NATIONAL BANK OF UKRAINE ANNUAL REP ORT 2008 Dear Sirs and Mesdames! Herewith we present to you the Annual Report of the National Bank of Ukraine for 2008. The main feature of the reporting year was aggravation of the world financial and economic crisis that provoked deceleration of the growth of the econ- omy of Ukraine. Whereas in the 1st half-year of 2008 the economy showed an upward trend due to the favorable conditions in the world market for raw materi- als, then in the 4th quarter the economic growth pace sharply slowed down due to reduction in the external demand, investment and consumer demand, as well as expansion of the crisis phenomena over the financial sector. Despite the downward dynamics of consumer prices in the second half of 2008, the inflationary pressure during the year remained at a high level - 22.3% inflation. Under these conditions the National Bank of Ukraine focused its efforts both on curbing the high inflation rate in the first half-year and on mitigating the hryv- nia's devaluation against world currencies by means of deliberate use of the mon- etary instruments and tools at the end of the year. In the 4th quarter of 2008, in the light of the unfavorable development of processes in the world economy, artificially provoked distrust in some banks and the banking system as a whole, and deposit outflow from the banks, the National Bank of Ukraine was concentrated on keeping the stability of the banking sector. During the year, the dynamics of deposits' attraction by banks drastically changed. Specifically, in the first half-year, the growth rate of the residents' deposits was quite high and in line with the economic activity in the country. However, for the tense situation in the financial market, starting from October 2008, the deposit growth rate swiftly decelerated (to 126.7% by the year results as compared with 152.7%, in 2007). For the purpose of preventing the house- holds' deposits outflow from the banking system, in particular, in October- December, and accumulating the resource base, the banks gradually increased the interest rates on the households’ deposits. In 2008, dynamics of the loans extended to economic entities were irregular. In January-September 2008, noted was a tendency toward a gradual slowdown of the credit growth rate due to a complicated access to the external sources of funding, aggravation of the financial status of enterprises, a slump in solvency of the population, as well as the necessity to meet the NBU requirements purposed to limit banks' lending activities. However, starting from October 2008, an appre- ciable acceleration of the growth rate of crediting by banks took place, primarily at the expense of hryvnia devaluation against the main foreign currencies. By the year results, the lending rate slowed down to 172.0% as compared with 174.1% in the previous year. Thus, during 2008, the banking sector developed under conditions of deposits' withdrawal and assets’ quality worsening. The National Bank of Ukraine approved a set of normative and legal documents for increasing the capitalization, the share of long-term liabilities and banks' reserves; disclosing the information on ultimate beneficial holders of banks; improving the risk management practice; raising the banks' potential in respect of stress-testing; and implementing stricter prudential regulations to the banks whose liquidity position worsened. To improve the situation with meeting lenders’ claims on the banks under liquida- tion, first of all, the individual depositors’ claims, the Deposit Insurance Fund increased the amount of guaranteed recovery on the deposits up to UAH 150 thousand per every depositor of a participant (or provisional participant) bank in the Fund, includ- ing the interest accrued on the date when the deposit became unavailable. In 2008, the NSMEP continued to develop; innovative projects and technologies were implemented by banks and by the Payment Organization of the system. In particular, continued was the pilot project ”Electronic Student Identification Card” for higher educational establishments of the 1st-4th accreditation class. Internet pay- ments through the NSMEP showed very expansive dynamics. In the reporting year, a mobile payment system, that provided for bank account control and manage- ment, as well as payments through a mobile telephone, was launched. Finally, I would like to thank sincerely the numerous staff of the banking system whose professionalism and committal to the business were targeted towards ensur- ing development of the banking sector and strengthening the confidence in the banking system. Sincerely yours, Governor of the National Bank of Ukraine Volodymyr Stelmakh Members of the Council Petro Ihor Poroshenko Prasolov Resolution of the Verkhovna