September 14, 2015

This week in focus: UAH deposits head for recovery amid slowing inflation in Aug

Outflows of the local currency retail deposits decelerated to -UAH 1.2bn last month. With insolvent banks not taken into account, this figure was however positive, standing at UAH 787mn. The data suggests household deposits might entered the bottoming-out stage, having reverted from their one-off dip in Jul. The positive background was also strengthened by the outflow of FX deposits of individuals slowing  nearly 5 times vs. Jul, and Ukraine's monthly inflation rate being again negative in Aug. Should these positive trends hold on, this will gradually create grounds for a less restrictive NBU policy. Going forward, we would also expect inflation to re-accelerate this month. 

Currency market: Views on UAH may get somewhat brighter

Friday closed with USD/UAH standing at 22 level, having bounced between 21 and 23 during the week on supply/demand moves. As the rate neared 21 levels on Thursday, NBU entered with an intervention at the now usual 21/23. In the meantime, views on the UAH become may become somewhat better against positive newsflow. While Ukraine needs nearly USD 1bn to finance its natural gas imports this year, the funds will be provided by a syndicate of international official lenders, according to government sources. On top of that, drop of FX deposits of individuals slowed to just -USD 88mn last month, looking indeed nice against the backdrop of -USD 435mn in Jul and the USD 514 average outflows in 1H 2015. So far we remain bearish on the UAH, however, with the end-2015 forecast retained at around UAH 25 per USD. Still, should Ukraines gas imports be indeed covered by inflows from external creditors, this would mean less pressure on the UAH later this year, implying a more positive view on the end-2015 USD/UAH going forward. 

Money market: Flat

Banking liquidity climbed to UAH 73bn by end Friday. (As Oschadbank repaid UAH 3bn of refinancing loans to NBU, the balances dipped to UAH 65.3bn on Wednesday, but have quickly recovered thereafter.) NBU liquidity injections have been round zero last week. The balances were still replenished by UAH 1.9bn via OVDP servicing / redemptions (there is UAH 1.1bn more to arrive this week). Interest rates have been flat. ON at 17/19%, 1 week at 18/20%, 1M at 20/23%. 3M depo rate offered by NBU has also stayed unchanged (23%).  Meanwhile NBU said it intends to ban 11 audit firms from carrying out audit of banks' financial statements. Commenting the central banks decision, Head of NBU Banking Supervision noted that in 2014-2015, 8 audit firms failed to reveal the problems faced by the banks that later were declared insolvent. 

Local debt market: Boring

Market activity stays subdued. Bids prevail, and offers remain limited to VAT bonds in general. NBU continues to offer OVDP from its portfolio, with underlying yields kept unchanged (6M at 22.5%; 8M at 20.75%; 1Y at 20.5%; 3Y at 17%; 5Y at 15%; 10Y at 12%).

Global markets: China yields further signs of slowdown ahead of Fed policy meeting

Media reports say some holders of 2015 Eurobonds seek to revise the terms of the restructuring agreement, so that to make the period of the notes full repayment shorter (according to the current restructuring terms, this will make over 8 years, including a 4-year grace period). Although potentially a pain in the back going forward, the news have not had any notable negative effect on the bond prices (79.3% of par as of this afternoon vs. last weeks 79.9%, according to Bloomberg). Oil prices dipped weighed by weak Chinese data released yesterday and concerns that declining global demand would exacerbate a surplus of oil supply. Meanwhile, faced by faltering economic growth, Chinese government has unveiled plans to restructure its state-owned enterprises. US central bank meets this week, with its outcome / follow-up statements largely perceived to be determinant for the dollars future path.

For more information: UkrSibbank_140915.pdf