national bank of ukraine...seasonally adjusted) mainly due to an increase in the deposit portfolio...
TRANSCRIPT
NATIONAL BANK OF UKRAINE
Ukraine: Current economic developments
Vladyslav Rashkovan, deputy Governor, National Bank of Ukraine
Wien, 26 Mar 2015
NATIONAL
BANK OF
UKRAINE
4 MAJOR BLOCKS TO DISCUSS TODAY
2
POLITICAL AND WAR
ECONOMY
1
MACRO ECONOMY
2
FINANCIAL SECTOR
SITUATION
3
FINANCIAL SECTOR
REFORM STRATEGY
4
How to neutralize the effect of
politics on the financial sector?
How to minimize the effect of
the East military conflict for the
macro economy and financial
sector?
How to ensure macro economy
stabilization?
How to get away from Soviet
past and post-Soviet economic
and behavioral traps affecting
the financial sector?
How to achieve financial
stabilization ?
What are the growth pivotal
points for the financial sector?
NATIONAL
BANK OF
UKRAINE
THREE MAIN LOCAL PARTIES OF THE REVOLUTION OF DIGNITY
HAD DIFFERENT KEY TARGETS
3
Opposition Opposition
Civil society Civil
society Ex-Power Ex-Power
1. Retain the power
2. Keep the old System working
1. Become the Power
2. Keep the System working
2. Change the System
NATIONAL
BANK OF
UKRAINE
2014 WAS A VERY-VERY HEAVY YEAR IN RESPECT OF THE
POLITICAL EVENTS
4
Jun
• Revolution
of Dignity
• PM
appointment
• NBU
Governor
appointment
• IMF program
approval
• Constitutional
Change
• Government
appointment
• Coalition
break out
• PM resigns,
resignation
not
accepted
• President
calls
the early
Parliamentary
elections
• 1st IMF
program
review
• Early
Parliamentary
elections
• New Coalition
agreement
signed
• Speaker of
the
Parliament
elected
• New
Parliament
started
working
• President
elections
• New
technocratic
Government
formed
• 2015 budget
approved
Not in many countries have been effective in economic reforms in parallel with so many political events
Feb Mar Apr May Jul
Aug Sep Oct Nov Dec
NATIONAL
BANK OF
UKRAINE
• Sverdlovsk,
Krasnodon..
battles
• Druzhkovka,
Artyomovsk
battles
THE MILITARY CONFLICT DIDN’T HELP THE REFORMS AS WELL
5
Jun
• “Green men”
taken over
Simferopol
(Crimea)
• “Referendum”
called by
taken over
Crimean
Parliament
• DNR starts
unrest and
terror attacks
in Donetsk
region
• Start of ATO
operations
• “Referendum”
in Crimea;
• Russia
annexed
Crimea
• Debaltsovo
battles
• Slavyansk
battles
• Malaysian
airlines
Boeing hit by
missile the
• Illovaysk
battles
• Novoazovsk
battles
• Schastie
• Minsk I
agreement
• Very short
ceasefire
• Provoked
fights and
unrest in
Odesa
• LNR
“Referendum”
in Lugansk
• DNR
“Referendum”
in Donetsk
• Mariupol
Not in many countries we have been effective in economic reforms in parallel with the war on its territory
Feb Mar Apr May Jul
Aug Sep Oct Nov Dec
• New war
escalation
• Donetsk
airport
• Debaltsevo
battles
• Mariupol
• Minsk II (Feb)
Jan
NATIONAL
BANK OF
UKRAINE
MAP OF THE MILITARY CONFLICT
6
NATIONAL
BANK OF
UKRAINE
MILITARY CONFLICT IN DONBASS IS THE MAIN FACTOR FOR
THE CAPACITIES DESTRUCTION AND THE OVERALL
CONFIDENCE CRISIS
7
Depending on the intensity of the fighting every day war costs from 2 to 7 mln. USD;
~ 1 mln of the internally displaced people
~ 600 ths people left the country (UN Office for the Coordination of Humanitarian Affairs figures)
NATIONAL
BANK OF
UKRAINE
UKRAINIAN ECONOMIC PERFECT STORM CONTINUES
8
Macro crisis Macro crisis
Currency crisis
Currency crisis
Banking crisis
Banking crisis
This is not the unique situation in Ukraine:
Mexico (1994/95), Argentina (1994/95);
Thailand (1997), Indonesia(1997), Malaysia(1997), Philippines(1997);
Russia (1998); Brazil (1999/1999); Turkey (2001);
Bank run
Interest rates spike
Credit crunch
Mounting NPLs
Capital shortage
Disastrous corporate
governance
Hiking inflation
Severe growth
recession
Sharp drop in exports
Widening budget deficit
Wide BoP deficit
Severe confidence crisis
FX and capital controls
1
2
3
NATIONAL
BANK OF
UKRAINE
INFLATION: Inflation upward trend has remained for almost one year following close to zero figures
9
Both core and non-core components were largely determined by hryvnia depreciation to US dollar
(by 241% from the end of 2013).
Administered prices and tariffs growth was driven largely by the start of utilities tariffs adjustment
to the level of coverage their cost and excisable goods prices increase.
34.5 33.2
-5
0
5
10
15
20
25
30
35
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Inflation indicators (annual change, %)
CPI core CPI
Source: State Statistics Service of Ukraine.
36.0
32.9 35.5
-10
-5
0
5
10
15
20
25
30
35
40
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
non-core CPI
raw food
administratively regulated prices
Non-core inflation, its food and administrative
components (annual change, %)
Source: State Statistics Service of Ukraine and NBU calculations.
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Real GDP decreased by 6.8% in 2014
Main factors of economic development in 2014:
• military conflict in Eastern Ukraine
• fall in global prices on commodities
• worsening of trade relationships with Russia
• low internal consumer and investment demand
10
-14.8
-25
-20
-15
-10
-5
0
5
10
15
-5
-4
-3
-2
-1
0
1
2
3
I.1
1
II.1
1
III.
11
IV.1
1
I.1
2
II.1
2
III.
12
IV.1
2
I.1
3
II.1
3
III.
13
IV.1
3
I.1
4
II.1
4
III.
14
IV.1
4
Source: State Statistics Service of Ukraine.
Real GDP dynamics (%)
q-o-q change, SA data y-o-y change (right scale)
-1.3 -1.2 -1.1
3.4
-1.2
-4.5 -5.4
-14.8
-30
-25
-20
-15
-10
-5
0
5
10
15
20
I.13 II.13 III.13 IV.13 I.14 II.14 III.14 IV.14
Contributions to GDP y-o-y change, p.p.
import export
change in inventories investment
consumption GDP
Source: State Statistics Service of Ukraine, NBU calculation.
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Key Sectors Production Index of Ukraine continued to decline in February, 2015
The worst situation was observed in industry, wholesale trade and construction, primarily due to
the destruction of transport infrastructure and production capacity in Donetsk and Luhansk
regions.
Agriculture output contribution to Key Sectors Production Index is very low in the beginning of the
year.
11
-19.3
5.6 7.8
-2.1 -0.5
-9.6
-20
-15
-10
-5
0
5
10
2009 2010 2011 2012 2013 2014
Key Sectors Production Index and its components (y-o-y change in %)
industry wholesale trade
retail trade construction
agriculture IKBP
GDP
Source: State Statistics Service of Ukraine, NBU calculations.
-1.2 -1.4 -2.8 -5.2
-7.0
-9.9 -10.1
-12.0
-0.6
-18.5 -20.2
-20.8 -20.1 -19.4
-28
-24
-20
-16
-12
-8
-4
0
4
8
12
16
01
.20
14
02
.20
14
03
.20
14
04
.20
14
05
.20
14
06
.20
14
07
.20
14
08
.20
14
09
.20
14
10
.20
14
11
.20
14
12
.20
14
01
.20
15
02
.20
15
Key Sectors Production Index and its components (y-o-y change in %)
agricultureindustryconstructionretail tradewholesale tradeIKBPGDP
Source: NBU calculations.
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Military conflict shove off 2.5 p.p. from 2014 GDP
Industrial output by regions in 2014, (y-o-y changes, %)
Military conflict shove off 1.9 p.p due to fall in Donetsk and Luhansk regions and 0.6 p.p due to
contagion effects.
Loss of Crimea had no direct effects on 2014 real GDP growth rates due to shift to the SNA
2008 methodology with reconstructing of historical GDP series excluding Crimea.
Contributions to 2013 GDP: Crimea – 3.7%, Donetsk region – 11.7%, Luhansk region – 4%. 12
мінімум -42.0
1 квартиль -6.1 1 чверть
2 квартиль (медіана) -2.9 2 чверть
3 квартиль 1.7 3 чверть
максимум 16.4 4 чверть
Україна, всього 0.0
Industry by regions2014, %
0
5.3
3
-7.7-31.5
7
5.8
-3.7
-1.3
1.2
0.3
-42
-3.1
1.2
-0.5
-7.2
3.6
-12.1
16.4-5.2
-3.7
-2.7 -5.7
-7.4
-3
Kyiv
Chernihiv
Sumy
Kharkiv
Luhansk
Donetsk
Zaporizhzhya
Dnipropetrovsk
Poltava
Cherkasy
Kirovohrad
Mykolayiv
Kherson
Crimea
Odesa
Vinnytsya
Zhytomyr
Khmelnytskiy
RivneVolyn
Lviv
Ternopyl
Ivano-Frakiv
sk
Chernivtsi
Zakarpattya
Kyiv -14.3
Source: State Statistics Service of Ukraine
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Industrial output continued to fall essentially in
Donetsk and Luhansk regions
Industrial output by regions in February 2015, (y-o-y changes, %)
Escalation of military conflict caused destruction of infrastructure and stop of production
capacity in Donetsk and in Luhansk regions.
