June 15, 2015

This week in focus: Local currency retail deposits resume their slide in May, access to UAH credit may get tighter


UAH deposits of individuals resumed their fall in May, indicating that sustainable stabilization is still a long way off. Monetary base continued to decline though, pointing to NBU continuing efforts to bring down inflation pressure. As NBU liquidity support of the local banks has moderated substantially through the past month or so, banking liquidity has been concentrated in 6-8 banks, and the central bank is expected to be left same tight, this suggests access to local currency credit may get tighter in the coming months. We also expect the banking system to continue getting thinner and would therefore recommend to use caution placing your assets at local banks.


Currency market: IMF softens tone on Ukraine restructuring


UAH sticks to 21-21.2 levels, following a string of NBU interventions at 21-23. The market is generally balanced, as USD/UAH high was fixed at 21.3. Black market has however tended upwards however, having closed Friday at approximately 21.60-21.75. FX deposits of individuals continued to shrink last month, showing a 20% decline since end 2014. Coupled with the negative balance of payment and retained restrictions on the FX market, the data suggests the broad layout is still negative for the UAH and sustainable stabilization is still far away. IMF has visibly softened its tone on Ukraine debt restructuring, indicating that further funding may still come in, should  Ukraine suspend its debt payments but fulfils other conditions / targets attached to the program. Meanwhile, a small delay of the second disbursement is still possible, in our view.

Money market: Liquidity up again despite moderating NBU support


Banking liquidity climbed to UAH 59.3bn, by our estimates. Interest rates show no changes (ON 20/23%, 1W 21/24%, 1M 23/27%). Volumes of the NBU regular liquidity support continued to moderate. Meanwhile, NBU said it has extended a UAH 750mn 2Y stabilization loan to Finance and Credit bank. Overall, according to the central bank data, the aggregate arrears of the commercial banks and the Deposit Guarantee Fund to the NBU amounted to UAH 131.9bn as of start Jun and was down by UAH 4.7bn last month (UAH 1.4bn lent, UAH 6.1bn repaid). Separately, NBU has announced its decision to liquidate Energobank.

Local debt market: Local currency yields edge down on shrinking supply


Yields on the local currency notes have inched down as deficit of these securities grows. With practically no other alternative at hand, investments into NBU CDs has therefore tended to substitute for OVDP purchases (30-day NBU CD rate stands at 30% p.a. vs. nearly 19% offer rate on a 1Y OVDP on the secondary market). Bid yields for new VAT notes are 25%, 20-21% for the VATs maturing in Aug. In the USD segment, bid yields for the notes due in Jul are nearly 2-3%. Notes maturing in 2016 see their bid yields standing at 11-12%. Underlying USD/UAH lowered to 22.0-22.7 (bid-ask).

Global markets: Impasse in restructuring talks growing deeper, Oschadbank signals deal is nearly there


Ukraine Eurobond prices have moved down as impasse in restructuring talks has seemed to get harder and Finance Minister Jaresko said Ukraine had sought a 40% haircut on its foreign debt issues subject to restructuring. Oschadbank announced it had reached an agreement with an ad hoc committee, representing 54.3% of holders of its Eurobonds due 2016 and 2018, as well as the subordinated loan due 2017. Meanwhile, another round of talks between Greece and its creditors held on Sunday failed again. Last week IMF delegation has left negotiations in Brussels and flown home because of "major differences" with Athens. Greece needs to repay EUR 1.6bn to the IMF by the end of this month. Eurozone finance ministers meet on Thursday.

For more information: UkrSibbank_150615.pdf