Business

The NBU is trying to make banks compete for depositors. What is being done for this purpose

Some banks continue to take advantage of the non-competitive concentration of excess liquidity and refrain from revising their interest rate policy, ignoring the NBU’s relevant steps, which affects the extremely restrained pace of increase in deposit rates in the banking system on average. This critical point of view was voiced during a recent discussion of the NBU Monetary Policy Committee members, Komersant ukrainskyi reports.

Following the discussion, the Board of the National Bank of Ukraine decided to raise the key policy rate to 15.5% per annum and adjust the parameters of interest rate policy.

What happens to deposits

Despite the growing interest of households in domestic government bonds, deposits remain a more popular and affordable savings instrument that can contain pressure on prices and international reserves. This assessment was made during a meeting of the Monetary Policy Committee.

At the same time, the NBU noted that the inflow of hryvnia time deposits from households, although somewhat recovered in recent months, remains lower than in the same period last year. The share of time deposits in the total amount of households’ hryvnia deposits with banks has been steadily declining. This suggests a need to make bank deposits more attractive.

In view of this development, most of the Committee’s members spoke in favor of creating additional incentives for banks to compete for depositors and increase the volume of household time deposits in hryvnia.

How to make hryvnia deposits more attractive

The quickest way to encourage banks to compete for depositors is to increase the effectiveness of three-month certificates of deposit with a higher rate and linked to the rate of household time deposits.

When discussing this idea at a meeting of the Monetary Policy Committee, the NBU stated that in 2023 this instrument proved to be effective, but that last year its impact was expected to decrease due to changes in parameters in the context of the interest rate easing cycle. Some MPC members believed that it would be advisable to partially restore such incentives for banks in order to strengthen monetary transmission to deposit rates.

Another point of view was also voiced. Its supporters pointed out that the NBU has already taken enough measures to maintain the attractiveness of hryvnia instruments by raising the key policy rate and maintaining the stability of the FX market. Yields on domestic government bonds and hryvnia deposit rates in many private banks currently provide an adequate level of inflation protection. There are no outflows of hryvnia deposits, so the NBU should not further revise the operational design of its interest rate policy.

What was decided

The majority of Monetary Policy Committee members supported the proposal to revise the operational design parameters starting April 4 in order to maintain the real yield on time deposits, including additional taxation.

Thus, starting April 4, 2025:

– the spread between the key policy rate and the rate on three-month certificates of deposit will increase by 1 pp;

– the spread between the key policy rate and refinancing loan rates will also increase by 1 pp;

– banks will be able to place funds in three-month certificates of deposit depending on the success of the last 12 months of increasing the portfolio of hryvnia deposits of households with a maturity of more than three months (the multiplier will increase from 3 to 3.5).

These changes will increase market incentives for banks to attract hryvnia term deposits from households. This will contribute to a further increase in interest rates on hryvnia time deposits, and thus to a stronger protection of hryvnia savings from inflationary depreciation.

The NBU assessed the liquidity of the banking system

The banking system of Ukraine is increasing its liquidity reserves – the amount of hryvnia funds on the accounts of individuals in February increased by 2.3%, according to the latest data. This is emphasized in the NBU report.

The volume of hryvnia funds on business accounts also increased by 2.3% in February, offsetting most of January’s situational seasonal outflows.

Thus, at the beginning of this year, the trend observed in pre-war times, when due to seasonal factors, customer account receipts increased at the end of the calendar year and decreased at the beginning of the next year, was repeated, but this decrease was quickly compensated for and did not affect the liquidity of the banking system.

As of the beginning of March, the amount of hryvnia deposits in banks amounted to UAH 1.9 trillion, having doubled since the beginning of the full-scale invasion. According to the NBU, these are key resources for banks to further increase investment and lending, which will contribute to further economic recovery and strengthen Ukraine’s defense capabilities.