Strong decline in South regions was caused by decrease in consumer demand and destruction
of industrial links with Russia.
But strong growth was observed in Western region (Chernivtsi, Ternopyl, Volyn, Vinnytsya). 13
мінімум -89.0
1 квартиль -14.8 1 чверть
2 квартиль (медіана) -8.0 2 чверть
3 квартиль 6.3 3 чверть
максимум 28.0 4 чверть
Україна, всього 0.0
Industry by regions in February, 2015 (%)
0
14.2
9.8
-11.1-59.4
-8.2
-7.7
-0.5
-0.9
11.7
-22.5
-89
-3.9
-19
-14.6
-10.2
5.4
-2.6
12.8-22.3
-10.1
8.8 -10.3
28
-15.2
Kyiv
Chernihiv
Sumy
Kharkiv
Luhansk
Donetsk
Zaporizhzhya
Dnipropetrovsk
Poltava
Cherkasy
Kirovohrad
Mykolayiv
Kherson
Crimea
Odesa
Vinnytsya
Zhytomyr
Khmelnytskiy
RivneVolyn
Lviv
Ternopyl
Ivano-
Frakivsk
Chernivtsi
Zakarpattya
Kyiv -10.4
Source: State Statistics Service of Ukraine
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Huge deterioration of enterprises financial results
39
91
52 23
-168 -200
-100
0
100
200
300
400
500
2010 2011 2012 2013 2014
Source: State Statistics Service of Ukraine.
Financial results for 9 m (UAH bn)
profits
losses
balance
3.7 times more
1.7 times more 16.1
-9.6 -23.2 -23.0
-10.3 -3.6
-44.6
67.4
-60
-40
-20
0
20
40
60
80
100
120
min
ing
food ind
ustr
y
chem
ical in
dustr
y
me
tallu
rgy
ma
ch
inery
constr
uction
trad
e
finan
cia
l activity
Source: State Statistics Service of Ukraine.
Financial results by types of economic activity for 9 m 2014 (UAH bn)
profits losses balance
Military conflict in Eastern Ukraine, devaluation of the national currency, unfavorable external
conditions and resulting economic downturn have led to the huge deterioration of enterprises
financial results.
14
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Labor market indicators as well as household income severely deteriorated
Seasonally adjusted unemployment rate (according to ILO methodology) has reached the
highest level since the beginning of 2000s. Official unemployment rate also increased to
2.0% in February 2015.
Real wages have continued to decline since April 2014 (-17.3% y-o-y in January).
These trends pose a significant danger of further social pressure increase. Additionally
fiscal burden for subsidizing poverty will rise, especially taking into account Government
intentions to accelerate administrative tariffs increase.
15
9.5 9.5
10.4
6
7
8
9
10
11
I.2
009
II.2
00
9
IІI.2009
IV.2
009
I.2
010
II.2
01
0
IІI.2010
IV.2
010
I.2
011
II.2
01
1
IІI.2011
IV.2
011
I.2
012
II.2
01
2
IIІ.2012
IV.2
012
I.2
013
II.2
01
3
IIІ.2013
IV.2
013
I.2
014
II.2
01
4
III.
201
4
unemployment
sa data
S
Unemployment of population * (ILO methodology)
aged 15-70, of the economically active population
Source: State Statistics
Service of Ukraine, NBU
calculations
* - temporarily occupied AR Crimea and
Sevastopol excluded since 2nd q 2014
9.1
-17.3 -18
-13
-8
-3
2
7
12
17
01
.20
13
02
.20
13
03
.20
13
04
.20
13
05
.20
13
06
.20
13
07
.20
13
08
.20
13
09
.20
13
10
.20
13
11
.20
13
12
.20
13
01
.20
14
02
.20
14
03
.20
14
04
.20
14
05
.20
14
06
.20
14
07
.20
14
08
.20
14
09
.20
14
10
.20
14
11
.20
14
12
.20
14
01
.20
15
nominal changes
real changes
Source: State Statistic
Service of Ukraine
Wages (y-o-y changes, %)
* - temporarily occupied AR Crimea and
Sevastopol excluded since 04.2014
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Real disposable household income continued to
decline sharply
16
Deceleration of nominal household income growth (down to 4.3% y-o-y) as well as inflation
surge (up to 14.7% y-o-y) both contributed to continued decline of real disposable
household income (-9% y-o-y in 3rd quarter of 2014).
At the same time propensity to save increased (11.4% in 3rd quarter of 2014, 9.6%
seasonally adjusted) mainly due to an increase in the deposit portfolio in foreign currency
due to exchange rate correction (deposits grew by 74.3% after revaluation).
7.3 4.3
-1.9
-9.0
14.7
-10
-5
0
5
10
15
20
25
30
IV.1
0
I.2
011
II.2
01
1
III.
201
1
IV.2
011
I.2
012
II.2
01
2
IIІ.2012
IV.2
012
I.2
013
IІ.2
013
IIІ.13
IV.2
013
I.2
014
IІ.2
014
IІІ.2014
Nominal and real disposable household income* (y-o-y, %)
nominal household income
real disposable household income
CPI
Джерело: Держкомстат, власні розрахунки Джерело: Держкомстат, власні розрахунки
Source: State Statistics
Service of Ukraine. Джерело: Держкомстат, власні розрахунки Джерело: Держкомстат, власні розрахунки
* - temporarily occupied AR Crimea and
Sevastopol excluded since 2nd q 2014
13.0 11.8
11.0 8.5
9.6
0
4
8
12
16
20
IV.2
010
I.2
011
II.2
01
1
IІІ.2011
IV.2
011
I.2
012
II.2
01
2
IIІ.2012
IV.2
012
I.2
013
ІI.2
013
ІІI.2013
ІV.2
013
І.2014
ІІ.2
014
ІІІ.2014
propensity to save
sa data
Source: State Statistics Service of Ukraine, own calculations.
* Savings to disposable household income ratio.
Propensity to save* (%)
NATIONAL
BANK OF
UKRAINE
FISCAL: Government broad deficit increased significantly in 2014
In 2014 consolidated budget deficit grew to 4.6% of GDP mainly due to debt service expenditures
growth (impact of UAH devaluation) and increase of defense expenditures (by 84.5%) caused by
military conflict. Primary deficit fell by 0.7 p.p. to 1.2% of GDP compared to 2013.
Quasi-fiscal deficit ran up to 8.8% of GDP (UAH 137.4 bn): Naftogaz – UAH 83.1 bn, banks and
Deposit Guarantee Fund – UAH 26.7 bn and other – UAH 27.6 bn.
17
442.7
354.0
84.9
3.8
505.8
14.8
35.9
0.5
-63.6
-27.7
455.9
367.5
80.5
7.9
523.0
27.4
52.5
5.0
-72.0
-19.6
-100 0 100 200 300 400 500
Revenue
tax revenue
nontax revenue
other
Expenditure, incl.
defence
service debt
Net lending
Deficit
Primary balance
20132014
Source: Treasury, MFU.
Main indicators of consolidated budget
(UAH bn)
55.0 57.3 70.3
32.2 27.5
83.1 6.7
54.3
11.3
8.4
4.8
6.3
6.2
13.3
0
4
8
12
16
0
40
80
120
160
200
240
280
320
2009 2010 2011 2012 2013 2014
Government broad deficit (UAH bn)
bank recapitalization & other (incl. VAT)
Naftogaz financing
general government deficit
total financing, % GDP (rhs)
Source: MFU, IMF, NBU calculations.
NATIONAL
BANK OF
UKRAINE
FISCAL: Budget deficit was mostly covered by local QE in 2014 and
at the start of 2015
18
In 2014 the public debt increased rapidly due to sizeable government broad deficit and UAH
devaluation.
The state debt rose to UAH 947 bn from UAH 480.2 bn in 2013 (to 60.4% of GDP from 32.8%
of GDP).
The public debt share in foreign currency (incl. foreign-currency-denominated domestic
sovereign bonds) remained high – more then 62% in 2010-2014.
Public debt continued to grow in January 2015.
NBU state bonds portfolio grew more than twice in 2014 and early 2015 (from UAH 147.1 bn to
UAH 338.6 bn).
0
100
200
300
400
500
600
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
NBU banks the other non-residents
Source: NBU.
Government domestic bonds holders (UAH bn)
585.9
1100.8 1113.5
39.9
70.3 70.6
0
10
20
30
40
50
60
70
80
0
150
300
450
600
750
900
1050
1200
01.1
3
03.1
3
05.1
3
07.1
3
09.1
3
11.1
3
01.1
4
03.1
4
05.1
4
07.1
4
09.1
4
11.1
4
01.1
5
domestic debt foreing debtpublic debt debt/GDP* (right scale)
Source: MFU, *NBU estimations.
