The balance of the banking system accounts started this week with growth, as widely expected, as MinFin made UAH1.2bn of amortization and coupon payments from the VAT-OVDP on Monday (over UAH0.7bn of payments are to be executed today).
According to our estimations, not more than 25% of these VAT-bonds are held by foreign investors (the total amount being below UAH0.5bn). We thus do not think that the abovementioned debt redemption will result in any sizable amount of funds being converted into dollars and leaving the banking system.
O/N rates currently fluctuate around 18% and we expect them to stay close to the current levels in the near future, excluding only the last day of the month (when we usually see one day hike in rates).
However, volatility in O/N rates may increase, as the NBU’s one month ban on currency purchases for banks which breach reserve requirements came into effect on Aug 23. We think it may increase demand for short-term resources from small banks.