By KYIV. Dec 22 (Interfax-Ukraine) – Ukraine has committed to adjust the yield of government securities in the primary market and conduct an analysis of the liquidity of each bank to increase the share of government securities in total banking assets, according to the Memorandum on Economic and Financial Policies of the IMF Program Monitoring with Board Involvement (PMB).
"[We intend to] maximize the issuance of domestic government securities in the primary market, with an objective of covering the redemptions expected in 2023. In order to achieve this, we will implement a mix of actions: first, we commit to adjust the yields on government securities offered on the primary market to match market demand and support price discovery; second, we intend to launch a mechanism to allow banks to fulfill up to 50% of reserve requirements by benchmark bonds; and, third, we are undertaking a bank-by-bank analysis to better understand banks’ current liquidity and credit risk preferences to support these market discovery efforts in reviving primary market auctions, and with the overall aim that banks maintain their exposure," the memo said.
"As part of this strategy, we will take all necessary measures to create an environment that is supportive of domestic banks maintaining their overall sovereign exposure. Following the outbreak of the war, we continued conducting regular treasury auctions, offering “war bonds” to mobilize financing. Whereas the initial response was encouraging, cumulative net financing by domestic banks has been negative since the war started, with rollover rates declining from over 100% in March-May to 22% in August-September and picking up to 60% in October. The share of government securities in total bank assets thus declined in 2022 relative to end-2021, but it is likely to stabilize and increase in 2023, given weak loan demand and banks’ demand for safe assets," the report says.
