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Ukrainian Credit Unions Face Excess Liquidity Concerns as COVID-19 Cases Spike

Ukraine was already dealing with a major economic slowdown that reduced demand for new credit union loans when it was hit by a major spike in new COVID-19 cases in September.

As of this posting, nearly one-third of Ukraine’s COVID-19 cases have been diagnosed since September 1—with the highest concentration in rural areas of western Ukraine, where the credit union movement is the most widespread.

The dramatic rise in infections comes on the heels of a second quarter that saw the country’s gross domestic product (GDP) drop sharply.

The National Bank of Ukraine (NBU), which took over as the national credit union regulator on July 1, 2020, detailed those issues in a September 21 news release.

“As expected, the main factor in deepening the drop in GDP was a weakening of domestic demand. Low demand was a direct consequence of tight quarantine restrictions on economic activity and an indirect result of uncertainty over the future spread of the pandemic. Thus, households were less likely to buy non-staple goods and services, while businesses were inclined to postpone investment projects. As a result, consumer spending by households fell for the first time since 2015 (by 10.4% yoy)," the NBU stated in the release.

As a result, the NBU cut its key policy rate (interest rate) to help stimulate economic growth—leading banks to decrease their own deposit rates. That caused more people to bring cash to their credit unions, which are paying higher rates.

More deposits and fewer loans have resulted in excess liquidity—putting additional stress on credit unions’ balance sheets. Some smaller credit unions are now decreasing rates to reduce the flow of deposits.

World Council of Credit Unions’ Credit for Agriculture Producers’ (CAP) Project will continue to work with Ukrainian credit unions to help them get through the pandemic. The CAP Project has been providing virtual training on COVID-19 problem solving since April—training credit union staffers on minimizing conflicts with worried members, while still helping them achieve their goals and improve their sales.

The CAP team has also helped credit unions implement the “5C” loan methodology—specifically developed for Ukraine by World Council. The methodology calls on credit unions to evaluate the solvency of a prospective borrower based on five factors—character, capital, capacity, condition and collateral.

Additional training focused on time management and product presentation.