NBU replaces stabilization loans by new tool to urgently support liquidity

The National Bank of Ukraine (NBU) has introduced a new tool to support liquidity to replace stabilization loans. The new tool is Emergency Liquidity Assistance (ELA), the regulator has reported on its website.

The new rules on emergency support of banks' liquidity by the NBU is approved by NBU board resolution No. 411 dated December 14, 2016. The document took effect on December 16.

"The loans received using ELA tools are intended only to cover a temporary gap in liquidity of banks in case of emergency when banks exhausted all sources to support their liquidity, in particular, funds of shareholders and standard refinancing tools of the NBU with government bonds and foreign currency used as collateral," the NBU said.

According to the document, the funds are to be sent to fulfill liabilities to depositors and other creditors (apart from affiliated ones) and cannot be used to finance the banks' business and additional capitalization of banks.

Banks will be able to receive a loan for the period of up to 90 days in one or several tranches at refinancing rate plus 2% per annum. Banks can use securities with government guarantees, liquid property (apart from uncompleted construction projects), ownership rights under mortgage credit agreements signed with companies (apart from banks and budget-funded institutions) and ownership rights under agreements with individuals.

The size of the loan is based on the forecasted outflow of funds to fulfill liabilities to depositors and other countries. It cannot exceed the collateral.

For the period when the loan agreement is in effect some restrictions are imposed on banks, including on active transactions and investment, purchase of own shares, early payment of bonds, distribution of capital, payment of bonuses and compensations, and early return of funds to affiliated persons.