The National Bank of Ukraine continues to implement announced measures to strengthen monetary transmission and activate the domestic debt market.
Which was announced last week, from February 11 are additionally increased by 5 cents. p. norms of mandatory reserve for funds on demand and funds on current accounts. So, from 5% to 10% for funds in national currency and from 15% to 20% for funds in foreign currency, the norms for the formation of mandatory reserves by banks will increase:
- for funds on demand and funds on current accounts of legal entities and individuals;
- from deposits and funds in current accounts of other non-resident banks and loans received from international (except financial) and other organizations.
On the other hand, for term funds in the accounts of legal entities and individuals, the standard of mandatory reserve will not change and will remain at the level of 0% in the national currency, and at the level of 10% in the foreign currency.
According to the estimates of the National Bank, the total volume of mandatory reserves that banks will have to form will increase by approximately UAH 73 billion.
The appropriate step will contribute to the reduction of the liquidity surplus in the banking system, which will encourage banks to compete more actively for depositors’ time funds. The National Bank expects that as a result, both rates on hryvnia assets and the share of time deposits in the banking system will increase.
In addition, since February 11, the list of domestic state loan bonds (OVDP) has been expanded, at the expense of which banks can cover up to 50% of the total amount of required reserves.
In addition to benchmark OVDP with the international identification number (ISIN) UA4000227045, banks will be able to include benchmark OVDP with ISIN UA4000227094 and UA4000227102 in the coverage of mandatory reserves. The added issues of securities were first placed by the Ministry of Finance at primary auctions on January 24, 2023.
According to the National Bank’s estimates, such a step will encourage banks to continue to increase their activity at auctions of the Ministry of Finance for the placement of government bonds, which will contribute to the activation of the domestic debt market and the avoidance of direct financing of the budget deficit by the National Bank in 2023.
The corresponding changes have been approved by the decision of the Board of the National Bank of Ukraine dated January 30, 2023 No. 40-rsh “On Amendments to the Decision of the Board of the National Bank of Ukraine dated November 23, 2017 No. 752-rsh”which enters into force on February 10, 2023.
For reference
National Bank in January 2023 increased by 5 c. p. standards of mandatory reservation by funds on demand and funds on current accounts, and also provided an opportunity for banks to cover up to 50% of the total volume of these reserves at the expense of the benchmark OVDP. From January 11, banks can include in the coverage of mandatory reserves OVDP with the international identification number UA4000227045.
Mandatory reserves is one of the traditional tools of central banks. Its content is as follows: the bank is obliged to reserve funds on its correspondent account in the amount, which is defined as a certain percentage of its obligations (reserve norm). This amount must be formed on average during the reservation period. This makes it possible to smooth out possible conjunctural (unpredictable) liquidity fluctuations, while at the same time ensuring the effective use of the instrument itself for its intended purpose – limiting part of the free liquidity of the banking system.
All information on the volume of mandatory reserves formed by banks is available at link.
