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Money and credit - Ivanov V.M.

25.4. Credit operations and refinancing policies

Credit operations of the NBU are not objectively limited by the amount of accumulated credit resources. As a first-tier bank, it issues loans on an issue basis, regardless of the state of the passive part of its balance sheet at the date of loan issuance. NBU liabilities automatically increase as loans are made.

NBU operational and technical credit means the issue of means of payment of interbank circulation. These funds in the correspondent accounts of commercial banks when issuing loans are used for interbank settlements, as well as settlements with the NBU. Settlement, credit and other operations between commercial banks are accompanied by a transfer of the corresponding amounts on their correspondent accounts. This leads to the redistribution of payment methods issued by the NBU for interbank circulation between individual commercial banks. These funds are withdrawn from circulation when repaying loans received from the NBU and paying interest on the loan. In addition, interbank payment funds are withdrawn during other operations: upon purchase from the NBU hryvnia cash, foreign currency; reservation of credit resources of commercial banks.

Thus, the NBU lending operations play a subordinate role in relation to the organization of the payment mechanism and money circulation of the country: they are designed to ensure that the balance of funds in the correspondent accounts of commercial banks is sufficient in order to ensure the smooth functioning of the interbank system and meet the cash turnover needs.

NBU loans are the main source of state domestic debt of Ukraine.

The lack of formalization of the state domestic debt with securities does not allow the NBU to characterize its lending operations as refinancing: the NBU lends directly to the government and there are no relations to reimburse commercial banks for funds invested in government securities. Direct granting of loans is also characteristic of the NBU's relations with commercial banks. The banking procedure established by the NBU provides for the refinancing of commercial banks by NBU institutions in the form of rediscounting and re-mortgage of bills. However, operations with bills of exchange are currently not widespread in Ukraine. The definition of NBU credit operations as refinancing is a tribute to banking traditions.

NBU refinancing operations are usually targeted. The issuance of loans to commercial banks through auctions was practiced only on an experimental basis. Loans are issued for strictly defined purposes, to specific banks for targeted issuance to the relevant government agencies. At the beginning of 1994, 92% of the refinanced funds were loans to the Ukraine Bank for issuance to procurement organizations and agricultural producers. During 1992-1993 NBU provided significant amounts of funds to commercial banks for the conversion program of enterprises of the military-industrial complex. These loans are long term. In general, short-term loans prevail in the banking system of Ukraine: as of January 1, 1994, this is 97.3% of all loans granted to enterprises and citizens.

The relations of the NBU with the Savings Bank of Ukraine are of a special nature. According to the Law on Banks and Banking Activities, funds raised by the Savings Bank are transferred for payment to the NBU. At the end of 1993, the amount of these funds amounted to about 600 billion kb. Obviously, the funds withdrawn from the Savings Bank are not used to issue loans to the NBU, which contradicts the emission nature of the lending operations it carries out. The withdrawal of these funds - one of the forms of regulation of the total money supply.

Direct lending to NBU enterprises is limited. A loan is issued to business entities that support the NBU (including the creation of the material and technical base for issuing its own currency). The practice of issuing loans to NBU employees from the funds of the material incentive fund.