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17.11.2009
Credit-Rating: NBU’s actions still inefficient for recovery
Credit-Rating notes that the NBU’s decree #650 dated Nov. 3, 2009 titled ‘On stimulating lending in Ukraine’s economy’ will not help the national economy recover, since it is not aimed at providing banks with resources, but lowers creditworthiness requirements for financial institutions by liberalization of procedures of reserving and setting economic standards.
The decree stipulates that the proprietary rights for unfinished real estate be pledged as security for loans granted more than 2 years ago. Today the majority of unfinished construction projects, which implementation started more than 2 years ago are frozen, and this pledge virtually cannot be exercised. Thus, the lowering requirements for quality of collateral may only conceal existing banks’ problems and hamper forecasting changes in their financial state due to risks of sharp decline in their authorized stocks driven by writing-off bad loans.
Besides, the decree permits the banks to account 100% of value of irrevocable bank guarantees irrespectively of the class of lending transactions. At that, the existing approach, which captures guarantees of banks with investment-grade international ratings, remains effective. In Credit-Rating’s view, in order to secure assessment o reliability of guarantees, provided by banks-residents, this regulatory requirement should be modified by possibility for employment ratings assigned by national rating scale, which was approved by a relevant Government’s decree.
Credit-Rating notes that the financial state of the banks has its impact on Ukraine’s economy. Consequently, the banks’ policy should pursue not concealing problems, but their solving, including treatment of trouble loans, and the decree emphasizes necessity for adjusting legislation in terms of protection creditors’ rights. The modernization of legislation to this extent will definitely mitigate banks’ risks by both the existing debts and the loans granted anew.
However, despite the aforementioned, the banks should work for mitigating their risks too: under adverse environment they should select borrowers more carefully, including the employment of national credit ratings assigned to corporates.
For more information, please contact:
Information and analytic
department
Sergey Rozumyak +38044490 25 50
SRozumyak@credit-rating.com.ua
Denis
Rudenko
DRudenko@credit-rating.ua