Rada Resolution of the Verkhovna Rada of Ukraine of 11.01.2007 №560-V of Ukraine of 11.01.2007 №560-V Chairman of the Council Deputy Chairman of the Council of the National Bank of Ukraine of the National Bank of Ukraine (Decision of the Council of the National (Decision of the Council of the National Bank of Ukraine of 23.02.2007 №4) Bank of Ukraine of 23.02.2007 №4) Anatolii Serhii Danylenko Kliuiev Decree of the President of Ukraine Resolution of the Verkhovna Rada of 28.02.2005 №384/2005 of Ukraine of 11.01.2007 №560-V Petro Volodymyr Sabluk Stelmakh Decree of the President of Ukraine Member of the Council of 28.02.2005 №384/2005 of the National Bank of Ukraine by position, as Governor of the National Bank of Ukraine of the National Bank of Ukraine (as at 1 January, 2009) Valerii Mykhailo Vasyl Heiets Honcharov Horbal Decree of the President of Ukraine Resolution of the Verkhovna Rada Resolution of the Verkhovna Rada of 28.02.2005 №384/2005 of Ukraine of 11.01.2007 №560-V of Ukraine of 11.01.2007 №560-V Borys Mykola Volodymyr Kolesnikov Onischuk Poliachenko Resolution of the Verkhovna Rada Decree of the President of Ukraine Decree of the President of Ukraine of Ukraine of 11.01.2007 №560-V of 28.02.2005 №384/2005 of 16.05.2008 № 448/2008 Anatolii Arsenii Fedorenko Yatseniuk Decree of the President of Ukraine Decree of the President of Ukraine of 28.02.2005 №384/2005 of 25.09.2006 №782/2006 Members of the Board Volodymyr Anatolii Stelmakh Shapovalov Governor First Deputy Governor of the National Bank of Ukraine of the National Bank of Ukraine Viktor Oleh Kravets Daschenko Executive Director Executive Director on Payment Systems and Settlements on Cash Circulation Ihor Olha Vasyl Ivaniuk Kandybka Pasichnyk Director Director Director of the Personnel Department of the Financial Department of the Legal Department of the National Bank of Ukraine (as at 1 January, 2009) Volodymyr Olexandr Pavlo Krotiuk Savchenko Senysch Deputy Governor Deputy Governor Deputy Governor of the National Bank of Ukraine of the National Bank of Ukraine of the National Bank of Ukraine Mykola Ihor Natalia Lavruk Shumylo Hrebenyk Executive Director Executive Director Director of the on Administration on the Economy Monetary Policy Department Vira Anatolii Anatolii Rychakivska Savchenko Stepanenko Chief Accountant – Director of the Head of the Main Department Director of the Accounting Department Information Technology Department for the City of Kyiv and Kyiv Region Organizational Chart NBU Governor Volodymyr Stelmakh NBU Council Group of Advisers Audit Bank Security Office to NBU Governor Department Department Guard of NBU Institutions in Kyiv First Deputy Governor Deputy Governor Anatolii Shapovalov Volodymyr Krotiuk Executive Department of Executive Audit Executive Director – Director Banks’ Director Department Director of Directorate Reorganization on Economics (operationally) on Administration for Banking and Activity Ihor Shumylo Mykola Lavruk Regulation Termination and Supervision Olexandr Kirieiev Foreign Exchange Department NBU Regulation Directorate Department of Off-Site Maintenance and Department for Banking of Economic Administration Regulation Banking Analysis and Office and Supervision Supervision Forecasting Monetary Policy Department for Prevention of Archive Department Office for Legalization of Office Legal Provision Balance the Proceeds of Banking of Payments from Crime Supervision Department through the Department Banking System of Foreign and Terrorism NBU Exchange Financing Construction Reserve Department for Office Management Normative and Statistics and Open Methodological Department and Reporting Market Provision of Banks' Department Operations of Banking Registration and Regulation and Licensing Supervision Division of NBU Tenders and Supervisory Scientific Marketing Regulations Department Research Centre Research Office Compliance of Banks' Control Inspection of the National Bank of Ukraine (as at 1 January, 2009) Department Personnel NBU Board’s Legal of External Department Secretariat Department Economic Relations NBU Educational Institutions NBU Training Editorial Centre Office of NBU Periodicals NBU Central Library Deputy Governor Deputy Governor Olexandr Savchenko Pavlo Senysch Accounting Executive Executive Department Director Department of Director on Cash Foreign Exchange on Payment Circulation Regulation Systems Oleh Daschenko and Licensing and Information Settlements Technology Viktor Kravets Department Cash Risk Circulation Management Financial Department Unit Payment Department Systems Department State Treasury of Ukraine Project NBU Banknote Monitoring Printing and Unit for Central Minting Works NBU Operations International Accounting Department Credit Lines House attached to NBU NBU NBU Regional