For more than five months in the Ukraine again pours the golden rain of foreign
loans and investments. But as it turned out , the economy is unable to digest
these funds . The banking system collects the excess money supply ,
which has the potential to provoke a sharp jumps in the hryvnia exchange rate ,
and a surge in inflation.

The invisible issue this summer, Ukraine's banking system was faced with an unusual
problem - a significant surplus of free money. In June and July the amount of money
in transit and correspondent accounts finstruktur reached unprecedented
volume: 29-34 billion USD. This is approximately one and a half times more than in 2009-2010
gg. (Residues are usually in the range 14-22 billion USD) and almost twice
more pre-crisis level: 15-18 billion USD. Excess funds can be easily
explain investors increasingly have money in banks, the borrowers gradually
return of earlier loans, but to issue new loans to financial institutions
not in a hurry. After the crisis began finorganizatsii much more cautious. "Financial
condition of many potential borrowers are at a level that
banks do not risk to give them loans "- says Dmitry Sologub, Chief
Analysis and Research Department of Raiffeisen Bank Aval. Therefore, the banks and
accumulate surplus funds. However, this is not the only reason.
In recent months, money is pumped not only the banking system, but
and the entire economy as a whole. The printing press has long been working so hard.
In March and July, just five months, the amount of the monetary base, which reflects
amount of outstanding money, jumped to 17, 3% - to 223, 8 billion
UAH. In comparison, for the full year 2009 monetary base grew by only 4, 4%.
The increase in emissions may seem surprising. In recent months the government
dramatically reduced by the use of NBU for financing the budget deficit,
switching to other creditors, primarily the Russian bank VTB, and
and Ukrainian financial institutions. In addition, the Cabinet began a policy of limiting
expenditures. What was caused by the need to issue? The answer is simple:
it is almost inevitable side effect of stability of the hryvnia in a powerful
capital inflows from abroad. To keep the exchange rate
at around 7, 9 UAH / USD, the regulator is forced to constantly buy the interbank
market over coming to Ukraine dollars and euros. Doing this can
only through the issuance of a new treatment hryvnia. For example, according to the NBU,
in II quarter 2010 balance of payments surplus in Ukraine has reached $ 5, 1
billion if even half of that amount was acquired by the regulator on the interbank market
by new domestic bank notes, the size of the issue at the exchange channel
for the three months amounted to no less than 20 billion USD. While "monetary overhang", which
began to emerge in the economy, has no effect either on the exchange rate of hryvnia,
no inflation - the money stuck in the banking system. But under certain
conditions of this "overhang" can leave no stone unturned in the monetary and
price stability. Remember the fall of 2008, is now a large-scale buying of dollars
and the euro are not engaged in any banks or companies, nor the population. Why buy
if the offer exceeds the demand of currency, the hryvnia and slowly going up? But
specificity of the international capital market is such that the flow of money can change
its direction in a matter of days. In this flight of capital, usually
begins suddenly. "The outflow of capital can be triggered by even small
shock in the global economy ", - said Vitaly Vavrischuk, analyst BG
Capital. This danger into account and the government. "First and foremost
I'm talking about the risks associated with the prices of steel products ", -
warns Deputy Prime Minister Sergei Tigipko. If domestic metkombinaty
again stop and freeze foreign investors investing in Ukraine
free hryvnia immediately rush to the foreign exchange market, provoking a sharp
national currency exchange rate jumps. Such a scenario can be realized at any time
- Even in the coming weeks and months. Another danger of excess liquidity
- The risk of high inflation, - can strike on the economy in the longer
term. The powerful flow of foreign capital, which flooded the Ukrainian
economy before the crisis, was one of the main reasons for high inflation
2006-2008. Here are the results of constant retention policies hryvnia
by buying the currency on the interbank market: in 2006, money supply increased by
34, 7% in 2007 - 52, 2%. A consumer price growth accelerated
11, 6% in 2006 to 22, 3% in 2008. However, while the rapid growth
money supply was the result not only emissions, but also actively lending.
