NBU fulfills less than half of steps in Ukrainian capital market strengthening matrix under EFF
MOSCOW. July 29 (Interfax) - The National Bank of Ukraine (NBU) has implemented four out of the nine steps envisaged following the third review of the Extended Fund Facility (EFF) by the end of July, while the other five have been postponed, the bank's press service said in response to a request from the Ukrainian media.
In particular, the completed measures, for which the NBU is responsible or in which implementation it was involved, include drafting a bill establishing a full-fledged military insurance system, elaborating a concept note on regulatory requirements for payments between individuals (P2P), preparing a Credit Recovery Strategy and submitting a proposal to introduce a publicly available database of prices for real estate transactions, and price indices for residential and commercial real estate.
"In May, the National Bank drafted a bill on building and implementing a military risk insurance system, which is currently being worked on by a working group consisting of representatives of the NBU, Economy Ministry and Finance Ministry together with World Bank experts and representatives of the insurance market," the bank said commenting on the fulfillment of one of the measures.
The concept note on P2P payments has already been drafted and agreed on with the IMF, it said.
The implementation of the remaining five steps have been postponed, it said. In particular, the measure aimed at providing proposals by the National Bank regarding the improvement of capital market infrastructure to facilitate direct access of foreign investors to marketable debt instruments of Ukraine, envisaged for the end of April 2024 was divided into several gradual steps with different deadlines.
"In particular, as a result of cooperation between the NBU and the National Securities and Stock Market Commission and based on consultations with the IMF, it was decided to apply a two-stage approach to implementing a mechanism for direct access of foreign investors to domestic marketable debt instruments, except for government securities," the NBU said.
The bank recalled the recently adopted amendments to its regulatory framework, which makes it possible to extend the functioning of the link with the Clearstream Banking Luxembourg international depository to municipal bonds and other debt instruments associated with Ukraine's recovery and reconstruction.
"The National Securities and Stock Market Commission, the National Depository of Ukraine and the NBU, with support from the IMF, will work on establishing a direct link between the National Depository and Clearstream Banking Luxembourg by the end of July 2025 to ensure that investors have access to a broader range of instruments and markets. The NBU, the National Securities and Stock Market Commission and the Finance Ministry will put forward further measures aimed at improving the infrastructure of capital markets by the end of August 2024," the bank said.
The NBU has drafted amendments to Article 52 of the law on banks and banking activities to take into account the comments of supervisory authorities when recognizing related parties, and these changes are currently under discussion with the IMF, it said. Following the fourth EFF review, the deadline for implementing the measure was moved from late June to late July 2024, it said.
"In July 2024, we began working with IMF experts on developing a concept note for introducing a financial derivatives market, including forwards. According to the updated Memorandum on Economic and Financial Policies, the concept note should be prepared by the end of October 2024," the NBU said, commenting on the status of implementing one more steps with the initial deadline set for the end of this July.
As for drafting changes to the supervisory system, which will include specific risks of banking services, it was agreed based on the fourth EFF review to postpone the deadline for this step from the end of July to the end of December 2024, it said.
The National Bank said that its board's decision of May 11 approved the procedure for the ongoing monitoring of a bank's financial condition and banking group indicators, which identifies priorities for supervisory activities and unified approaches to monitoring, given the risk-based approach to supervision.
"An IMF technical mission on this issue was also held in early July. IMF experts support the NBU's proposed vision of the targeted construction of the supervisory system. We are currently finalizing the concept based on the outcomes of the technical mission and proceeding to drafting regulations. The deadline is set for the end of the year," the NBU said.
Finally, the deadline for amending the law on evaluation of property, property rights and professional appraisal activities in Ukraine and bringing it in line with international appraisal standards has been postponed. This measure, among other things, involves elaborating a roadmap for bolstering the infrastructure and the appraisal profession.
"According to the updated Memorandum on Economic and Financial Policies, the Ukrainian side in consultation with the World Bank will draw up provisions to improve the draft amendments to the law on evaluation of property, property rights and professional appraisal activity in Ukraine by the end of August 2024. The roadmap should be drafted by the end of August 2024," the NBU said.
Initially, this measure as to be completed by the end of March following the third EFF review. The NBU said that the State Property Fund is in charge of this measure.
"The NBU is involved in drafting the bill developed by the State Property Fund, in particular in terms of new approaches to the appraisal of financial assets, such as bank assets, insurance assets and collateral. The bill is being drafted," the NBU said.
"The NBU is doing its best to meet its commitments on time and in full, and is in constant contact with the experts of the IMF mission. Delays in fulfillment are usually linked to procedural matters, for example when there are new aspects that need to be taken into account. All these issues are coordinated with the IMF, and they treat such situations with understanding," the bank said.
The NBU did not plan to further slow down in meeting its commitments and is preparing for the next fifth review of the EFF program, it said.
It was reported earlier that the IMF said in the updated EFF following its third review in March that the large-scale measures initiated by the Ukrainian authorities, in particular the National Bank, to enhance the infrastructure of financial markets and supervision over them. The IMF presented a table of 13 steps regarding NBU's activities to strengthen and expand financial and capital markets. Nine of them were to be implemented by the end of June, but only four were implemented and five were delayed.
As for the remaining four steps, they expect the NBU to elaborate a concept note on a supervisory risk assessment methodology for payment service providers by the end of August 2024 and implement the methodology by end of December 2024, propose options for bolstering requirements for audit firms and conclusions, and draw up a roadmap for implementation by the end of September 2024.
The NBU is also expected to develop strategies for the Ukrainian Financial Housing Company and the Export Credit Agency by the end of November 2024 and implement a supervisory risk assessment methodology to prioritize supervisory activities by the end of December this year.