Public debt
UAH bn %
NATIONAL
BANK OF
UKRAINE
19
MONETARY: Support to the Government by NBU has been
significant in 2014
2014
22.8 + 181.9 = UAH 204.7 bn
39% of cash expenditure of the
Consolidated Budget of Ukraine
2015
60.0 + 52.9 = UAH 112.9 bn
18% of cash expenditure of the
Consolidated Budget of Ukraine
2.4 7.9
12.6
23.6
4.0
10.1 19.7
28.3
15.8 22.0
22.8
22.8 15.0
30.0
45.0
60.0
0
10
20
30
40
50
60
70
IQ IIQ IIIQ IVQ
2012
2013
2014
2015
Transfer of NBU's profit (y-t-d, UAH bn)
Source: NBU
5.6
11.3
16.5
38.6 16.4
25.9 37.2
45.6 27.3
45.9
126.6
181.9
26.7 29.0
43.9
52.9
0
20
40
60
80
100
120
140
160
180
200
IQ IIQ IIIQ IVQ
2012
2013
2014
2015
NBU purchase of securities at face value (y-t-d,
UAH bn)
Source: NBU
NATIONAL
BANK OF
UKRAINE
20
MONETARY: The escalation of the conflict in Eastern
Ukraine intensified hryvnia depreciation pressures
20
-3,200
-2,800
-2,400
-2,000
-1,600
-1,200
-800
-400
0
400
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Interventions of NBU (USD m)
Source: NBU.
Intervention
excluding Naftogaz Naftogaz 23.39
24.78
0.38
0.22
0.25
0.28
0.31
0.34
0.37
0.4
0.43
0.46
0.49
0.52
0
3
6
9
12
15
18
21
24
27
30
33
36
19
/12
/12
19
/03
/13
19
/06
/13
19
/09
/13
19
/12
/13
19
/03
/14
19
/06
/14
19
/09
/14
19
/12
/14
19
/03
/15
UAH/USD
UAH/EUR
UAH/RUB (right scale)
Exchange rate of Hryvnia (as of 19/03/2015)
Source: NBU
NATIONAL
BANK OF
UKRAINE
MONETARY: FX Risk/expectations
21
The weighted average yield of the Ukrainian sovereign bonds has risen by 2.5 bps since
the beginning of March (rose by 9.6 bps in February*) and by 29.6 bps for the last 12
months to 41.9 bps. The spread between the weighted average yield of Ukrainian sovereign
bonds and that of emerging economies was 37.4 bps as of 19.03.15 compared to 35.0 bps
as of 27.02.15.
According to NDF contracts as of 19.03.15, the Hryvnia is expected to depreciate by 3.3%
in 1 month, by 7.1% in 3 months, 12.9% in 6 months and 17.2% in 1 year.
*data as at the end of month
23.38 24.14 25.04
26.39 27.39
8
11
14
17
20
23
26
29
32
35
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
03
/15
NDF market USD/UAH rates (UAH per USD, as of 19.03.2015)
spot 1M
3M 6M
1Y
Source: Thomson Reuters Datastream.
0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
45
50
12
/12
03
/13
06
/13
09
/13
12
/13
03
/14
06
/14
09
/14
12
/14
03
/15
Weighted averages of sovereign bond yields of Ukraine, emerging economies and their spread (bps, as of 19.03.2015)
Spread (rhs)
Ukraine
Emerging economies
Source: Cbonds.
NATIONAL
BANK OF
UKRAINE
22 22
MONETARY: Interest rates: new operational framework of the NBU
Policy rate (discount rate) = 30.0%,
Average weighted interest rate set based on
the results of the last liquidity-providing tender
= 31.7%,
Overnight loans – 33.0%.
Overnight CD`s – 20.0%,
Quantitative tender for the allocation of NBU
CD`s:
- up to 7 days – 26.0%,
- up to 14 days – 26.0%,
- up to 30 days – 27.0%.
NBU policy rates, effective from March 04, 2015:
0
5
10
15
20
25
30
35
19
/12
/12
19
/01
/13
19
/02
/13
19
/03
/13
19
/04
/13
19
/05
/13
19
/06
/13
19
/07
/13
19
/08
/13
19
/09
/13
19
/10
/13
19
/11
/13
19
/12
/13
19
/01
/14
19
/02
/14
19
/03
/14
19
/04
/14
19
/05
/14
19
/06
/14
19
/07
/14
19
/08
/14
19
/09
/14
19
/10
/14
19
/11
/14
19
/12
/14
19
/01
/15
19
/02
/15
19
/03
/15
Overnight interbank IR
Discount rate
Credit overnight
Deposit overnight
Credit up to 3m17.5%
14.0%
20.0%
14.0%
Source: CredInfo, NBU
23.0%
11.0%
33.0%
30.0%
Overnight interbank IR and NBU policy rates (as of 19/03/2015)
19.5%
NATIONAL
BANK OF
UKRAINE
23 23
MONETARY: Interbank FX market shrank
FX inflows and transfers decreased. As a result volumes on interbank FX market dropped
The official exchange rate of hryvnia is calculated as a weighted average of the exchange rates
of the interbank market deals
-100
100
300
500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
The daily average amount of transactions in the interbank FX market of Ukraine excluding NBU (USD m)
Sale
Net purchase
Purchase
Source: NBU
-100
0
100
200
300
400
500
600
700
800
900
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Daily average non-residents' transactions (USD m)
FX inflows into
the country from
non-residents
Transfers of FX to non-
residents
Net inflows
Source: NBU
NATIONAL
BANK OF
UKRAINE
24
MONETARY: Banking system liquidity is ample enough
In February 2015 the NBU contributed to the banking system liquidity reallocation under tight market
conditions and in the face of deteriorating confidence.
Starting from III.2014 the outstanding amount of active operations remained almost unchanged. As of
March 01, 2015:
The outstanding amount of active operations – UAH 113.6 bn (+ UAH 3.7 bn in February), including: • overnight – UAH 1.5 bn (+ UAH 0.3 bn),
• tenders – UAH 5.7 bn (- UAH 0.5 bn),
• direct repo operations – UAH 3.1 bn,
• loans for financial rehabilitation – UAH 103.4 bn (+ UAH 3.9 bn).
The outstanding amount of of sterilization operations – UAH 18.1 bn (- UAH 1.0 bn).
62.4 65.6 74.8
95.5
73.0
89.4
-30
0
30
60
90
120
ІV.1
0
І.11
ІІ.1
1
ІІІ.11
ІV.1
1
І.12
ІІ.1
2
ІІІ.12
ІV.1
2
І.13
ІІ.1
3
ІІІ.13
ІV.1
3
І.14
ІІ.1
4
ІІІ.14
ІV.1
4
01
.03
.15
CD'sLoans for financial rehabilitationRefinancingProviding of liquidity
Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU Source: NBU
Regulation of banks' liquidity (UAH bn)
0
10
20
30
40
50
60
70
19
/12
/12
19
/03
/13
19
/06
/13
19
/09
/13
19
/12
/13
19
/03
/14
19
/06
/14
19
/09
/14
19
/12
/14
19
/03
/15
Banking system`s liquidity (UAH bn)
31.4
21.7
13.7
Government
CD`s
Correspondent accounts
RR
48.0
as of 19/03/2015
Source: NBU
NATIONAL
BANK OF
UKRAINE
BOP: In January current account deficit shrank in nominal term,
but deteriorated in % to GDP
In January 2015 current account deficit amounted to 4.2% of GDP on the rolling 12-month basis,
which is marginally acceptable level for Ukraine in “normal conditions”;
In nominal term deficit shrunk to $0.3 bn. driven by lower external trade deficit, as a positive
impact of REER devaluation mostly manifested itself through a contraction of non-energy imports.
25
-0.4 -0.8
-0.3
-4
-3
-2
-1
0
1
01
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
US
D b
illio
n
The current account ($ bn.)
merchandise trade (net) services (net)
income (net) current transfers (net)
current account balance
Source: NBU
-8.7
-4.1
-4.2
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0
01
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
The rolling 12 month current account deficit
USD. bn. % of GDP (RHS)Source: NBU
NATIONAL
BANK OF
UKRAINE
BOP: Exports sharp drop in Jan.2015 was driven by decline in both volumes and prices
Sharp decline of exports in January 2015 (31.6% y-o-y) was driven by the high basis of
comparison in 1H2014, due to non-economic factors (military conflict in Donbass, trade tensions
with Russia) and declining global commodity prices (steel, ore, grain);
Share of agricultural products increasing (29%→35%), while share of mineral export decreasing
(13%→8%) driven by discontinuing production of petroleum and coal shortage in the country;
Exports remains quite well diversified geographically, the share of exports to Russia has
decreased (9% in January 2015 vs. 17% in January 2014), while share of exports to Asia has
increased (35% in Jan.2015 vs. 27% in Jan.2014). Share of exports to Europe has not changed –
35%. 26
-31%
-25%
-16%
-45%
-57%
-32%
-0.5 -0.4 -0.3 -0.2 -0.1 0.0
industrial goods
chemicals
agricultural products
machinery and equipment
minerals
metallurgical products
Merchandise exports change in Jan.2015 (y-o-y, $ bn.)
Source: NBU
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.501
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
US
D b
illio
n
Seasonally adjusted Exports ($ bn.)
unadjusted
seasonally adjusted
Source: NBU
NATIONAL
BANK OF
UKRAINE
BOP: Imports dropped due to depreciation and low internal demand
Imports declined significantly in Jan.2015 (33.6% y-o-y) resulting from:
UAH devaluation in both real and nominal terms;
sluggish economic activity and low internal demand, especially consumption:
• import of agricultural products and cars dropped twofold;
shrinking of energy consumption:
• import of oil products fell by 3 times.
share of imports from Russia has decreased (18% in Jan.2015 vs. 28% in Jan.2014), while
share of exports from Europe has increased (34% in Jan.2015 vs. 28% in Jan.2014).