The amount of hryvnia in circulation increased as a result of the credit
animator: essentially, the same non-cash hryvnia simultaneously issued
different borrowers. Now the multiplier works in reverse,
squeezing the money supply: from January to July, the credit portfolio of banks has decreased
1, 7%. However, when the credit is restored, the excess money spill
in the economy, pushing prices up. This can happen, apparently,
not until next year. Restoring credit is constrained by a
bunch of good reasons, including: change of policy banks, poor
financial condition of both the lending institutions and their borrowers,
restrictions on foreign currency lending. "Before the bankers could give a credit
people with very low income in the expectation that the value of the collateral will be
to grow and it will cover the risks. Now this is not possible "- says Dmitry
Boyarchuk, executive director of the research center В«CASE Ukraine."
In a difficult situation and are potential recipients of loans. "Those
borrowers whose financial condition meets the needs of banks, loans are not
needed, as demand for their products is still quite low ", - complains
Dmitry Sologub. Not surprisingly, the economic recovery is still not very stable.
"In fact, the situation can be described as follows: sluggish stupornaya stabilization.
GDP growth in recent months, while largely due to unsustainable
cyclical factors ", - Ekaterina Trofimova, sure, the analyst rating
agency Standard \u0026 Poor `s. And yet, if the Ukrainian economy is not lay a
new wave of global crisis, the issuance of loans will be gradually resumed.
According to Vitaly Vavrischuka, next year the credit portfolio of financial institutions
to grow by 12-14%, primarily due to state banks. And if the inflow of foreign
capital will automatically lead to the issue, sooner or later it will
impact on prices. The banks have hesitated course, in addition to lending, there are several
ways to use excess liquidity. One of them - to reduce debt
to foreign creditors. However, as financial institutions interested
This is not yet clear. Because interest rates on foreign loans to them are lower than,
say, the hryvnia deposits. In addition, the average time of deposits
considerably less than the time to attract loans. Another option: send
available funds for the purchase of government bonds, including VAT bonds, since only
the last scheduled to be released this year in an amount not less than 16 billion USD.
However, to solve the problem so the excess liquidity in the banking system
will not work. If the funds will be used to buy VAT-bonds, money
move from the accounts of some companies on account of others, but the aggregate
indicators of the banking system will not change. In addition, financial institutions do not
can spend all available funds to government bonds. "In terms of excess
liquidity and lack of alternatives in the interest of banks to government bonds will remain
at lower rates than current ones. But it must be remembered that finstruktury
limited to limits on T-bills, "- explains Roman Cooper, director of the Treasury
Erste Bank. It is not excluded that the issue of government bonds, VAT, on the contrary,
lead to an increase in excess liquidity, if these documents will cause considerable
interest from foreign investors, Ukraine is waiting for an additional influx of foreign currency
and increased emissions. While NBU is trying to solve the problem of excess liquidity,
activating the sterilization of money - such a method has been popular in
time prime minister Yulia Tymoshenko. The regulator has increased the volume of transactions
raising money by selling the banks to their Certificates of Deposit. After
this amount of money in transit and correspondent accounts with financial institutions
dropped to 22-25 billion USD. But it's more like a temporary solution.
Terms of placement of funds in the National Bank with certificates are usually very short
(Generally up to two weeks), and the stakes are extremely unattractive to banks
(0, 2-1, 5% per annum). Therefore, most likely, the authorities will have to think about
rejection of the rigid peg to the dollar hryvnia. Thus the regulator
be able to control the size of the money and get more leverage
the inflation rate. Such a policy is adopted in most developed countries.
But reflection will not be easy. On the one hand, Ukraine has promised the IMF
seek primarily to price stability and to move to a flexible exchange rate
rate. On the other - so now the exchange rate policy will mean the inevitable
strengthening of the hryvnia, which is disadvantageous to exporters. Time to think the authorities
there. While capital inflows into Ukraine is relatively small. But sooner or later
it will increase. Local companies interested in foreign capital
because internally it is impossible to find any alternatives to interest rates,
nor-largest loan, either in terms of their provision. But Western investors
involves potentially high profitability of the business in Ukraine.

Share This Post: