Ukrainian central bank defends forex stance
The National Bank of Ukraine this week hit back at claims of double standards and a lack of transparency in its provision of dollar liquidity to Ukrainian banks.
It insisted there is ample dollar liquidity in the swap market for banks to meet their dollar obligations. Sergei Kruglik, head of the international department of the National Bank of Ukraine, rejected claims that the National Bank is rationing dollars to help support the hryvnia.
“There are no restrictions on accessing the foreign exchange market for Ukrainian banks or corporates to repay their debt obligations”, he told Emerging Markets. “Ukraine’s corporates and banks have access to dollars in the market and in their own reserves.”
Kruglik also poured cold water on hopes the National Bank might open its dollar swap lines to privately owned Ukrainian banks and corporates. “We will not be providing dollar liquidity to private companies and banks”, he said.
The refusal to open the National Bank’s dollar swap line comes in spite of claims from Ukrainian corporates and banks of a lack of dollar liquidity in the swap market.
“According to locals, both the depth of the inter-bank market and NBU currency auctions are insufficient to fulfil foreign currency demand”, Commerzbank analyst Barbara Nestor said in a report this week.
Ukraine faces an overhang of foreign currency demand of some $10 billion, while the National Bank’s monthly auctions amount to around just $350 million, according to Commerzbank.
“The NBU has imposed a series of exchange controls for ‘non-standard’ transactions to be able to control the hryvnia”, said Nestor. The Bank “appears to be rationing foreign exchange so as to encourage the private sector to source foreign exchange on a bilateral basis from parent groups or otherwise, in the absence of it, structure foreign debt payments.”
Kruglik insists this does not pose a problem. “I don’t see any problem for banks in Ukraine to repay their maturing Eurobonds. They have sufficient reserves and access to foreign currency in Ukraine.”
Alfa Bank Ukraine, a lending arm of the Alfa Group, controlled by the Russian billionaire Mikhail Fridman, last week blamed a delay in its repayment of the principal on $100 million of bonds on a lack of dollar supply in the Ukrainian interbank market and restrictions by the National Bank of Ukraine. Alfa repaid the bond on Friday morning, avoiding triggering a default on the Eurobonds.
Market participants dismissed the move as a strategic attempt by Alfa to gain access to dollar funds at cheaper rates through the National Bank’s dollar swap facility.
State-owned enterprises including Naftogas and Ukreximbank have access to dollar liquidity through the National Bank at better rates than those available in the swap market.
Ratings agency Moody’s this week cited the “uncertainty generated by a series of capital controls implemented by the National Bank of Ukraine to ration foreign currency” among the reasons for its downgrade of the sovereign’s foreign and local currency government bond ratings to B2 from B1. Moody’s said capital controls “heighten the possibility of default by Ukrainian corporations and banks on foreign currency debt payments”.
Kruglik responded: “We don’t have any restrictions or any limits on access to hard currency. We have announced all the interventions planned by the NBU over the next few weeks.”