Financial Stability Council approves updated Strategy of Ukrainian Financial Sector Development and discusses systemic risks

At its regular meeting on 19 July 2023, the Financial Stability Council (FSC) approved the updated Strategy of Ukrainian Financial Sector Development, which was developed pursuant to the Memorandum of Economic and Financial Policies between Ukraine and the International Monetary Fund. The Council members agreed that the signatory institutions would hold a public presentation of the Strategy and publish it in late August 2023.

The Strategy consists of 5 chapters that provide information on the current state of the financial sector, its vision and mission, 5 strategic goals and measures for their implementation, expected results, and Ukraine’s international commitments in the financial services sector. The measures envisaged by the Strategy are divided into: short-term measures aimed at ensuring stability and preventing deterioration in the financial sector and the economy as a whole; and medium-term measures that will lay the foundation for future economic recovery and growth.

The strategic objectives of the updated strategy include macroeconomic stability, financial stability, focus of the financial system on the country’s recovery, modern financial services, and the institutional capacity of regulators and the Deposit Guarantee Fund.

The FSC members also discussed systemic risks in the financial sector. Overall, the risks are at a moderate and controlled level, except for geopolitical risks. The war is dragging on, while assistance to Ukraine is becoming more systematic.

The world economy has avoided the risks of a global recession, but economic growth in key partner countries will be slow. Growth in world trade will remain low. Ukraine’s economy is gradually recovering but remains vulnerable to security risks, and consumer inflation is falling faster than expected. Public finances are in good condition, mainly thanks to international support. The foreign exchange market is relatively stable and balanced, with a comfortable level of international reserves providing a safety margin for a gradual easing of currency restrictions.

The banking system remains highly liquid and profitable. Based on the results of the ongoing resilience assessment, the NBU will develop a plan to withdraw prudential easing and further implement regulatory requirements. Priority will be given to the introduction of new capital adequacy requirements, the resumption of the implementation of deferred measures and the renewal of capital buffer requirements.

Background

The meeting was attended by the FSC members: Minister of Finance Sergii Marchenko, Governor of the National Bank of Ukraine Andriy Pyshnyy, First Deputy Prime Minister Yuliia Svyrydenko, Managing Director of the Deposit Guarantee Fund Svitlana Rekrut, Head of the National Securities and Stock Market Commission Ruslan Magomedov, First Deputy Governor of the National Bank of Ukraine Kateryna Rozhkova, Deputy Minister of Finance for European Integration Yuriy Draganchuk, Deputy Governor of the National Bank of Ukraine Dmytro Oliynyk, Deputy Head of the Office of the President of Ukraine Rostyslav Shurma, other heads of the FSC member institutions.

The Financial Stability Council was established in March 2015 by a Presidential Decree and is a forum for professional discussion of systemic risks that threaten the financial stability of the state.