Long-term refinancing loans for up to five years, which the National Bank of Ukraine (NBU) provided from May 2020 to September 2021, did not help expand lending to the economy and were directed by banks mainly to purchase government domestic loan bonds, Head of the NBU Council Bohdan Danylyshyn said.

"The overwhelming part of the received refinancing resource [up by UAH 80 billion from April 2020] was directed by banks to purchase government securities," Danylyshyn wrote on Facebook on Tuesday.

According to the NBU, a total of UAH 91.85 billion of long-term refinancing was issued: UAH 48.54 billion in 2020 and UAH 43.31 billion in 2021. Until July 2021, these were five-year loans, and from July 2021 – three-year loans, which totaled UAH 9.78 billion.

"In view of the higher rates on government bonds, the investment of excess liquidity in government securities allowed banks to earn money on risk-free financial instruments without increasing lending," the head of the NBU Council said.

In his opinion, this indicates the need to correct incentives and priorities for the work of the national banking system.

Danylyshyn noted that currently the government's ability to finance the budget deficit remains limited, and the cost of government borrowings continues to grow, in particular, the weighted average cost in hryvnia (12.00%) in September was the highest since November 2019.

All this, the head of the NBU Council believes, requires an effective control system and effective interaction between the NBU and the government, the adoption of coordinated decisions that meet the goals of national economic policy.