L&M Finance Group


At the end of March, the National Bank published the White Paper “The Future of Regulation of Credit Unions” - the first of six planned sectoral documents in which the National Bank as the future regulator of non-banking services markets describes the current state of the markets, their problems and planned changes in their regulation.
The first of six books is fully devoted to the problems of credit unions in Ukraine. In short, credit unions are financial institutions whose activities are to meet the needs of their members in mutual lending and the provision of other financial services through their combined cash contributions. For credit unions, the main goal of the activity is to provide the members of the union with financial services at cost terms, and not to make a profit (as with other financial institutions). Thanks to its philosophy, credit unions all over the world play an important role in increasing the accessibility of financial services for the general population.
According to the information provided, as of September 30, 2019, the State Register of Financial Institutions of Ukraine included 337 credit unions, of which only 241 institutions report to the National Financial Services Commission on their activities. The assets of credit unions in Ukraine, compared with the assets of banks, make up only 0.4%, but cover a fairly wide range of people. The total assets of credit unions amount to 2.4 billion UAH., The loan portfolio - 2.2 billion UAH., Deposit - 1.1 billion UAH.
At the same time, the National Bank of Ukraine identified the following key problems in the existence and activities of credit unions:
  1. Conservative legislation:
1.1. Current regulation does not provide for expanding the list of financial services that a credit union can provide to its members);
1.2. Credit unions are limited in terms of the potential circle of their members.
  1. Inadequate level of control over the financial condition:
2.1. The current system for assessing the financial condition of credit unions does not allow the regulator to timely receive objective information about the activities of the institution and to respond in a timely manner to problems with its solvency and liquidity.
2.2. Credit unions in Ukraine do not have an effective liquidity management system and tools to support their solvency.
  1. Attraction of “quasi-deposits”.
  2. Lack of detailed regulation of the procedure for exit of credit unions from the market.
  3. Problems of taxation.
It is reported that the National Bank is ready to stand its policy in such a way as to regain confidence in credit unions, increase their level of reliability, transparency and solvency, and resolve the existing problems. For this, the NBU are ready to influence the implementation and offer:
  1. To expand the list of services that credit unions will be able to offer their members. In particular, it will be possible for credit unions to provide some new financial services, such as currency exchange and certain types of payment services.
  2. To increase the accessibility of credit union services by providing the right of membership, in addition to individuals, also to certain legal entities, farms, cooperatives, OSMD.
  3. To consolidate the legislative opportunity for credit unions to form their own center for financial integration.
  4. To propose the introduction of new instruments to support liquidity and solvency of credit unions, to provide a reliable system of guaranteeing deposits.
In addition, the National Bank reports on the development of a new licensing model for non-banking financial institutions. It is planned:
  1. Combine the initial registration procedure (as a financial institution) and obtaining a license in one procedure.
  2. Ensure the receipt of a separate license for each type of financial service.
In addition, it is planned to significantly increase the requirements for the corporate governance system and risk management procedures, which will be closely monitored and verified.
Regarding the assets and capital of credit unions, the National Bank does not intend to establish requirements for a minimum amount of credit union capital (except for credit unions that will provide certain types of payment services), but will make mandatory changes regarding the structure of such capital. The increased demand will also be on the assets of participants, since credit unions remain the subjects of primary financial monitoring.
It is expected that all these measures and development directions will help to increase the level of capitalization and stress resistance of credit unions and, as a result, strengthen the reliability of the sector and consumer confidence in it. In our humble opinion, given the fact that the prospect of opening a land market in Ukraine is becoming increasingly obvious, we believe that credit unions will strengthen their positions in the financial services market, including by providing loans to merged farmers and farmers. Such an algorithm will strengthen the cooperation of credit unions with territorial communities and will provide the foundation for a stable position of credit unions in the financial services market.