Will 20 banks fail? What should Ukrainians prepare for with a new discount rate

In early June, the National Bank of Ukraine sharply raised the discount rate from 10% to 25%. This will help attract money to the banking sector and at the same time may lead to another bank failure in the country.

Maxim Orishchak, an analyst at the Center for Exchange Technologies, told Segodnya about this.

Under the threat of bankruptcy of 20 banks

As the expert explained, due to high inflationary pressure, an increase in the discount rate immediately to 25% is not the norm. This is an emergency measure, with the help of which it will be possible to attract money to the banking sector for a short period.

“Everyone understands that the banking sector is on the verge of falling and it is necessary to support it with an influx of funds. And before, the yield was similar for deposits and government bonds. Now the yield of government bonds will be lower than deposits. But for banks, raising money at such a percentage is approaching the moment of their fall,” Orishak explained.

The expert noted that the Association of Ukrainian Banks considers refinancing rates for long-term and short-term loans at the level of 27% to be a springboard to bankruptcy for 20 banks.

“Accordingly, we can expect that for the hryvnia this will in any case turn into a fall, as we are inevitably approaching default. And those who now deposit money in the bank at a higher interest rate risk losing it. Before depositing money, try to take loan,” the analyst said.

Orischak explained that the logic is that loans are issued by those banks that are confident in the future. At the same time, financial institutions are now mainly issuing consumer loans, as people are running out of money, jobs are disappearing, and there are no new sources of income.

“Accordingly, we perceive the entire current situation only in a negative way as a signal of a fall in the hryvnia against the US dollar and an increase in prices in the country,” concluded Orishchak.

One bank has already failed

Earlier, Segodnya wrote that for the first time since the start of a full-scale war in Ukraine, Megabank was declared insolvent. The NBU argued this with significant violations in relation to the assessment of credit risk, insider lending and non-fulfillment of the capitalization plan.

At the same time, experts say that the fate of the bank was finally decided by the war, and this is only her first victim. Read why the liquidation of Megabank could be a wake-up call.

We also talked about what will happen to loans in Ukraine after raising the discount rate and when the NBU releases the official dollar rate.