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War drags on: Council for financial stability assesses risks to Ukrainian system

War drags on: Council for financial stability assesses risks to Ukrainian system Council for financial stability assesses risks to the system (Photo: Vitalii Nosach, RBC-Ukraine)

According to the National Bank of Ukraine (NBU), during a meeting on July 19, 2023, members of the Council for Financial Stability discussed the systemic risks to the financial sector.

"Overall, the risks remain at a moderate and controlled level, except for geopolitical risks. The war is lingering, and at the same time, the assistance to Ukraine becomes more systemic," the statement reads.

Risks to the financial sector

As noted during the Council for Financial Stability meeting, the global economy has managed to avoid the risks of a global recession, but the economic growth of major partner countries will be slow. Global trade growth rates will remain low.

"The Ukrainian economy is gradually recovering but remains vulnerable to security risks. Consumer inflation is decreasing faster than expected. The state finances are in good shape, mainly due to international support. The foreign exchange market is in a fairly stable and balanced state, and the comfortable level of international reserves provides resilience for a gradual easing of foreign exchange restrictions," the statement continues.

Additionally, the banking system maintains high liquidity and profitability. The ongoing stability assessment will result in the development of a plan to lift prudential relaxations and further implement regulatory requirements. Priority will be given to introducing new capital adequacy requirements, resuming postponed measures, and reinstating capital buffer requirements, as reported by the NBU.

Financial system stress

The Financial Stress Index in Ukraine sharply increased after the Russian invasion in February. However, it was lower than during the crises of 2008 and 2014-2015. At the end of 2022, it reached its lowest point since the war began.

Nevertheless, its values have risen in recent months following the winter downturn.