27
-39%
-24%
-46%
-40%
-21%
-54%
-0.4 -0.3 -0.2 -0.1 0.0
industrial goods
metallurgical products
chemicals
agricultural products
minerals
machinery and equipment
Merchandise imports change in January 2015 (y-o-y, $ bn)
Source: NBU
2
3
4
5
6
7
8
9
01
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
Seasonally adjusted imports ($ bn)
imports
seasonally adjusted imports
non-energy imports
seasonally adjusted non-energy importsSource: NBU
NATIONAL
BANK OF
UKRAINE
BOP: Financial account deficit shrunk by 3 times compared with December 2014 and January 2014
The net outflow of private debt capital in a wake of military conflict escalation was the main driver
of financial account deficit:
• rollover of private sector – 63%, incl. banks – 74%, corporates – 28%;
Net outflows on loans and bonds of the private sector (-$645 m) was only partially offset by
foreign direct investment ($108 m), and a reduction of currency outside banks ($57 m).
28
-1.5 -1.5
-0.5
-3
-2
-1
0
1
2
3
4
501
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
US
D b
illio
n
The financial and capital account ($ bn)
FDI (net)
bonds and loans (net)
other capital (net) capital and financial
account balance
Source: NBU
8.3
16.1
16.5
0
4
8
12
16
20
-0.5
0
0.5
1
1.5
2
01
/13
04
/13
07
/13
10
/13
01
/14
04
/14
07
/14
10
/14
01
/15
Foreign cash holdings outside banks ($ bn)
accumulation of foreign cash holdings outside banks
exchange rate on the cash market, UAH/USD (RHS)
Source: NBU
NATIONAL
BANK OF
UKRAINE
BOP: In January Balance of Payments was with a double deficit for
the fourth consecutive month
29
Overall balance of payments deficit ($0.9 bn) shrunk twice y-o-y in January 2015;
International reserves continued to decline – $5.6 bn as of 01.03.2015 covering 1.1 months of
future imports;
Scheduled repayment of IMF loan worth $0.2 bn was done in January 2015.
-1.9 -2.3
-0.9
-4
-3
-2
-1
0
1
2
3
401
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
US
D b
illio
n
The overall balance of payments ($ bn)
current account balance
financial account balance
overall balance
Source: NBU
3.3
1.4
1.1
0
0.5
1
1.5
2
2.5
3
3.5
0
5
10
15
20
25
30
35
01
.13
04
.13
07
.13
10
.13
01
.14
04
.14
07
.14
10
.14
01
.15
International Reserves ($ bn)
IMF loan, USD bn. (LHS)
NIR, USD bn. (LHS)
in months of future imports (RHS)Source: NBU
NATIONAL
BANK OF
UKRAINE
BANKING: Banking sector has shrunk
30 30
The share of short-term deposits is higher than long-term deposits due to the depositors
preferred short-term deposits to long-term ones.
-14.6
-19.9 -25
-20
-15
-10
-5
0
5
10
15
20
25
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Loans
Deposits
Banks loans and deposits (y-o-y change, %)
Source: NBU
The calculated data, ex.rate 7.993 UAH/USD
25.4
46.4
0
6
12
18
24
30
36
42
48
54
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Long-term deposits
Long-term loans
Shares of long-term deposits and loans in total
deposits and loans (%)
Source: NBU
The calculated data, ex. rate 7.993 UAH/USD
NATIONAL
BANK OF
UKRAINE
31
BANKING: Volumes and price of money were uncorrelated
31
Market interest rates fluctuations under stressed money market did not reflect the objective picture of changes in the value
of resources, as loans remain inaccessible for the majority of market participants.
Deposits outflow was mainly caused by the lack of trust to banks and interest rates didn’t play motivation role.
Deposits of individuals
2014
UAH ↓ 57.5 UAH bn (22.7%),
FX ↓ 9.3 USD bn (40.3%).
February 2015 (y-t-d)
UAH ↓ 11.7 UAH bn (6.0%),
FX ↓ 1.2 USD bn (8.7%).
Loans to legal entities`
2014
UAH ↓ 39.0 UAH bn (8.2%),
FX ↓ 6.5 USD bn (21.6%).
February 2015 (y-t-d)
UAH ↓ 9.0 UAH bn (2.1%),
FX ↓ 1.0 USD bn (4.4%).
184.2
12.5
16.2
0
3
6
9
12
15
18
21
24
27
30
0
30
60
90
120
150
180
210
240
270
30012
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
UAH
USD (right scale)
Interest rates for hryvnia, % (right scale)
Deposits of individuals (bn)
Source: NBU
trend line
427.1
22.6
18.1
0
4
8
12
16
20
24
28
32
0
60
120
180
240
300
360
420
480
540
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
UAH
USD (right scale)
Interest rates for hryvnia, % (right scale)
Loans of legal entities` (bn)
Source: NBU
trend line
NATIONAL
BANK OF
UKRAINE
BANKING: Different groups of banks face different problems
during the crisis
Local SIFIs
State banks
Foreign banks
Russian banks
Local banks
Insolvent banks
#
2
6
44
4
86
16
MkS
assets, %
18
22
40
11
6
3
Related
party
lending
Capital
needs
Liquidity
(deposits
outflow)
NPLs NBU
refinancing
Foreign banks are in relatively good position (only Russians ones experience strong deposit outflows)
Local private banks (both large and small) are the most problematic
Corporate
gover-
nance
NATIONAL
BANK OF
UKRAINE
OUTLOOK: Consumer inflation will return to a single-digit level only in 2016
According to our assumptions rise of administratively regulated prices will have about 12 p.p.
effect on CPI in 2015 and 6 p.p. in 2016.
Inflation will start to slow down in the second half of 2015 as effects of exchange rate correction
will be decreased.
33
24.9 24.0
9.7
-5
0
5
10
15
20
25
30
35
40
I.1
3
II.1
3
III.
13
IV.1
3
I.1
4
II.1
4
III.
14
IV.1
4
I.1
5
II.1
5
III.
15
IV.1
5
I.1
6
II.1
6
III.
16
IV.1
6
CPI annual contribution, p.p.
FuelY AdmY
FoodY CoreY
CPIY
-5
0
5
10
15
20
25
30
35
40
45
I.06
III.
06
I.07
III.
07
I.08
III.
08
I.09
III.
09
I.10
III.
10
I.11
III.
11
I.12
III.
12
I.13
III.
13
I.14
III.
14
I.15
III.
15
I.16
III.
16
Price indicators, y-o-y
CPIY
DEFy
WPIY
NATIONAL
BANK OF
UKRAINE
OUTLOOK: The recovery of economic activity will start from 2015Q2
GDP will be lower by 4.9% in 2015 compare to 2014. but the downsize risks are high
Similarly, negative output GAP will be closing gradually until the beginning of 2016 (we assume
some decrease in potential GDP level for 2014 due to military conflict).
34
90
95
100
105
110
115
I.10
II.10
III.
10IV
.10
I.11
II.11
III.
11IV
.11
I.12
II.12
III.
12IV
.12
I.13
II.13
III.
13IV
.13
I.14
II.14
III.
14IV
.14
I.15
II.15
III.
15IV
.15
I.16
II.16
III.
16IV
.16
Real GDP, І.2010=100, SA data
-4.9%+3.1%
-20
-15
-10
-5
0
5
10
IV.1
2
I.13
II.13
III.
13
IV.1
3
I.14
II.14
III.
14
IV.1
4
I.15
II.15
III.
15
IV.1
5
I.16
II.16
III.
16
IV.1
6
Real GDP, change, %
q-o-q, SA
y-o-y
y-o-y, flash estimate
q-o-q, SA, flash estimate
NATIONAL
BANK OF
UKRAINE
OUTLOOK: Net export will contribute mostly into GDP recovery in 2015. Growth of investment and consumer demand will resume in 2016.
We expect very slow (quarter-to-quarter) growth of consumption and investment.
35
50
60
70
80
90
100
110
IV.1
2
I.13
II.13
III.1
3
IV.1
3
I.14
II.14
III.1
4
IV.1
4
I.15
II.15
III.1
5
IV.1
5
I.16
II.16
III.1
6
IV.1
6
Consumption and investment, IV.2012=100
CONS INV
-6.7
-4.9
3.1
-15
-10
-5
0
5
10
2013 2014 2015 2016
Contributions to GDP change, p.p.
stocks net export investmentconsumption GDP
NATIONAL
BANK OF
UKRAINE
OUTLOOK: Despite fast shrinking of fiscal deficit it remains high. Budget policy will be tight due to high debt repayments
Consolidated budget deficit in 2015 is expected to be at 4.0% of GDP mainly due to debt service
expenditures growth (impact of hryvnia devaluation) and increase of defense expenditures
caused by military conflict
• debt service will increase to 4.8% of GDP;
Quasi-fiscal deficit might decrease due to energy tariffs adjustment (positive effect on Naftogaz
deficit) but financial sector needs will remain on the high level (bank recapitalization, etc);
Budget consolidation is necessary, but general government deficit optimization requires reforms
of sectors with large role of state regulation (energy, transportation etc.)
