Central bank expands criteria for collateral against emergency liquidity assistance

The National Bank of Ukraine has expanded criteria for eligible collateral against emergency liquidity assistance (ELA) loans, the regulator's press service reported on Monday, September 7.

ELA collateral: latest changes

"From now on, property rights under loan agreements with legal entities not only in hryvnia, but also in foreign currencies – U.S. dollars and euros – with reduced adjustment coefficients shall be seen as eligible collateral against ELA. The list of eligible collateral shall also include property rights under credit agreements with class 5 legal entities (previously, it was class 4)," the report reads.

Grounds for turning down ELA application

Read alsoCentral bank keeps key rate at 6%This applies to cases when the possible volume of ELA, taking into account the collateral offered by the bank, will be insufficient to cover the forecasted temporary shortage of the bank's liquidity. “"The changes are aimed at preventing the negative impact of the coronacrisis on financial stability. Today, the banking system has sufficient liquidity, and the economy is gradually recovering, but in the event of a second wave of a pandemic worldwide and a deepening economic crisis, banks will have an additional tool to maintain an adequate level of liquidity," the NBU said.

What's ELA

In December 2016, the NBU put in place the Emergency liquidity assistance (ELA) facility.

ELA loans are intended to cover temporary liquidity shortages experienced by a bank, which is provided in the event of emergency liquidity needs when banks have exhausted other sources of liquidity support, in particular financing provided by shareholders and standard refinancing facilities provided by the NBU against the collateral of government securities and foreign currency.

Read alsoNational bank greenlights refinancing loans for six banksDebtor banks

• As of July 31, total debt of solvent banks on refinancing amounted to UAH 12.7 billion (insolvent – to UAH 36 billion).
• As of July 1, 2020, debts of solvent banks on refinancing by the NBU stood at UAH 9.2 billion. Over the month, they grew to UAH 12.7 billion.
• As of June 1, it amounted to UAH 11.5 billion, on April 30 – to UAH 2.1 billion.
• On July 17, 2019, the Individual Deposits Guarantee Fund published an update on all borrowers, directors and former shareholders of insolvent banks who must repay debts in accordance with a court judgment.
• To ensure payments to depositors, the Fund in 2014-2016 received loans from the Ministry of Finance worth a total of UAH 59.6 billion, as well as from the NBU- worth over UAH 20 billion.
• In 2014-2017, ninety-six banks in Ukraine turned insolvent. The total volume of funds received by bank depositors handed to be managed by the Guarantee Fund over the said period amounted to almost UAH 90 billion.