NBU Council recommends cutting share of govt bonds in portfolios of state-owned banks, expand profile activities
The Council of the National Bank of Ukraine (NBU) has noted the imperfectness of the monetary transmission mechanism due to the high share of state-owned banks in the banking system and the crowding-out effect linked to the large share of government domestic loan bonds in assets of state-run banks. The Council recommended to the NBU board to take this into account when making decisions concerning the monetary policy and in the process of macroeconomic modelling and projecting.
According to a press release of the council following its meeting devoted to the issue of state-owned banks, the government was advised to revise the government bond share in the structure of assets from 25% downwards, as well as to simplify the access of individuals to government bond transactions.
In addition, the Council of the NBU drew attention to the riskiness of simultaneously focusing the activity of state-owned banks on the retail lending segment in the medium term and considers it necessary to expand profile activities of banks with state share in order to reduce their presence in the same or adjacent market segments.
Another recommendation of the NBU Council to the board is the development of the capital market and the tools of syndicated lending to state-owned banks in order to diversify their portfolio, thus reducing the risks of "big loans" and intensify the work on restructuring the non-performing loans (NPL).
According to the NBU and the Ministry of Finance, at the beginning of 2019, the share of four state-owned banks accounted for 59.7% of the assets of the entire banking system of Ukraine (UAH 1.14 trillion). The share of government bonds in assets was 29.7%.
In 2018, state-run banks managed to reduce the share of NPL to 67.9% from 71.1%.