36
-3.9
-3.9
-1.5
-0.7
-0.1
-2.0
-1.2
0.8 1.2
-4.6 -4.0
-3.5
-7
-6
-5
-4
-3
-2
-1
0
1
2
2010 2011 2012 2013 2014 2015 2016
Consolidated budget balance (% GDP)
structural balance
cyclical adjusted balance
primary balance
total balance
"+" surplus
Source: Treasury, NBU calculations.
11.3
8.4
4.8
6.3 6.2
13.3
14.9
4.2
0
4
8
12
16
0
40
80
120
160
200
240
280
320
2009 2010 2011 2012 2013 2014 2015 2016
Government broad deficit (bn UAH)
bank recapitalization & other (incl. VAT)
Naftogaz financing
general government deficit
total financing, % GDP (rhs)
Source: MFU, IMF, NBU calculations.
NATIONAL
BANK OF
UKRAINE
37
OUTLOOK: New program with IMF assumes tight monetary policy
37
The growth of the monetary base should not exceed UAH 91 bn to prevent destabilization of the
financial system and the overall economy
The bulk of base money growth will be supplied through support of Deposit guarantee fund and
purchase of FX on market (to replenish foreign exchange reserves)
The NBU will actively use sterilization to achieve the money supply target
The purchase of T-bonds by the NBU will be limited to the amount agreed with IMF (Naftogaz
mainly)
0
100
200
300
400
500
IV.2
01
0
І.2
011
ІІ.2
011
ІІІ.
20
11
IV.2
01
1
І.2
01
2
ІІ.2
01
2
ІІІ.
20
12
IV.2
01
2
І.2
01
3
ІІ.2
01
3
ІІІ.
20
13
IV.2
01
3
І.2
01
4
ІІ.2
01
4
ІІІ.
20
14
IV.2
01
4
І.2
01
5
ІІ.2
01
5
ІІІ.
20
15
IV.2
01
5
2016
Base money (UAH bn)
+15 (6.4%) +52 (20.3%)
+26 (8.5%)
+91 (27.3%)
Source: NBU
+14 (6.3%)
+69 (
16.3
%)
NATIONAL
BANK OF
UKRAINE
OUTLOOK: Further improvement in the trade and C/A balances in 2015 is projected
Despite positive effect for exporters in a wake of price competitiveness improvement, exports
will continue decreasing due to:
• military conflict in the East and restrictive measures on trade with Russia;
• lower prices for grains, metals and ores;
• high dependence on imported raw materials;
• significant competition in foreign markets;
In case of deeper devaluation, exchange rate elasticity of imports will go down as the
structure of imports will shift to inelastic intermediate goods, needed for exported products.
38
-25%
-14%
-20%
-23%
-28%
-17%
+2%
-5%
-4%
-7%
-12%
-15%
-3 -2 -1 0 1
industrial goods
chemicals
machinery and equipment
agricultural products
minerals
metallurgical products
Merchandise exports and imports change in 2015 ($ bn)
Exports, -9.8% Imports, -18.1%Source: NBU
-3.7 -7.1
-1.5 -2.1
-6.1
-7.8 -8.7
-4.0
-1.2 -0.8
-15
-10
-5
0
5
-30
-20
-10
0
10
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Transfers (net)
Income (net)
Balance of Services
Current account balance ($ bn)
Source: NBU
NATIONAL
BANK OF
UKRAINE
OUTLOOK: Financial account will return to a positive area due to
high public external financing
In 2015, we project financial account with a moderate surplus:
• official financing: from IMF – $8.3 bn, from other IFIs and bilateral loans – $4.5 bn and
Eurobonds under U.S. government guarantees – $2 bn;
• net inflow of foreign direct investment will increase to $1.4 bn;
• further outflow of currency outside banks is not expected (+$0.1 bn) due to reduction
of devaluation expectations.
Rollover on external liabilities of the private sector is expected to decrease slightly in 2015,
in 2016 we expect gradual recovery.
39
18.5
-8.1
3.1 5.6
-20
-10
0
10
20
30
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Capital and financial account ($ bn)
FDI (net)
Bonds and loans (net)
Other capital (net)
Balance
Source: NBU
86 78 82 87 92 91
99
124 139 144
106
64 70 80
99 107 112
97 86
82 89
0
20
40
60
80
100
120
140
160
2010 2011 2012 2013 2014 2015 2016
Banks Real sector Total
Rollover on external liabilities of the private sector (%)
Source: NBU
NATIONAL
BANK OF
UKRAINE
NBU current agenda is to resolve the accumulated structural
imbalances, fight with inflation, calm down the confidence crisis
and restart lending in the economy
40 Macro shocks Confidence
Crisis
Corporate
governance Behaviors
Bank
run
UBO
Transparency
Interbank /
Debt
market
Liquidity
crisis Related party
lending
Capital
needs
GDP fall
BoP
NBU
Refinancing No capital
incentives
Insolvency
Nationalize DGF
FX
devaluation
Fiscal
deficit Money
laundering
Corruption Tax
evasion
Creditors
protection
Local
QE
Capital
flight
Capacities
destruction
Trade
war
NPL /
provisions
State debt Bail out by the tax payers
Credit
crunch Inflation
Interest rates
hike
NATIONAL
BANK OF
UKRAINE
Stability assurance – resolving the legacy problems 1
Sustainable development
of the banking sector 2
Mone
tary
polic
y
deve
lopm
ent
3
Bankin
g s
uperv
isio
n
str
eng
the
nin
g
4
Pro
tection o
f ri
ghts
(dep
ositors
, cre
dito
rs,
consu
mers
)
6
Corp
ora
te g
ove
rnan
ce
deve
lopm
ent
7
Fin
an
cia
l m
ark
ets
deve
lopm
ent
8
Develo
pm
ent
of
ban
kin
g infr
astr
uctu
re
9 5
Adap
tatio
n o
f
Ukra
inia
n b
an
kin
g
rule
s t
o th
e E
U
NBU transformation 10
TO ADDRESS THE CURRENT AND FUTURE CHALLENGES NBU TEAM IS
RUNNING THE 2020 BANKING SYSTEM REFORM PROJECT
NATIONAL
BANK OF
UKRAINE
What has been done in 2014 (1/2)
Capitalization
Corporate
governance
DGF
AML
Stress test for top 35 banks accomplished; capitalization plans
approved with the commitment of the key shareholders
New capital requirements adapted (500 mln uah) for the banks
Top 35 banks disclosed UBO, 25 banks with zero UBO disclosure
warned and requested the disclosure; 40 more banks in the pipeline;
new requirements for SB in force;
DGF capitalized; also provided with sufficient liquidity from NBU;
The mechanisms for the nationalization of local SIFI have been agreed
with MoF; new tools for banks resolution in place
7 money laundering banks closed;
Money laundering discipline strictly monitored with no tolerance
Monetary policy
Moving from peg currency regime towards floating Fx policy and
inflation targeting
NATIONAL
BANK OF
UKRAINE
What has been done in 2014 (2/2)
43
NBU
independence
Term deposits
Creditors
protection
Changes to the NBU law to increase the NBU institutional and
financial independence developed with support of IMF legal team
Avoiding fiscal dominance situation
New law to make the deposits really term deposits in the
Parliament – a good base for the future
Amendements to diffèrent laws have been developed to increase the
creditors protection; to be directed to the parliament by the year end
Supervision Refinancing lines provided to the local SIFI banks
New EWS is in place; curators in the banks
NATIONAL
BANK OF
UKRAINE
44
TARGETS TO ACHIEVE: TARGETS TO ACHIEVE:
NBU TRANSFORMATION AS A REGULATOR NBU TRANSFORMATION AS AN ORGANIZATION
• Streamline the organizational structure
around the key pillars of NBU (core functions),
decreasing non-core functions;
• Optimize the regional presence (decreasing
number of the regional offices) followed by right-
sizing
• Educate (grow up) new generation of NBU
management via assessment, selecting the
talents pool and potential executive pool, training,
mentoring and … empowering
• IFRS compliant financial reporting of the banks in place for all the financial sector
• Building risk preventive supervision (vs current compliant-based supervision)
Main targets for nbu transformation project are linked with
strengthening of the nbu core functions
Supervision:
• Implement full IFRS by 2015 and Basel III by
2018;
• Centralize the regional supervision
• Create macro prudential supervision function;
• Implement sophisticated EWS to address the
potential
• Strengthen the risk management of NBU
• Create the financial macro regulator based on
the NBU
• Strengthen the risk management of NBU
Monetary policy:
• Introduce the special supervision critera/regime
for the local SIFI;
NATIONAL
BANK OF
UKRAINE
BACK UP
45
NATIONAL
BANK OF
UKRAINE
INFLATION: In February seasonally adjusted CPI growth (5.1%) sharply accelerated after fluctuations within 2.1-3.1% in previous five months
46
Acceleration in February was observed across all main inflation components
• in particular core and raw food inflation accelerated to 5.3% and 5.2% respectively.
-1
0
1
2
3
4
5
6
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
seasonal factor
seasonally adjusted CPI change
CPI, m-o-m change
S
Source: State Statistics Service of Ukraine and NBU calculations.
SSeasonally adjusted CPI change and seasonal
factor (%) 5.3 5.2
-2
-1
0
1
2
3
4
5
6
12
/12
03
/13
06
/13
09
/13
12
/13
03
/14
06
/14
09
/14
12
/14
core CPI raw food
Sourse: NBU calculations.
