7%, with hryvnia household loans growing by 38.3%.However, the complete revival of lending requires putting in place laws to protect the rights of creditors, as well as measures to deal with toxic assets. The NBU is directly involved in drawing up and discussing the relevant draft laws in parliament.

In 2017, the banking system’s operating income grew by 10%, which was in line with the regulator’s expectations. However, the banking sector recorded losses of UAH 24.4 billion in 2017, due to banks – mainly the four largest banks, including PrivatBank – setting aside large provisions. A positive development last year was the reduction in the number of unprofitable banks to 18, down from 33.

All of the 82 banks that were operational in early 2018 had transparent ownership. Most of them completed their three-year capitalization programs ahead of time, and decreased the maximum permissible level of credit risk arising from related-party transactions, as required by the regulator. In 2017, the banks increased their own authorized capital to UAH 495.4 billion.

All of these actions are aimed at enhancing the resistance of the banking system to stresses and external shocks. The central bank has introduced risk-based supervision in order to prevent illegal banking schemes from returning to the market. This supervisory approach is seen as a foundation stone for putting in place effective AML/CFT mechanisms. Banks are now required to take action in the area of AML/CFT commensurate with existing risks, and to pay more careful attention to high-risk clients.

The NBU itself is changing for the better – it is becoming more transparent and accountable to the general public, improving its policy-implementation tools, and making its internal processes more efficient.

The NBU has a clear strategic vision and a well-defined program – it has drawn up and presented a central bank strategy for the first time since Ukraine became independent. The regulator has set seven targets that it will strive to achieve in the near future. Apart from delivering its statutory mandate of maintaining low and stable inflation, and ensuring the banking system is both stable and efficient, the NBU will be involved in efforts to revive lending and ensure there is a smooth transition to free capital movement. This will deliver the proper conditions for the sustainable development of the banking sector. The NBU has also set new and ambitious tasks in conducting the effective regulation of the entire financial sector, and promoting financial inclusion. I am convinced that by achieving these goals, Ukraine’s banking system will be successfully integrating into the European financial environment.

The NBU is aware that it is facing new challenges and tasks. Let us move forward in order to attain our common goals and achieve strategic objectives.