REUTERS
The introduction of this tool is expected to facilitate credit programs for businesses and households.
The National Bank of Ukraine (NBU) has approved regulations on interest rate swap operations on the country's interbank market, which will introduce a new tool that will boost long-term lending by banks.
The relevant conditions for conducting such operations are stipulated in NBU Board resolution No. 67 dated May 28, which will enter into force on May 30, according to the NBU's press service.
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"The National Bank undertakes many efforts to prop up the economy at the stage of exiting the quarantine. We have lowered the key rate to 8% and see prerequisites for a further cut. We have introduced long-term refinancing of banks for up to five years so that they are not afraid of taking NBU funds and injecting them into the economy. Now we are preparing for the launch of an interest rate swap, which will reduce banks' risks linked with interest rates and encourage them to roll out lending," the press service quoted NBU Deputy Governor Oleh Churiy as saying.
According to the report, an interest rate swap suggests that one side offers its counterparty a fixed interest rate, which is charged on a conditional amount, and the other side offers a floating interest rate, which will be calculated on the basis of the Ukrainian Index of Interbank Rates (UIIR).
When agreed, the counterparties calculate a difference in interest rate payments, so banks could minimize their interest rate risks when lending.
"A rate on bank deposits almost always vary and may increase while it is fixed for the borrower. The swap eliminates such risks. For its part, thanks to such operations, the National Bank will be able to make monetary transmission more impactful. Interest rates in the economy will more flexibly respond to the National Bank's monetary decisions and changes in the value of loans on the interbank credit market. Thus, the introduction of an interest rate swap will not only stimulate the launch of credit programs for businesses and households, but will also facilitate further reductions in interest rates in the economy," it said.
The NBU says the new instrument will become available after its feature set is ready and the depository system is prepared for handling such operations approximately in the second half of June.
The National Bank will carry out interest rate swap transactions as auctions where bids are placed for the amount participants are willing to buy in terms of quantity and price via the Bloomberg, Refinitiv terminals or any other advanced software and hardware system with the necessary functionality.
As UNIAN reported earlier, the NBU and the European Bank for Reconstruction and Development (EBRD) agreed to set up a US$500 million forex UAH/USD swap facility to support Ukrainian businesses amid the pandemic.
The forex swap facility terminates in two years but can be extended. The minimum amount of one tranche under a forex swap agreement is US$25 million, while each tranche comes with a minimum term of up to three months and can be rolled over.