Seasonally adjusted core and raw food inflation
NATIONAL
BANK OF
UKRAINE
INFLATION: Core inflation pace was defined mainly by hryvnia depreciation and only partly curbed by negative output gap
47
Stable UAH/USD rate and negative output gap defined close to zero core inflation in 2012-2013.
Strong inflationary pressure was also made by high inflation expectations in particular formed by
occurred and expected in the future devaluation
• households ER expectations over the next 12 months grew essentially (24.43 UAH/USD in
February 2015).
• 12 months NDF UAH/USD rate in February was on average 8.3% higher than spot UAH/USD
interbank rate.
183.2
33.2
-21
-18
-15
-12
-9
-6
-3
0
0
30
60
90
120
150
180
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Opposite influence of demand and ER factors on core inflation
output gap (%, right scale)
UAH/USD exchange rate (y-o-y change, %, up- depreciation)
core CPI (y-o-y change, %)
Source: State Statistics Service of Ukraine and NBU
18.3
27.3
21.7
21.9
0
5
10
15
20
25
30
01
/13
02
/13
03
/13
04
/13
05
/13
06
/13
07
/13
08
/13
09
/13
10
/13
11
/13
12
/13
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
03
/15
Inflation expectations over the next 12 months: percent, average in Ukraine
banks
businesses
households
financial analysts
Source: NBU, GfK Ukraine surveys, NBU calcualtions
NATIONAL
BANK OF
UKRAINE
INFLATION: Non-core components explained the bulk (18.7 p. p.) of inflation
48
Raw food prices dynamics after long period (29 months) of downward pressure on CPI provided
growing positive contribution to annual inflation from the beginning of 2014
Utilities 8.9%
Alc. and
tobacco 6.9%
Bread 2.7%
Others 3.5%
Core CPI
47.7%
Raw food
28.2%
Admin 22.0%
Fuel 2.1%
Meat 8.3%
Fruits and veg. 7.0%
Milk 6.9%
Sugar 1.1%
Others 9.7%
Processed food 19.8% Non-
food goods 16.2%
Services 11.7%
CPI structure
15.8
9.2
7.8
1.7
34.5
-5
0
5
10
15
20
25
30
35
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
fuel
administered prices
raw food
core inflation
CPI (y-o-y, %)
Note: The sum of the segment amounts may not equal the total
amount due to rounding.
Source: State Statistics Service of Ukraine and NBU
Contribution to CPI y-o-y changes (p.p.)
NATIONAL
BANK OF
UKRAINE
INFLATION: Narrow core inflation was mainly defined by NEER depreciation
49
Main trading partners of Ukraine are experiencing low inflation. Exception is Russia with
16.7% annual CPI.
37.1
111.5
-10
0
10
20
30
40
50
60
70
80
90
100
110
120
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
narrow core CPI (left scale)
NEER (up - depreciation)
Source: central banks data and NBU calculations.
NEER and narrow core CPI (y-o-y change, %)
37.1
1.4
16.7
-0.1 -0.3
-5
0
5
10
15
20
25
30
35
4012
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
narrow core CPI ofUkraine
China
Annual CPI change in trading partners of Ukraine
Source: State Statistics Service of Ukraine and central banks data.
NATIONAL
BANK OF
UKRAINE
INFLATION: Growth of agricultural production expenses and devaluation-caused imported food inflation are the main drivers of food inflation
50
Raw food prices annual growth was largely defined by:
• devaluation-caused imported food inflation: index FAO in USD decreased by 14% y-o-y, but
its UAH equivalent grew by 146.5% y-o-y in February 2015;
• growth of agricultural production expenses by 53.1% y-o-y as of January 2014.
Processed food prices increased by 38.1% y-o-y due to direct devaluation effect and also energy
and raw food prices growth.
Record grain harvest in 2014 (in spite of Crimea exclusion from the calculations) contained food
inflation.
53.1
32.9
46.2
63.0 63.8
-100
102030405060708090
100110120130140150
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
world food price index FAO (in UAH equivalent)
agricultural production expences
raw food prices
grain harvest (mln tons)
Source: State Statistics Service of Ukraine, FAO and NBU calculations.
Food prices and their main drivers (y-o-y change, %)
32.9
38.1
-15
-10
-5
0
5
10
15
20
25
30
35
40
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
raw food processed food
Source: State Statistics Service of Ukraine and NBU calculations.
Raw and processed food prices (y-o-y change, %)
NATIONAL
BANK OF
UKRAINE
INFLATION: Administratively regulated inflation has been defined by recurrent raise in utilities tariffs and excisable goods prices
Utility tariffs started to raise to the level of recovering their cost from May 2014 (annual growth in
February 2014 was 36.5%; contribution to headline inflation – 4.0 p. p.):
• natural gas tariffs grew by 62.8% y-o-y, hot water and heating – by 45%, cold water – by
52.2%, sewerage – by 74.8%, electricity – by 11.3%.
Annual increase of alcohol and tobacco prices accelerated to 33.5% y-o-y (2.3 p. p. – contribution
to inflation) due to regular increase in excises duties, minimum retail prices (for alcohol) and
introduction of excise taxes (5%) on retail sales of excisable goods in January 2015.
51
4.1
35.5
0
3
6
9
12
15
18
21
24
27
30
33
36
0
1
2
3
4
5
6
7
8
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
m-o-m
y-o-y (right scale)
Source: NBU calculations.
Administered prices and tariffs change (%)
gas tariffs grew by 62.8%
35.5
38.0
36.5
33.5
28.9
0
5
10
15
20
25
30
35
40
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Source: State Statistics Service and NBU calculations.
administered prices andtariffs
bread
Administered prices and tariffs (y-o-y change, %)
NATIONAL
BANK OF
UKRAINE
INFLATION. Fuel prices grew sharply despite oil prices annual fall on global markets
The inconsistence of fuel and world oil prices (in UAH equivalent) dynamics was significantly reduced after interbank
exchange rate liberalization (adjusting it to the real rate on the market). Anyway some divergence existed due to:
• increase in excise taxes for manufacturers and importers of petroleum products: in April 2014 for diesel –
by 31-113%, in January 2015 mainly for liquefied petroleum gas – by 14% (for gasoline and diesel – by 2-3%);
• excise tax introduction for alternative fuel manufacturers (since January 2015);
• an additional tax on currency transactions since April 2014;
• implemented in January 2015 excise tax (5% of sales) imposed on retailers selling of fuel;
• existence of some psychological factors in price formation (growing retailers margin through unfounded price hike).
In particular, last two factors and the use of domestically produced oil in petroleum production may explain significantly
faster retail fuel prices growth (by 83.8%) compared with the growth of prices set by manufacturers (38.1%).
Fuel prices rise provided small direct contribution to inflation (only 1.7 p.p.) but second-round effects could be important.
83.8
38.1
53.4
-20
-10
0
10
20
30
40
50
60
70
80
90
12
/12
03
/13
06
/13
09
/13
12
/13
03
/14
06
/14
09
/14
12
/14
Fuel and world oil prices (y-o-y change, %)
fuel prices in Ukraine
Source: State Statistics Service of Ukraine, Reuters Datastream and
NBU calculations.
52
NATIONAL
BANK OF
UKRAINE
INFLATION: Producer Price Index depended more on ER factor due to high industrial reliance on imported inputs and high links with global prices (which substantially grew in UAH equivalent)
53
Growth in Producer Price Index was mainly caused by UAH devaluation that gave a rise to:
• UAH equivalent of external commodity markets prices (CRB index) grew by 118.5%, inflating
the prices in export oriented industries, although nominated in dollar prices declined by 23.8%;
• the increase in UAH equivalent of world steel price (by 124%) determined prices growth
in metallurgy (by 55.7% contributing 10.7 p. p. to producer inflation).
• imported raw materials and energy prices (marginal gas prices for industrial enterprises grew
by 83.1%).
11.8
10.7
8.9
4.4
5.2
41.0
-6
0
6
12
18
24
30
36
42
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Contribution to PPI y-o-y change (p. p.)
electricity, gas, steam and air-conditioningminingfood and tobacco industriesmetallurgyotherPPI, y-o-y change, %
Note: The sum of the segment amounts may not equal the total
amount due to rounding.
Source: State Statistics Service of Ukraine and NBU calculations.
55.7
-18.2
124.0
-25
0
25
50
75
100
125
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
prices in metellurgy
world steel prices (in USD)
Source: State Statistics Service of Ukraine and CRU International.
Prices in metallurgy and world steel price
(y-o-y change, %)
NATIONAL
BANK OF
UKRAINE
INFLATION: The GDP deflator was moving closely with CPI in general
54
Unlike CPI, GDP deflator includes capital goods and export products, but excludes import
products • import exclusion should decrease devaluation pass-through to the GDP deflator, but
devaluation was significantly translated into GDP deflator through export (in the III quarter
2014 export and import deflators made very close but opposite by signs contributions to GDP
deflator: +27.6 p.p. and -25.6 p.p. respectively).
17.2
22.3
57.5
50.5
0
10
20
30
40
50
60
IV.0
9
I.1
0
II.1
0
III.
10
IV.1
0
I.1
1
II.1
1
III.
11
IV.1
1
I.1
2
II.1
2
III.
12
IV.1
2
I.1
3
II.1
3
III.
13
IV.1
3
I.1
4
II.1
4
III.
