Over 20 banks to close if National Bank of Ukraine raises rate to 25% - Association of Ukrainian Banks

MOSCOW. June 7 (Interfax) - Over 20 banks will close and a blow will be dealt to Ukraine's financial stability if the National Bank of Ukraine raises the rate by 15% to 25%, Ukrainian mass media said with the reference to a letter sent by Association of Ukrainian Banks (AUB) President Andriy Dubas to National Bank of Ukraine Governor Kyrylo Shevchenko.

The AUB urged the National Bank to keep long-term refinancing loan rates as of June 1 for the martial law period and three months after its expiry.

The Association also proposed that the National Bank postpone until June 10 the deadline for banks to express their consent or disagreement with the new terms of refinancing loans, as banks need to consider all risks and threats very thoroughly.

According to tentative estimates, over 50% of borrowers will stop servicing their loans if the interest is raised, while lots of clients are already contacting banks to reschedule their loans, which leads to a deterioration of the structure of bank assets.

"Consumer and business loans have a fixed interest rate, which must be invariable. This means huge losses from the negative interest margin. A situation when retail chains borrow money at 30% for advance payments has stopped being an exception," the letter said.

In addition, the AUB urged the regulator to allow banks early repayment of refinancing loans.

The National Bank of Ukraine on June 2 abandoned the previous decision to secure the key policy rate made after February 24, and hiked the rate substantially from 10% per annum to 25% pa, exceeding market expectations. Along with other measures, this step aims to protect households' income and savings in hryvnia, raise the attractiveness of hryvnia assets and reduce pressure on the forex market, thus enhancing the NBU's capability to maintain the stability of the exchange rate and restrain inflation processes, the regulator said.

The NBU also decided to widen the interest corridor for monetary transactions with banks to provide additional room for reviving the interbank market. More specifically, from June 3, the interest rate on refinancing loans equals the key policy rate plus 2 pp and rose from 11% to 27%, while that on certificates of deposit is the key policy rate less 2 pp and rose from 9% to 23%.

Ukraine had 69 functioning banks as of March 1, 2022.