The NBU has updated its macroprudential strategy, focusing on the risks of war and ESG factors.

The National Bank has updated its Macroprudential Policy Strategy, which reflects the consequences of Russia's full-scale invasion for Ukraine's financial sector, the new challenges facing macroprudential policy, and the National Bank's approaches to addressing these new challenges.

This is discussed on the NBU website.

“The publication of the strategy enhances transparency, clarity, and predictability of macroprudential policy for financial market participants, thereby increasing its effectiveness in achieving the primary goal – financial stability in Ukraine,” the announcement states.

It is emphasized that, in addition to the traditional risks faced by the financial system, new challenges are emerging for the National Bank and financial institutions. Therefore, in the updated strategy, the National Bank focuses on the following aspects:

• The need to maintain operational continuity amid full-scale war has become crucial for financial institutions, and operational risks may prove to be systemic;
• The government-initiated lending support programs since 2020 have played a significant role during the most acute episodes of the coronacrisis and the initial months of the full-scale war, but under current macroeconomic conditions, they require a focus on specific segments and categories of clients where they do not contradict the development of market lending;
• The significant impact of environmental, social, and governance (ESG) risks on the operations of financial institutions.

“The listed challenges may eventually acquire characteristics of systemic risks, necessitating appropriate responses through macroprudential measures. When selecting tools and methods of response, the National Bank will consider the scale of the risk, its origin, and the functioning of different policy instruments,” the NBU noted.

Additionally, the focus of the strategy has been clarified, as one of the systemic risks mentioned in the previous document – the rapid increase in unsecured consumer lending volumes – has weakened since its last update four years ago. Furthermore, in light of the war, plans for the introduction and application of macroprudential instruments have been updated, including the deferral of capital buffer implementation.

Background. Earlier, Mind reported that the National Bank is easing a number of currency restrictions, which will support domestic producers and improve business conditions in Ukraine. At the same time, these changes will not have a significant impact on exchange rate dynamics and the level of international reserves.