14
Source: State Statistics Service of Ukraine.
final consumption deflator
gross fixed capital formation deflator
export deflator
import deflator
Import and final consumption
deflators
34.5
41.0
24.3*
-6
0
6
12
18
24
30
36
4212
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
*IV quarter GDP deflator - NBU estimation. Source: State Statistics Service of Ukraine .
Price indicators (y-o-y changes, %)
CPI
PPI
GDP deflator
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Negative GDP gap increased because of confidence factors related to military conflict
We interpret large residuals of model-based estimates of output gap as military conflict impact
Monetary factors supposed to be favorable for economic growth: both real exchange and interest
rate were below their equilibrium levels.
55
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
I.1
1
II.1
1
III.
11
IV.1
1
I.1
2
II.1
2
III.
12
IV.1
2
I.1
3
II.1
3
III.
13
IV.1
3
I.1
4
II.1
4
III.
14
IV.1
4
GDP gap factors (%)
residuals
GDP gap inertia
T-o-T
RMCI
GDP gap
Source: NBU calculations
-25
-20
-15
-10
-5
0
5
10
15
I.1
1
II.1
1
III.
11
IV.1
1
I.1
2
II.1
2
III.
12
IV.1
2
I.1
3
II.1
3
III.
13
IV.1
3
I.1
4
II.1
4
III.
14
IV.1
4
RMCI
real exchange rate gap
real interest rate gap
Source: NBU calculations
↑tigthening
RMCI (Real Monetary Conditions Index, %)
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Fall in industrial output accelerated to 22.5% y-o-y in February, 2015
Main factors of industrial dynamics:
military conflict in Eastern Ukraine (coal mining decreased by 61.7%, manufacture of coke
and refined petroleum products – by 58%)
low external demand, deficit of raw materials and “trade war” with Russia (metallurgy
production decreased by 27.6%, machinery – by 21.7%)
56
-4.2 -3.0
-5.8 -5.2
-1.4
-4.4
-11.4
-20.0
-15.5 -15.6 -15.6
-17.1
-21.3 -22.5
-28
-24
-20
-16
-12
-8
-4
0
4
01
.14
02
.14
03
.14
04
.14
05
.14
06
.14
07
.14
08
.14
09
.14
10
.14
11
.14
12
.14
01
.15
02
.15
Contributions to industrial output (y-o-y change, p.p.)
mining
manufacturing
energy *
* - Energy includes electricity, gas, steam and air conditioning supply.
Source: State Statistics Service of Ukraine, NBU calculation.
-30
-25
-20
-15
-10
-5
0
5
10
12
.12
01
.13
02
.13
03
.13
04
.13
05
.13
06
.13
07
.13
08
.13
09
.13
10
.13
11
.13
12
.13
01
.14
02
.14
03
.14
04
.14
05
.14
06
.14
07
.14
08
.14
09
.14
10
.14
11
.14
12
.14
01
.15
02
.15
Main types of industrial activity* (y-o-y change in %)
mining
manufacturing
energy *
* - Energy includes electricity, gas, steam and air conditioning supply.
Source: State Statistics Service of Ukraine, NBU calculation
* - Energy includes electricity, gas, steam and air conditioning supply.
Source: State Statistics Service of Ukraine, NBU calculation
* - Energy includes electricity, gas, steam and air conditioning supply.
Source: State Statistics Service of Ukraine, NBU calculation
* - Energy includes electricity, gas, steam and air conditioning supply.
Source: State Statistics Service of Ukraine.
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Fall in metallurgy output accelerated to 27.6% y-o-y in February, 2015
Main factors of metallurgy dynamics were:
military conflict in Eastern Ukraine and as a result reducing capacity utilization due to
destruction of rail and roads, power lines, pipelines and other infrastructure, speeded up the
decline in industrial production in February to 27.6%,
declining of metal prices due to weak world economic growth.
57
-18.9
-27.6
-35
-30
-25
-20
-15
-10
-5
0
5
12
.20
12
01
.20
13
02
.20
13
03
.20
13
04
.20
13
05
.20
13
06
.20
13
07
.20
13
08
.20
13
09
.20
13
10
.20
13
11
.20
13
12
.20
13
01
.20
14
02
.20
14
03
.20
14
04
.20
14
05
.20
14
06
.20
14
07
.20
14
08
.20
14
09
.20
14
10
.20
14
11
.20
14
12
.20
14
01
.20
15
02
.20
15
Sourse: State Statistics Service of Ukraine.
Metallurgy (y-o-y changes, %)
30
40
50
60
70
80
90
100
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
Source: Metallurgprom.
Average daily steel and cast iron production (ths t)
steel cast iron
steel -29.2%
cast iron -31.7%
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Food industry output fell in February, 2015 due to weakening of internal consumer demand
Agricultural output increased by 2.5% in 2014 mostly due to a record harvest of cereals (63.9 m t)
High harvest and trade liberalization in EU facilitated food industry development – its output
increased by 2.5% in 2014.
58
2.0 0.5
38.0
34.3
29.3
53.3 46.0
37.9
54.8
45.3
62.3 63.9
0
10
20
30
40
50
60
70
-10
-5
0
5
10
15
2020
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Agricultural production decomposition *
live-stock breeding
plant growing
grain crop, mln.t (right scale)
* - 2010-2014 excluding Crimea Source: State Statistics
Service of Ukraine, NBU
calculation.
-15
-10
-5
0
5
10
15
12
/12
01
/13
02
/13
03
/13
04
/13
05
/13
06
/13
07
/13
08
/13
09
/13
10
/13
11
/13
12
/13
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
Source: State Statistics Service of Ukraine.
Food industry (y-o-y change in %)
* - 2014 excluding Crimea
2.5%
-5.0%
-11%
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: The worst situation was observed in Donetsk and Luhansk regions
The largest drop in industrial production, construction and retail trade in January-February 2015
was observed in the Donetsk and Luhansk region
59
-21.7
-32
-21.2
-54.3
-69.2 -66.8
-88.0 -89.8 -89.8 -100
-90
-80
-70
-60
-50
-40
-30
-20
-10
0
industrial output construction retail trade
Source: SSS, NBU calculation. Ukraine Donetsk Luhansk
Economic indicators in January-February 2015, %
-1.3
-5.8
-2.2 -0.3
-2.5
-1.0 -1.2
-3.7
-3.4
-14
-12
-10
-8
-6
-4
-2
0
1st half of the year 2nd half of the year(estimation)
2014 (estimation)Source: NBU calculation.
Real GDP in 2014 (%)
other
Luhansk region
Donetsk region
NATIONAL
BANK OF
UKRAINE
REAL SECTOR: Shortening of the internal consumer demand caused the decline of trade turnover
Decline of consumer confidence, deterioration of financial results, low credit activity and reduction
of government financing caused the decline of retail trade turnover (-19.8%) and the volume of
construction works (-31.2%).
Decline in manufacturing caused the decrease in wholesale trade.
60
40
45
50
55
60
65
70
75
80
85
90
-25
-20
-15
-10
-5
0
5
10
15
20
25
12
/12
01
/13
02
/13
03
/13
04
/13
05
/13
06
/13
07
/13
08
/13
09
/13
10
/13
11
/13
12
/13
01
/14
02
/14
03
/14
04
/14
05
/14
06
/14
07
/14
08
/14
09
/14
10
/14
11
/14
12
/14
01
/15
02
/15
Retail trade, real wages and consumer sentiment
retail trade, y-o-y change in %real wages, y-o-y change in %consumer sentiment, p. (right scale)
Source: State Statistics Service of Ukraine, GfK.
-30
-20
-10
0
10
20
30
12
.12
01
.13
02
.13
03
.13
04
.13
05
.13
06
.13
07
.13
08
.13
09
.13
10
.13
11
.13
12
.13
01
.14
02
.14
03
.14
04
.14
05
.14
06
.14
07
.14
08
.14
09
.14
10
.14
11
.14
12
.14
01
.15
02
.15
Source: State Statistics Service of Ukraine, NBU calculations.
Wholesale trade and manufacturing (y-o-y change in %)
wholesale trade
manufacturing
NATIONAL
BANK OF
UKRAINE
FISCAL: Key trends of the consolidated budget execution
haven’t changed in January, 2015
61
32.6
24.8
7.6
0.2
32.6
0.9
0.01
-0.1
3.3
28.7
25.4
3.1
0.2
31.3
1.6
-0.03
-2.6
3.9
-10 0 10 20 30 40
Revenue
tax revenue
nontax revenue
other
Expenditure, incl.
defence
Net lending
Deficit
Primary balance
Jan.2014Jan.2015
Main indicators of consolidated budget
(UAH bn)
Source: Treasury, MFU.
Consolidated budget revenue and expenditure decreased in January 2015 (by 11.8% and 4% y-o-y).
Consolidated budget deficit widened considerably. Simultaneously primary surplus increased by 0.2
p.p. to 3.7% of GDP compared to January 2014.
-2.8
-3.6
-6.2
2.1
3.5 3.7
-0.7 -0.1
-2.5
-8
-6
-4
-2
0
2
4
Jan. 2013 Jan.2014 Jan.2015
Consolidated budget balance (% of GDP)*
primary balance
debt service
total balance
Source: Treasury, NBU calculations.
NATIONAL
BANK OF
UKRAINE
62
The level of GDP redistribution through the consolidated budget remains constantly high
(average level in 2008-2013: revenue – 30.5% and expenditure – 33.8%).
