Central bank revises Ukraine C/A balance estimate to incorporate banks' reinvested income

The National Bank Ukraine (NBU) revised Ukraine’s C/A
deficit for 2017 to USD 2.4 bln from USD 2.0 bln as a result of improving the
methodology for estimating banking-sector foreign direct investment (FDI) with
regard to reinvested income, the regulator reported in its press release on
July 13. Meanwhile, the consolidated balance of payments did not change as
mirror adjustments were applied to the FDI item of the financial account.

Reinvested income is calculated on the basis of net
operating income for the banks with FDI. The income is adjusted according to
the share of foreign direct investment in the bank’s capital. The result is
subtracted from the primary income of the current account, while the same
amount is added to the “direct investment” item of the financial account. The
adjustments for 2017 and 1H18 amounted to USD 399 mln and
USD 308 mln respectively.

The NBU, together with Ukraine’s State Statistics
Service, is also intending to make calculations for non-banking sector
reinvested income and to incorporate to the balance of payments in the future.

Evgeniya Akhtyrko: The NBU is
continuing to improve the methodology for the better estimation of foreign
currency flows in the country. Recall, the NBU increased C/A balance for
2015-2017 by about USD 2 bln p.a. by improving the methodology for
estimating private remittances to Ukraine.

In 1Q18, out of 82 Ukrainian banks, 23 had foreign
capital. In terms of net assets, the share of banks with foreign capital in
Ukraine was 30.4%.

According to our projections, adding reinvested
banking sector income should enlarge Ukraine’s C/A current account deficit by
USD 0.7-0.8 bln in 2018.