General Government (average level in 2010-2013): revenue – 43.5% of GDP and
expenditure – 47.9% of GDP.
FISCAL: Public sector share remains significant
29.1
33.7
-8
-4
0
4
8
12
16
20
24
28
32
36
40
2008 2009 2010 2011 2012 2013 2014
Revenue Expenditure
Deficit Primary balance
Main indicators of the consolidated budget
(% of GDP)
Source: Treasury, SSSU.
-0.7
-4.6
-1.2
-10
-8
-6
-4
-2
0
2
4
6
8
I.2
008
II.2
00
8III.
200
8IV
.20
08
I.2
009
II.2
00
9III.
200
9IV
.20
09
I.2
010
II.2
01
0III.
201
0IV
.20
10
I.2
011
II.2
01
1III.
201
1IV
.20
11
I.2
012
II.2
01
2III.
201
2IV
.20
12
I.2
013
II.2
01
3III.
201
3IV
.20
13
I.2
014
II.2
01
4III.
201
4IV
.20
14
Consolidated budget balance (annual moving average, % of GDP)
cyclical component
cyclically adjusted balance
total balance
primary balance
Source: NBU calculations, Treasury.
NATIONAL
BANK OF
UKRAINE
63
MONETARY: REER depreciated sharply in February 2015
63
In February 2015 (preliminary data) REER depreciated by 31.1% due to the depreciation of the
NEER (33.8%). The positive inflation differential is 4.1%.
Since the beginning of the year REER has depreciated by 26.0% due to the depreciation of the
NEER (30.4%). The positive inflation differential is 6.3%.
-53.0
-25.2
-42.2 -40.6
-80
-60
-40
-20
0
20
40
USA Russia Euroarea REER
The contribution to the change of REER and Hryvnia bilateral real exchange rates in February 2015 (annual rate of change)
Inflation differential NEER (exchange rates) REER
Source: NBU calculations (preliminary data).
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
12
/99
01
/01
02
/02
03
/03
04
/04
05
/05
06
/06
07
/07
08
/08
09
/09
10
/10
11
/11
12
/12
01
/14
02
/15
Hryvnia REER Index (12.1999=1, based on interbank exchange rate, as of February 2015)
Source: IFS, NBU calculations (preliminary data).
NATIONAL
BANK OF
UKRAINE
MONETARY: Insufficiency of FX market
64
The supply of foreign currency in the cash foreign exchange segment exceeded the
demand for the first time since June 2014.
-20
0
20
40
60
80
100
120
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Purchase
Sale
Net purchase
The daily average amount of cash FX
purchased/sold by individuals (USD m)
Source: NBU
NATIONAL
BANK OF
UKRAINE
65
MONETARY: Dollarization
65
Excluding exchange rate revaluation, dollarization level dropped.
27.2
44.0
18.5
34.0
60.0
36.8
58.6
30.1 29.0
0
7
14
21
28
35
42
49
56
63
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Dollarization in 2012 – 2014
dollariz. of broad money
dollariz. of loans
dollariz. of deposits
Dollarization level by a different methodologies (%)
Source: NBU
33.7
59.5
35.4
61.7
29.7
31.7
0
7
14
21
28
35
42
49
56
63
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Legal entities`
Individuals
Dollarization of bank loans (%)
Source: NBU
NATIONAL
BANK OF
UKRAINE
66 66
MONETARY: Market interest rates do not reflect the real cost of
funding
Market interest rates do not reflect the real cost of funding because of prevailing qualitative
criteria to the selection of borrowers. Currently, banks adopt a differentiated approach both for
the borrowers and the eligible collateral.
18.1
28.7
19.5
0
4
8
12
16
20
24
28
32
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Legal entities`
Individuals
Discount rate
Average weighted interest rate on domestic
currency loans (%)
Source: NBU
6.6
19.8
19.5
0
3
6
9
12
15
18
21
24
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
Legal entities`
Individuals
Discount rate
Average weighted interest rate on domestic
currency time deposits (%)
Source: NBU
NATIONAL
BANK OF
UKRAINE
67
MONETARY: Dynamics of monetary aggregates was determined by
a loss of confidence in banking system
67
The growth of the broad money was driven solely by the growing funds in foreign currency
resulting, first of all, from exchange rate revaluation.
On the contrary, during the same period base money decreased, which was caused, in
particular, by the increased Government’s deposits in accounts with the NBU.
25.0
7.5
21.8
0
4
8
12
16
20
24
28
32
12
/12
02
/13
04
/13
06
/13
08
/13
10
/13
12
/13
02
/14
04
/14
06
/14
08
/14
10
/14
12
/14
02
/15
М0/М3 Base moneyBroad money
Monetary indicators (y-o-y change, %) & M0/M3 (%)
Source: NBU
NATIONAL
BANK OF
UKRAINE
OUTLOOK: Official financing in 2015-2016
68
Total official financing projected in 2015 – 16.3 bn, including:
IMF (EFF) – $10.0 bn, WB – $1.3 bn, Project financing (EBRD, EIB) – $0.7 bn
EU – €0.25 bn+ €1.2 bn, US – $2.0 bn, Japan/Canada/Switzerland/Norway – $0.7 bn
Total official financing projected in 2016 – 6.7 bn, including:
IMF (EFF) – $2.5 bn, WB – $0.5 bn, EU – €0.6 bn, US – $3.0 bn,
5.0
1.7 1.7 1.7
10.0
0.6 0.6 0.6 0.6
2.5
1.3
1.6
1.4
1 1
2
0.75 0.75 0.75 0.75
3
0
2
4
6
8
10
12
14
16
18
I.2015 II.2015 III.2015 IV.2015 2015 I.2016 II.2016 III.2016 IV.2016 2016
IMF WB EU other US bonds
Official financing in 2015-2016 ($ bn)
Source: NBU, IMF
NATIONAL
BANK OF
UKRAINE
POLICY: Temporary administrative measures to calm FX market
69
Export/Import operations
surrender requirements -
75% of the foreign currency
proceeds received from
abroad (effective from 23 Sep
2014),
conducting within 90 days
settlements under
export/import of goods
transactions (effective from 19
Nov 2012)
Capital controls
the prohibition of the
repatriation of proceeds (the
sale of securities (except for
sovereign bonds), or corporate
rights (other than shares) and
dividends to foreign investors
(effective from 03 Dec 2014)
FX cash operations
maximum amount of foreign
currency that one bank can sell
in cash per capita a day equals
to 3,000 UAH (effective from 23
Sep 2014),
FX cash transfers on behalf of
individuals can be made abroad
as current non-trade transactions
without documentary evidence
for the amount not exceeding an
equivalent of UAH 15,000 within
one banking, day (effective from
04 March 2015)
the restriction on withdrawal of
FX cash or investment metals
from client`s accounts through
cashier’s offices and ATMs up to
an equivalent of UAH 150,000
per day per customer (effective
from 04 March 2014)
NATIONAL
BANK OF
UKRAINE
POLICY: Temporary administrative measures to calm FX
market (cont.)
70
FX operations of banks –
limits by amount
the NBU’s approval to make
advance payments exceeding
USD 50,000 (effective from 24
Feb 2015),
the letter of credit under import
contracts exceeding USD
500,000 is required to be
confirmed by investment grade
banks (effective from 24 Feb
2015),
advance payments in FX under
import contracts of exceeding
USD 50,000 shall be executed
on T+4 basis (effective from 25
Feb 2015),
the restriction on the purchase
of non-cash FX and banking
metals for UAH for their own
banks' benefit within a business
day (effective from 04 March
2015)
FX operations of banks –
limits to pay from short
position in UAH
the restriction to purchase
FX on behalf of a resident client
with FX holdings on current
and deposit accounts with
banks, if the total FX amount
held in client's accounts
exceeds USD 10,000 (effective
from 24 Feb 2015),
the prohibition to extend
loans in UAH to the customers,
if the property rights for the FX
held in the bank’s accounts are
pledged as collateral against
such loans(effective from 04
March 2015),
the ban is imposed on
purchase of FX if loan in UAH
is used for this purpose
(effective from 04 March 2015)
FX operations of banks –
extension of maturity
client`s funds in UAH should
be deposited upfront to a
separate account to purchase
FX and could be transferred
not earlier than on the 4th day
(effective from 25 Feb 2015),
the restriction to prepay
cross-border loans prior to
their maturity date (subject to
certain exceptions) (effective
from 03 Dec 2014)
NATIONAL
BANK OF
UKRAINE
CURRENT TARGETS TO ACHIEVE: CURRENT TARGETS TO ACHIEVE:
Future evolution of MP regime and goals Improvements that already done
Establishment of Monetary policy committee
which makes decisions:
• Clear and transparent
• Forward-looking
• Analytically supported
More transparent and market-friendly MP
instruments framework
Introduction of key policy rate and o/n corridor
Avoiding of multiple currency practices
Disinflation
Successful implementation of IMF program
Replenishment of international reserves
Stabilization of the market
POLICY: NBU strategy: a gradual move to Inflation targeting (IT)
Stage 1. Monetary targeting (framework of IMF
program):
accumulation for international reserves;
targets on NDA and NIR;
flexible exchange rate;
disinflation.
Stage 2. IT lite:
price stability (1-digit target)
accumulation of international reserves;
Interest rate as a key instrument.
Stage 3. IT :
price stability (1-digit target)
Floating exchange rate
71